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Riya Tayal | 19 May 2022

All You Need to Know About Tripartite Agreement

All You Need to Know About Tripartite Agreement

In recent times, the real estate sector in India has been experiencing a boom, with most people opting to invest in residential and commercial properties. Many real estate experts predicted that the COVID-19 pandemic would put a halt to the real estate market but, to everyone’s surprise, there is still a great demand for real estate in urban India. Thanks to the low rate of interest on home loans, many homebuyers in urban India are looking to purchase a property, as they see real estate as an excellent investment in the long term. 

If you are new to the real estate sector and willing to buy a property in India, you might have surely heard the term “Tripartite Agreement .”If not, then this blog will help you understand. Here, we will take a deep dive into the details that every homebuyer needs to know, especially when buying an under-construction property and planning to take advantage of a home loan. 

Meaning of Tripartite Agreement

When you buy a property in India that has already been constructed and is ready to move in, any agreement will involve two parties, i.e., the buyer (you) and the seller (property owner or property developer). But in some cases, the home buyer might wish to buy a property under construction and, to fund the real estate purchase, chooses to take a home loan from a bank or financial institution. In this case, the agreement will be between 3 parties, i.e., the buyer, the seller, and the bank. This kind of agreement is called a Tripartite agreement. 

A Tripartite agreement is a crucial element of flawlessly securing a bridge loan, and thus, it is a legal agreement in India between the buyer, seller, and bank. This agreement is mostly required when a buyer wishes to apply for a home loan to buy a property in India in an under-construction state at the time of loan processing. 

Top 3 Useful Circumstances for a Tripartite Agreement

There are multiple circumstances under which a Tripartite agreement can be useful:

1. When real estate is being sold, and the society is registered, creating a tripartite agreement between the buyer, seller, and society becomes mandatory.

2. If real estate has been bought from a builder and society has not been established during the resale, you will find much use in a tripartite agreement between builder, buyer, and seller.

3. In case of an encroachment on a property involving a home, farm, or land, a Tripartite agreement finds much use for establishing legal obligations.

Importance of Tripartite Agreement

A Tripartite Agreement is a legal document that specifies the responsibilities and obligations of all the parties involved in the real estate deal. It also elaborates on the various terms and conditions that one must follow while carrying out real estate transactions. 

At the time of creating the Tripartite agreement, a homebuyer must make sure that the agreement contains all the related information about the property and annexure for original documents. Also, the Tripartite agreement must be stamped in the state where the real estate is located. 

The agreement must act as an instrument for all the 3 parties claiming their part in the real estate deal. Apart from that:

1. It must state that the developer has not sold or entered into any agreement with the other party.

2. It must state that the developer is claiming to have a clear title to the land.

3. The agreement makes the developer liable to construct the property as per the approvals and specifications approved by the local authority.

4. The agreement must mention the perspective of all the 3 parties involved, i.e., the borrower, lender, and the developer.

5. A Tripartite agreement must mention the date of possession, sale value, stages, and progress of construction.

6. The agreement must have plenty of details if the booking is cancelled.

7. It must also have complete details on interest on the home loan, EMIs, and common area facilities to be given by the developer. 

What are the Advantages of Involving a Third Party in the Agreement?

The involvement of the third party who is indirectly associated with the real estate translation in the Tripartite agreement is advantageous in the following ways:

1. Later on, the third party cannot say that they were unaware of the transaction.

2. The legal heirs of the third party cannot challenge the transaction.

3. This convinces the bank or financial institution about the genuineness of the real estate transaction and therefore helps the borrower secure a home loan for a planned purchase of property in India. 

4. likely, that the borrower would not be willing to pay the developer or builder unless the construction work is completed in accordance with the agreed quality standards. However, the developer has to pay the architects, subcontractors, and electricians. 

There is, thus, a risk involved in non-payment by the buyer. In this situation, the builders must have a safety net to claim the costs that they owe to the subcontractors, architects, etc. The Tripartite agreement provides this safety net. In the event of non-payment by the buyer, the builder can claim a construction lien on the real estate. 

Finally, we would like to say that if you are planning to take a home loan for buying an under-construction property in India, it will be beneficial if you enter into a Tripartite Agreement. This agreement becomes useful when funds are loaned for real estate that has not yet been built and helps avoid future conflicts between the buyer, seller, and bank. 

Also Read: 10 Hidden Expenses of Home Ownership Every Homebuyer Need to Know


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