Ascertain: Real estate legal due diligence for manufacturing companies
Integrated solutions to guide your manufacturing strategy from concept to operation
India has not yet implemented the Torrens Title system (state-guaranteed title), that prevails in most Commonwealth countries, but maintains the Deeds Registration system i.e., execution of a deed to provide evidence of transfer as well as registration of the deed with the local land registry. Hence, the titling system in India is currently ‘presumptive’ and not ‘conclusive’. It is, therefore, imperative to carry out comprehensive legal due diligence to avoid disputes, conflicts, or penalties later.
India is a vast jurisdiction, and each state has its unique land laws. The legal due diligence process prior to the acquisition of land or a unit for manufacturing is different for each state (and also the language of the title and revenue documents). However, a broad overview is detailed below:
|Review of title documents
|To ascertain the 'root of title' from which the devolution of title to the
property would flow.
To ascertain the nature of title of the title holder, disclosed encumbrances and third-party interests, whether transfer in favour of holder is conditional or absolute, payment of adequate stamp duty, proof of registration etc.
|Review of revenue records
|Entries in the revenue records do not confer title to a property, nor do they have any presumptive value on the title. However, in the absence of or unavailability of title documents, these indicate devolution in favour of the title holder whether by way of heirship, partition, will, grant by government etc.
| Searches are conducted (sometimes through external independent
consultants) in the following governmental/ judicial fora:
- Searches in the office of the concerned local land registry (where the land is located) are undertaken to ascertain the persons who have or had title to the property by virtue of having registered instruments executed in their favour and ascertain registered encumbrances.
- Negative searches (generally online) in court records are carried out to ascertain if there are any litigations subsisting that affect title to the property or the ability of the title holder to deal with its title therein.
- Where the title holder is a company incorporated under the Companies Act, a search at the web portal of the Registrar of Companies, Ministry of Corporate Affairs, is carried out to ascertain if there is any subsisting charge created on the property.
- A debtor-based and asset-based search is conducted at the web portal of the Central Registry of Securitization Asset Reconstruction and Security Interest of India ('CERSAI). A debtor-based investigation ascertains any registered charges against the title holder, whereas an asset-based search ascertains any registered charges against the property itself.
- Computerized non-encumbrance certificates are issued in certain states like Andhra Pradesh, Tamil Nadu, Karnataka, Kerala etc.
|Corporate due diligence
|Additionally, a corporate due diligence is conducted on the title holder company to ascertain legal, regulatory and financial compliances, especially in cases where the whole title holder company is acquired instead of only the property held by it pursuant to an adopted stamp duty and tax-efficient structure.
|Inspection of original title documents
|Under Indian law, an equitable mortgage may be created merely by deposit of title deeds. Hence, original documents of title are inspected, and verification is sought that the same are in the title holder's custody.
|Often, manufacturing units are set up on industrial lands held by state industrial corporations wherein consent of such corporation is required prior to the acquisition, and a premium is to be paid in which case the bye-laws and notifications governing such corporations will need to be reviewed.
|Public notices are issued in local newspaper dailies (usually one in English and one vernacular language) inviting claims/ objections from third parties on the title to the property in order to prove the bona fides of the intending purchasers.
|Key approvals and permissions
|Certain key approvals and permissions relating to zoning and usage authorizations, occupancy certificates and building completion certificates in respect of the structures thereon, environmental clearances, utility facilities like electricity, water, sewage etc. are reviewed in order to ascertain that the property has all requisite compliances for setting up a manufacturing unit.
 Prahlad Pradhan & Ors. v. Sonu Kumhar & Ors.
In addition to the above, a site inspection is generally conducted to check possession, area, boundaries, access, easements over the land, etc., to corroborate the findings of the title due diligence.
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Technical due diligence of manufacturing units
Manufacturing and Industrial units are unique, and choosing the right real estate is crucial. With no pre-determined classification of properties, it is essential to understand the correct specifications for using the space. Choosing the right real estate option poses several questions.
Technical Due Diligence (TDD) is a vital tool to access the technical risks associated with any key transaction. Multiple factors determine if the strategic investment in setting up the manufacturing unit will yield the desired result. Knowing whether the building structure, fabric, and services will meet the current and future needs and associated risks is paramount to understanding the liabilities, limitations, and associated costs. The TDD service can answer several questions a manufacturer may have.
Your next read (Article 5 of 6)
'Develop: Project Management'
We will discuss the timelines, schedule and specifications that outline the facility development and how sustainability has emerged as a key differentiator
Yogesh Shevade – Head, Logistics & Industrial, India, JLL
Sushant Shetty – Practice Head - Real Estate & Infrastructure - Mumbai & Pune, Fox Mandal
Sikhya Babu – Senior Manager, Project Development Services, India JLL
Pranay Reddy – Director, Project Development Services - Projects, India JLL
JLL India would like to take this opportunity to thank Fox Mandal, Solicitors & Advocates, one of India’s oldest and reputed law firms, with one of the largest real estate practices in Eastern and Southern India with particularly strong expertise in due diligence, investment and acquisitions in real property including manufacturing units, commercial leases, logistics hubs, renewables projects and data centre advisory and having full-service offices in Bangalore, Chennai, Hyderabad and Kolkata.
We would also like to acknowledge the strategic and critical data inputs from Aditya Desai and A. Lakshmipathy of JLL PDS.
Contact Yogesh ShevadeHead, Logistics & Industrial, India, JLL
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