Joint Development Agreement: Roles of a Landowner and a Developer

• Joint Development Agreement has emerged as a popular model wherein the landowner and developer combine their resources and efforts to bring out the maximum productive result. For real estate development, huge investment is required in land acquisition, obtaining necessary sanctions (conversion, change of land-use) & development approvals from stipulated regulatory authorities, project construction and finally the cost towards sales & marketing activities.
• Present is the age of collaborative sciences, where the resources of different agencies are collaborated and out together for harnessing the expertise of different agencies. In Joint Development Agreement, the landowner and developer combine their resources and efforts to bring out the maximum productive result.
• The landowner’s investment is limited to clear-titled, marketable land suitable for development (no additional capital investment is required) while the developer comes with the expertise in development approvals, design and construction, finance, and marketing of the project. A landowner’s involvement in the Joint Development Agreement transaction is majorly prior to signing the Joint Development Agreement. To expedite the entire process, it is imperative for the landowner to understand the development potential of the land and assure title due diligence.
• Prior to registering a JDA, the potential developer partner will verify the title documents pertaining to the property. The developer will either conduct an in-house due diligence or appoint a third party or a combination of both to conduct a due diligence.
• The basic documents required to conduct a title due diligence include (i) ownership documents – sale deed, RTC documents, Mutation Register, (ii) Revenue Documents (iii) Survey documents – Tippani, Atlas, Village Map and (iv) Endorsements if applicable, (v) Up to date Encumbrance Certificate and tax paid receipts.
• Below is the list of preliminary documents necessary for a title due diligence. The below list is an indicative list and varies based on location, property jurisdiction, and method of acquisition.

List of documents required for title due diligence:

• Ownership Documents: These documents testify the ownership of the land.
  • Sale Deed, Partition Deed, Gift Deed – through which the landowner has or claims title to the property with the name, extent offered and the survey number.
• Revenue Documents: Revenue documents are issued by the Revenue Department and provide details of the extent, survey numbers, current and previous ownership detials, kharab, zoning, as well as the history of transactions pertaining to the subject land parcel.
  • Records of Rights, Tenancy and Crops (RTC): This document includes the ownership, measurement of land, extent of Kharab, nature of possession, type of land, encumbrance, if any.
  • Index of Lands and RoR: This document includes property details, owners of the property along with the nature of the possession.
  • Mutation Record: This document indicates the changes in RTC. Details about past owners / sellers are captured in this document.
  • Conversion Order: A conversion order is issued by the District Commissioner – Revenue Department and it confirms conversion of land from Agricultural purposes to Non-agricultural purposes.
• Survey Documents: Survey documents are issued by the Survey Department and include the property sketch, survey numbers and it’s partitions, details of the approach road, exact address – village, taluk details and any man made of geographic constraints.
  • Tippani: A hand drawn property sketch indicating the measurements
  • Hissa Tippani: This is a survey record showing the sketch of the entire survey number, total extent of the survey number along with the bifurcated portions and names of the owners corresponding to each bifurcated survey number.
  • Atlas: It is a sketch of the property issued in respect of any survey number after its bifurcation from a parent survey number. It includes measurement of the survey number.
  • Kharab Utaaru: The document provides details of kharab and its classification – A Kharab or B Kharab.
  • Village Map: Village Map includes village boundaries, survey numbers, lake, drains, valleys, green zones, and temples. This document holds the highest precedence with reference to the presence of any geographical constraints in the property.
• Endorsements: These are required as applicable
  • Endorsement under the provision of Karanataka Land Reforms Act – Nil Tenancy: A hand drawn property sketch indicating the measurements.
  • Endorsements under the provisions of Prevention of Transfer of Certain Lands (PTCL) Act, 1978.
  • Endorsements regarding acquisition from BDA, KHB, KIADB, BMRDA, BMRCL, STRRPA, BIAAPA, and BMICPA
• Other Documents:
  • Encumbrance Certificate: EC is evidence of free title / possession of a property.
  • Discharge of Mortgages: In case of any past or existing mortgages, the details of the loan available and closure of the loans must be provided.
  • Details of Litigations: In case of any litigations, copy of the plaint, written statements, entire order sheet, compromise petition – if any, judgment, and decree to be provided.

The required documents to facilitate the title DD have to be sourced from multiple agencies. A few of documents are available online on the Government portals namely Bhoomi, Dishaank, and Pahani. However, significant documents are required to be sourced from the respective departments. The process of title due diligence is time intensive and based on the availability of the documents the estimated time to complete the process ranges between 3 and 6 months. The list covers the basic documents essential for the due diligence and timely procurement of the documents can help reduce overall transaction time.

Meraqi’s Landowner’s Guide is a must read for a landowner evaluating partnership for a residential (apartment, villa, and plotted development project) and commercial (office) in Bengaluru on a Joint development Agreement (JD) basis. It is a comprehensive guide and includes all the pertinent clauses with regards to a Joint development Agreement. This document will facilitate the landowners from the inception in taking the decision, evaluating developer partners, structuring the transaction until project completion.

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Holiday Homes or Vacation Rental Homes have evolved at a brisk rate during the last 3 years in India. Rise in the preference for Holiday Homes is attributed to multiple aspects: improved connectivity, growth in domestic tourism, growing target audience, flexibility to work from anywhere, technology, transparency, and returns on investment. Holiday Home products have evolved significantly in terms of the product design and services offered.

With operators also offering fractional sale model, the product is becoming accessible to a larger target audience. Fractional ownership is owning a percentage of an asset that may grant the individual the benefits of usage rights and income sharing. In this model, the property is divided into shares or fractions, allowing multiple investors to own a part of it. Fractional ownership, which has been more popular in the Commercial Real Estate (CRE) or Office space, is seeing a gradual shift towards Holiday Homes as well.

How does Fractional Ownership work in Holiday Homes?

• A developer or a developer company develops the property (fully furnished apartment or villas). The property is held by a Special Purpose Vehicle (SPV) which sells the shares of the property, usually in a pre-agreed fractions for co-ownership.
• Under the terms of Fractional ownership in a Holiday Home, a single asset is jointly owned by multiple investors – generally 8 or 11 fractions. For an instance, in the case where a property is sold in to 8 fractions, each owner is entitled to use the property for 45 days and in case of 11 fractions it is usually around 30 – 32 days.
• The developer partners with an Operator which professionally manages and operates the property.
• Today, under the fractional ownership, Holiday Homes are available in two formats:
  • Exclusively for co-ownership – in this case the share owners have only the benefits from the property usage – as offered by YOURS
  • Co-ownership with the flexibility to lease out on short-term rent: in this case the share owners have only the benefits from the property usage as well as potential rental income. Brikitt, ALYF and SmartOwner are few such operators in this space.

Which locations are being preferred for Fractional Ownership?

• The Holiday Home or the Vacation rental home market in India is currently at a nascent stage. The preferred locations for investment on Fractional Ownership model are largely the established tourist locations namely Goa, Alibaug, and Lonavala in West Shimla – Kasauli, Dehradun – Rishikesh in North, Ooty & Wayanad in South and Darjeeling in East. In the coming 3 to 5 years, established locations will continue to be preferred for Fractional Ownership.

What are the advantages of Fractional Ownership Model?

• 1. Lower Ticket Size: The first and foremost advantage is owing the asset at 1/8th or 1/11th the value of the property. In the established locations, the share value for villas range between INR 50 Lakhs up to INR 2.5 CR and for apartments it ranges between INR 10 L and INR 25 Lakhs.
• 2. Professionally Managed: In the past three years, we have witnessed emergence of multiple operators that manage and operate the co-owned property. These operators ensure the property is well managed, assist in short-term renting and assist in sale and purchase of shares.
• 3. Access to the other properties operated by the Operator: There are a few operators that offer points basis the investment value (instead of specified days), akin to the model adopted by the Timeshare operators in the hospitality industry. Owners have easy exchange benefits and can rent properties other than the primary investment managed by the same operator.
• 4. Potential Rental Income: If the properties are rented out on a short-term rental basis, the annual gross rental yield can vary between 5% and 7%. The capital value appreciation for a Holiday Home in established locations has been significant – 12% – 15% per annum in the past three years; however, we estimate an average appreciation in the range of 5% and 7% per annum in the coming three years. The return on investment is expected to range between 10% – 15% annually.

How can an investor exit an investment?

Fractional owners can sell their units or shares as per their contract. The platform can sell to existing users or users looking to invest in these properties. Operating companies are likely to extend their support in sale and purchase of shares.

What are the key limitations?

(i) Limited right to the property (ii) As property shares are sold, raising finance or loan is not an option (iii) Not all the operators allow the fractional owners to let the property on rent (iv) Exiting the investment. These risks can be mitigated by opting for a reputed developer and opting for an established vacation destination for the investment.

To sum up, fractional ownership of Holiday homes in India is a very attractive substitute for traditional sole ownership. This model presents an affordable, practical, and easily accessible means for people to enjoy the benefits of Holiday Home ownership in aspirational locations. Its many property options, professional management, low time commitment, and potential for rental income are just a few of its many advantages. Looking at the benefits that Fractional ownership offers, we are likely to see emergence of operating companies entering this segment.

Fractional ownership of holiday homes, which is still at a nascent stage in India, is likely to gain more traction after the Securities and Exchange Board of India (SEBI) recently introduced guidelines to regulate all online platforms that offer fractional ownership of real estate assets.