Legal

Selling Property Via General Power Of Attorney: Is It Legal?

calendar25 May, 2021
timeReading Time: 4 Minutes
Selling Property Via General Power Of Attorney

In case an owner is open to cut you a lucrative deal by selling the property via a General Power of Attorney (GPA), a law-abiding & alert buyer would straightway refute the offer. In the year 2011, the honourable Supreme Court concluded that transferring property title through GPA would no longer stand legal.

Before we examine the SC order and provide an explanation regarding this topic, let us go through some basics of a general power of attorney.

Understanding Power Of Attorney and Its Types

By transferring power of attorney to someone, one renders them the right to execute certain legal errands on their behalf. It is the usual practice among Indian people living abroad to give POA to a trustworthy person to carry out their undertaking in their country of origin since it is cumbersome for them to travel frequently. Within a nation also, people appoint a POA as their representative to perform the specific task because of their compromised health.

  • Power of attorney, i.e. POA, is a legal instrument that simplifies the business undertaking for people who may otherwise be facing trouble in this context. In comparison, General power of Attorney transfer rights to the representative, a special power of attorney outlines the representative’s obligations on the principal’s behalf.
  • If you grant a general power of attorney to someone, they can address the basic liabilities such as paying utility bills, collecting rent, and managing disputes acting as your representative.
  • Through a Special Power of Attorney, i.e. SPA, the principal bestows certain rights to the attorney. If you direct the Special Power of Attorney to act as this legal representative for a certain purpose, it is only for the certain purpose the person will act as your representative.
  • A POA will stand invalid until and unless it is validated at the Sub-Registrar’s Office. Another crucial thing to note is that a POA will only serve the validity period until the principal’s life. One can cancel the POA within their lifetime.
  • A SPA cancels on its own as soon as the purpose for which it was executed is completed.

Power Of Attorney and Real Estate

  • Henceforth, it is evident from the above that POA is not a valid instrument for transferring a property title. But, selling property via general power of attorney had become common practice in India due to the monetary benefits it rendered.
  • Typically, a sale deed is executed for transferring property titles, after which the buyer has to pay registration charges & stamp duty. The seller is bound to confront the burden of capital gains tax applied to the transaction. By transferring property via a GPA, these charges can be averted.
  • From a seller’s viewpoint, a general power of attorney allows carrying the transaction even for the unclear property titles. From a buyers’ standpoint, they can afford a property at a much lower price than the market rate. They can also have a property that they otherwise may not leveraging this method.
  • Legally, agricultural land is not open to the sale for residential purposes without altering the land use. Most owners sell their land via GPA without getting into the legal hassle of conversion.
  • There are other lawful limitations that compel the owner to opt for GPA for property transfers. Most housing schemes of government are backed by a gestation period that discourages buyers from selling the property to another party for a specific timeframe.
  • To bypass this process, such units are transferred via a GPA. The GPA was also perceived as a medium to invest the accounted fund in real estate. In some scenarios, family’s members bestow property rights via general power of attorney. In many cases, an immature person falls prey to scams and invest in properties without considering the illegality involved in the process.

Underlining key points of the judgement of SC order of 2011

Underlining key points of the judgement of SC order of 2011
  • The honourable court strongly advised municipal bodies not to register property by considering GPA as the main document. According to the court’s order, a power of attorney shall stand invalid if used to transfer immovable property. However, the same is not true for genuine transactions, according to the court’s verdict.
  • Nothing restrained parties from getting registered deeds to complete the title. The said transaction may be used to defend possession under Section 53A of the Transfer of Property Act.
  • Following the order, states prohibited the properties’ registration via GPA. The court’s decision will slow down the movement of black money in the real estate domain, where tittles are manipulated. Also, many property transactions where prices have been already finalized will be affected.
  • After imposing an extensive prohibition on registration in 2012, the Government of Delhi allowed registration in favour of family members and any other relative of trust by registered owners.

What if you bought a property through a general power of attorney?

A registered sale deed legalizes the ownership of the property. The property transfer via GPA without a registered deed could end up in a legal conflict. Also, aware buyers may reject

What if you wish to buy a property via a general power of attorney?

Apart from the aforementioned issues, you may also find it daunting to get bank[1] finance. At present, banks are less likely to lend money for a property transaction, which is done via GPA. For banks, a clear property title is a pivotal requirement for lending money.

Conclusion

Soon after bestowing GPA, the representative becomes accountable for managing the owner’s estate and addressing basic liabilities, including paying loan and utility bills. One can also authorize an attorney to mutate the property via a general power of attorney.

It is evident from the above, the whole paradigm of property selling revolves around bestowing clear title for the same. Meaning – a property with a registered sale deed would only stand valid from a legal viewpoint. In this regard, the role of GPA is somehow limited as it will not give any legal effect to such a transaction. The court order to restrain property’s owners from selling property via GPA is indeed a welcome step. It will help in keeping illicit trade practices regarding property transaction under control.

Read our article:Significance of Cease and Desist letter in a Legal Purview

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