Introduction
As per section 122 of the Transfer of Property Act, 1882, Gift” is the transfer of certain existing moveable or immovable property made voluntarily and without consideration, by one person, called the donor, to another, called the donee, and accepted by or on behalf of the donee.
Acceptance when to be made :
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Such acceptance must be made during the lifetime of the donor and while he is still capable of giving; and
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If the donee dies before acceptance, the gift is void.
The Gift Deed for property transfer involves the parties, stamp duty, features, and other contents, which are discussed in this blog.
When a person voluntarily gifts a property with no compensation in return, then there is a transfer of ownership under legal provisions. The gift is transferred through a “Gift Deed for property transfer,” which is a document containing all the details of the “donor” and “donee” and is protected by law for Gift Deed registration.
There are several procedures and circumstances that should be taken into consideration before making a Gift Deed for property transfer.
Gifting of under-construction Property:
It is a powerful act of legacy and financial planning to provide a future home for a family member. But when the asset involved is an under-construction property-that is, a flat or apartment for which the donor has in its possession only an Agreement for Sale-the transaction becomes unique. You are not giving away a physical structure; you are giving away the legally enforceable contractual right to acquire that property upon its eventual completion.
The short answer is that yes, an under-construction property can be gifted, but the process is governed strictly under the Transfer of Property Act, 1882, and has to be in writing to be valid and irrevocable.
Legal Basis Of The Gift
In the case of incomplete properties, a buyer mainly has the Agreement for Sale or an Allotment Letter with the developer. It is very valuable because it provides the contractual right to demand possession and ownership later.
When such a right is gifted, the Donor-that is to say, the giver-formally transfers all rights, benefits, and critically all liabilities arising from the original agreement to the Donee, or the recipient. Section 124 of The Transfer of Property Act, 1882 says that if a person makes a gift of both property he already owns and property he may acquire in the future, the gift is valid only for the property he presently owns. It is void for the future property because a person cannot transfer a gift that does not belong to him at the time of making it. In case of an under- construction property, if the donor already has a present legal right or ownership in the property (for example, through an allotment letter, builder agreement, or registered agreement giving him transferable rights), then he can gift that existing right. In such a case, the gift is valid because he is transferring his present interest.
Three necessary pillars of a valid gift
A gift, being a transfer of any immovable property right, has to meet three strict legal requirements:
- Transfer: Transfer means that the donor must voluntarily transfer ownership rights without expecting any monetary consideration in return.
- Acceptance: The donee must accept the gift during the lifetime of the donor and while the donor is still capable of giving.
- Registration: The transfer has to be done with the execution of a Registered Gift Deed under Section 123 of the Transfer of Property Act, which is imperative in the case of immovable property rights.
Landmark Judgments Confirming Mandatory Registration
The gift of an immovable property or any right relating to it is valid only if the relevant formalities of registration are fully complied with. Invariably, decided cases lay down that mere possession or an unregistered document is insufficient for a legal transfer of ownership rights.
The Supreme Court Standard on Registration
Case Law: Ghewarwala Jain vs. Rambilal Agarwal (2004)
The Supreme Court has time and again reaffirmed the law that any gift of immovable property has to be compulsorily registered in order to be valid. The document does not convey any title or right in favor of the donee, even if the gift has been accepted, in the absence of proper registration under the Registration Act, 1908. This is the underpinning ruling which assumes importance on the issues that no property, whether constructed or under construction, can be gifted with merely an unregistered agreement or affidavit.
Builder Consent and Contractual Assignment
The principles are that the courts look into the intention of the Gift Deed. It must state that the donor is assigning all his existing and future rights ensuing from the original Agreement for Sale to the donee, and the donee is to be the astringent party.
This comes from the builder through a Tripartite Agreement or an Addendum to protect the donee's claim against the builder in case of a discrepancy arising later on. If it doesn't exist, the builder can still hold the original buyer-developer/donor accountable for any problems with payment and possession. Realistic Barriers to Builder Consent: The Tripartite Agreement, giving an under-construction property, as opposed to a piece of jewellery, necessitates the active involvement and official authorization of the third party-the property developer. The Builder needs to legally acknowledge the transfer of contractual rights and obligations to substitute the Donor with the Donee. If the property does not exist yet, the builder can still make the buyer, who is also the developer or donor, responsible for any issues with payment and taking possession of the property.
Realistic Barriers to Builder Consent:
The Tripartite Agreement:
When we talk about a property that is still being built, unlike a piece of jewellery, the property developer has to be involved and give official permission.
The Builder needs to agree to transfer the rights and responsibilities of the contract to replace the original donor with the new donee, the person who is getting the property.
The developer will usually want:
The person who is giving something and the person who is getting something have to apply. They need to attach the paper that says the gift is real. This official paper is called a Registered Gift Deed. The Donor and the Donee have to sign this application with the Registered Gift Deed attached.
The Builder, the Donor and the Donee make a Tripartite Agreement. In this agreement, the Builder says that the Donors rights and liabilities now belong to the Donee. This is an important step. It means the Builder knows the Donee is the owner. The Builder will then give the possession letter and sale deed to the Donee. The Builder will put the Donee's name on these documents. The Donee will get the possession letter and the sale deed from the Builder.
Understanding the Inherited Liabilities
When someone gives you a house or a building that is not finished, it is not a good thing. The person who gets the gift, called the Donee, has to take the place of the person who gave the gift, called the Donor. The Donee has to accept all the problems that come with the house or building. The paper that says the gift is given, called the Gift Deed, has to say that the Donee is responsible for:
- Future Installments: All the remaining payments that are owed to the developer after the date of the gift.
- Taxes and Fees: Any further taxes involved, including GST, maintenance, and final registration fees.
- Mortgage/Encumbrances: If the Donor had taken a loan against the property, then if that mortgage is not discharged before the gift is made, the Donee inherits the obligation to clear it.
Key Risks That Need Due Diligence:
When an incomplete asset is being transferred, both the parties need to be aware of the following specific risks before the proceeding takes place:
1) Project Defaults: In case of any indefinite delay during the project, the donee inherits the risk. He gains the right to seek remedies against the builder under RERA, including the financial cost and time commitment of that suit.
2) Irrevocability: The gift, once the Gift Deed is registered and accepted, may not be revoked except if there are very narrow legal grounds to prove fraud or coercion. A change of heart by the Donor alone is insufficient.
Tax implications include that, though gifts amongst specific relatives are entirely exempt from income tax, the Donee will be subjected to capital gains tax on his eventual sale of the property, which is computed based on the acquisition cost inherited from the Donor.
Conclusion: Securing the Donee's Future
It is an effective legal tool for early wealth transfer, but it's conditional upon procedure. The courts are clear: the value of the gesture lies entirely within the compliance of the Registered Gift Deed and the formal Builder's Consent. During the course of the project, if it inherits the seriousness it deserves, meticulously complete the registration process, pay the stamp duty, and execute the Tripartite Agreement to secure the Donee’s future rights against all legal challenges.
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