Buying school and renting it to the same management.

This query is : Resolved 
 

(Querist)
05 July 2020

Dear Experts,

I am planning to buy a school (Land + Building) which is currently registered as a Society under Andhra Pradesh Societies Act and rent it out to the same management. Please note that, I am not planning to run the school at least for next few years, due to different obligations, so I am planning to rent it out to the current management as they are interested in running the school for next few years.

As the School is currently registered under Society, I am not sure what is the best way to buy and rent this school. Could any experts in this forum please answer below questions. Greatly appreciate your help on this.

1. Is it a good idea to create new trust with my family members as members and purchase the School (land/building) in the name of trust and rent the school to the existing educational society which currently owns the school? OR Is it better to buy this property as an individual (on my name) and create rental agreement?

2. Which is better between registering property under my name vs newly created trust name from cost/taxes perspective? In case of trust name, Do I need to pay Property registration charges of 7.5% ? For example, in Andhra Pradesh, the base Andhra Pradesh Stamp Duty rate of apartment/ flat is 5%, transfer duty is 1.5%, and the registration fee is 0.5 %

3. In future, If I want to sell the property then what is better option Purchasing the school on my name VS purchasing the school on trust name?

Thanks,
Kumar


Sudhir Kumar (Expert)
05 July 2020

1. Is it a good idea to create new trust with my family members as members and purchase the School (land/building) in the name of trust and rent the school to the existing educational society which currently owns the school?

YOUR WHOLE PLAN ITSELF IS NOT A GOO IDEA. IF SOMEONE IS NOT INTERESTED IN RUNNING A BUSINESS HOW THE CHANGE OF OWNERSHIP OF LAND IS GOING TO HELP.


2. OR Is it better to buy this property as an individual (on my name) and create rental agreement?

3. 2. Which is better between registering property under my name vs newly created trust name from cost/taxes perspective?

YOU CAN GO EITHER WAY. IN BOTH WAYS YOU WILL LOSE PROPERTY AS WELL AS PRICE.

THE MOLNEY WHICH YOU ARE GOING TO PAY AS PRICE OF LAND WILL PRACTICALLY BE A DONATION ONLY. IN RETURN YOU WILL GET NOTHING BUT HUMILAITION.

4. In case of trust name, Do I need to pay Property registration charges of 7.5% ?

YES

5. For example, in Andhra Pradesh, the base Andhra Pradesh Stamp Duty rate of apartment/ flat is 5%, transfer duty is 1.5%, and the registration fee is 0.5 % 3. In future, If I want to sell the property then what is better option Purchasing the school on my name VS purchasing the school on trust name?

WHO WILL ALLOW YOU TO SELL THE PORPERTY SO EASILY. YOU WILL BE PAINTED AS A VILLIAN INTENDING TO CLOSE A SCHOOL (OR PREVENTING RE-OPENING)

YOU WILL PAY A SUBSTANTIAL PART OF COST IN GETTING POSSESSION WITHOUT WHICH YOU CANNOT SELL.

Kumar (Querist)
05 July 2020

Hi Sudhir Sir,

Thank you for reply and I really appreciate your response on this.

I would like to clarify few things based on your responses. Currently the school is not running well with Low student enrollment so the current management has decided to sell the land and building so that they can pay some debt and continue to run the school. The current management gave advertisement that they are planning to sell the school land/buildings. Based on the advertising, I purchased the land and building as I thought I will get some monthly rental income. Please note I will be renting out the building/land to the same management as they are interested to continue to run the school and also it won't disrupt any day-to-day operations of the school.


1. Is it a good idea to create new trust with my family members as members and purchase the School (land/building) in the name of trust and rent the school to the existing educational society which currently owns the school?

: YOUR WHOLE PLAN ITSELF IS NOT A GOO IDEA. IF SOMEONE IS NOT INTERESTED IN RUNNING A BUSINESS HOW THE CHANGE OF OWNERSHIP OF LAND IS GOING TO HELP.

: I am buying the school land/building so that I will get some monthly rental income. Also, I don't have any experience in running schools so I had mentioned that "I am not planning to run the school for next few years" in my question and I think I should have been more clear with that statement, sorry about that.

3. 2. Which is better between registering property under my name vs newly created trust name from cost/taxes perspective?

: YOU CAN GO EITHER WAY. IN BOTH WAYS YOU WILL LOSE PROPERTY AS WELL AS PRICE.

THE MOLNEY WHICH YOU ARE GOING TO PAY AS PRICE OF LAND WILL PRACTICALLY BE A DONATION ONLY. IN RETURN YOU WILL GET NOTHING BUT HUMILAITION.

: I didn't understand this response "N BOTH WAYS YOU WILL LOSE PROPERTY AS WELL AS PRICE." - Could you please clarify? If I buy the school land/building from the current management (Society) and register on my name, why would I lose the property?

4. In case of trust name, Do I need to pay Property registration charges of 7.5% ?
: YES

: Thank you.

5. For example, in Andhra Pradesh, the base Andhra Pradesh Stamp Duty rate of apartment/ flat is 5%, transfer duty is 1.5%, and the registration fee is 0.5 % 3. In future, If I want to sell the property then what is better option Purchasing the school on my name VS purchasing the school on trust name?

: WHO WILL ALLOW YOU TO SELL THE PORPERTY SO EASILY. YOU WILL BE PAINTED AS A VILLIAN INTENDING TO CLOSE A SCHOOL (OR PREVENTING RE-OPENING)

YOU WILL PAY A SUBSTANTIAL PART OF COST IN GETTING POSSESSION WITHOUT WHICH YOU CANNOT SELL.

: The school currently has low enrollment and if it drops further in the next few years then there is a possibility that the current management may be unwilling to run the school and stop paying rent to me. In that case, I will have only two options Renting out to other businesses (non-schools) OR Selling the property. Do you think it will be difficult to sell the property even if it is registered on my name?

Rajendra K Goyal (Expert)
05 July 2020

Have you gone through the bylaws of the said society / trust?

Have you discussed various aspects with your lawyer, if yes, what are his views regarding the deal?

Why you want to proceed with the deal, for tax relief, for purchasing asset or otherwise?

Refer the registered deed / provisions of the said society, powers of various office bearers and whether the property can legally be sold as per provisions. If they want to run the institution, why they want to sell.

You can form a new trust and can purchase the school if present society has clear power to sell it.

Process in which less stamp fee has to be paid should be preferred.

Property in the individual name can be better option if want to sell.

P. Venu (Expert)
05 July 2020

This platform is meant for sharing knowledge, not tactics, that too, for defeating or hoodwinking the letter and spirit of law.

kavksatyanarayana (Expert)
05 July 2020

Who owns the land and building i.e. an individual or the Society? Usually in Educational Societies, there will be a clause regarding the transfer of its properties, such educational society shall obtain prior approval from the Income Tax Department. And the General Body of the Educational Society shall be approved by 2/3rds majority of the members present to the General Body meeting. And for educational society wants to sell the School which they running, permission from the Education Department. The application shall be submitted through the DEO concerned. And to purchase the land and building, you have to create a Trust meant for educational purpose or an Educational Society. so you have to contact the society members and also consult a local CA.

Sudhir Kumar (Expert)
06 July 2020

Have your ever heard :-

(1) an artisan selling his tool with hope of boosting trade by hired instruments.

(2) A farmer selling land with hope of getting a better fortune by investing his labour and resources at a rented farm.

(3) a soldier selling his gun with hope to give a tougher fight by rented weapon.

It can be smelt that the management is on FOOL HUNTING MISSION.


Anyway now you have revealed that you have already purchased the land.

It is strange as to how low turn out of students can be resolved by management by taking the same building ohn rent and increasing monthly expenditure.

I can see sub conscious or hidden motive of the management to find someone who can shell out money as cost of land without taking possession.

what option you have if they later on stop paying rent.

You will then go for eviction suit. You will first of all be painted as a Villain as seen in movies. Please see movie CHAMATKAR. Even parents and education deptt has locus standie to challence your action.

Then for filing eviction suit you have to prove ownership. Then they can very well argue based on some hidden clause of the trust deed that the sale of land was irregular by the previous office bearers and challenge your very title.

So you (may be even your children/grandchildren) keep feeding lawyers for larger part of remaining life.

If you want to give donation to school then do it honestly and get tax benefit as well.

Such tricks have potency to backfire.

Rajendra K Goyal (Expert)
06 July 2020

You said:
I purchased the land and building as I thought I will get some monthly rental income. Please note I will be renting out the building/land to the same management as they are interested to continue to run the school and also it won't disrupt any day-to-day operations of the school.

Reply:

You have already purchased the land and building, there seems no use of testing knowledge of advisers at this site. You have not cared to mention this fact in your initial query. At the time of purchase, you have paid the registration and other charges, no requirement of confirming same at this free site again and again. Seems time pass exercise from you.


You said:
I am buying the school land/building so that I will get some monthly rental income. Also, I don't have any experience in running schools so I had mentioned that "I am not planning to run the school for next few years" in my question and I think I should have been more clear with that statement, sorry about that.


Reply:

In your previous para you have clearly mentioned that you have purchased the land and building, what about furniture/ fixtures / other assets of school. Previous Management would have hold of the same.

Rajendra K Goyal (Expert)
06 July 2020

You said:
I didn't understand this response "N BOTH WAYS YOU WILL LOSE PROPERTY AS WELL AS PRICE." - Could you please clarify? If I buy the school land/building from the current management (Society) and register on my name, why would I lose the property?

Reply:

Full legal provisions need to be referred whether such property can be sold / again and again sold or not, if yes how? Whether such procedure was followed? If any provision is overlooked, title may not pass legally / absolutely.

Rajendra K Goyal (Expert)
06 July 2020

You said:
The school currently has low enrollment and if it drops further in the next few years then there is a possibility that the current management may be unwilling to run the school and stop paying rent to me. In that case, I will have only two options Renting out to other businesses (non-schools) OR Selling the property. Do you think it will be difficult to sell the property even if it is registered on my name?

Reply:

School is not giving proper return, hence sold by management. Whether school can be closed if you opt to sell it out?

Whether State would permit such step?

What about students / staff / assets if you want to resale the property.

Try to analyze the rules in this respect.

Kumar (Querist)
06 July 2020

Sir...when I say purchased, I just paid the token advance to them and I didn't pay the full amount. The school management told me that they would register it on my name only after paying the full amount so the registration process has not yet started. My sincere apologies for not mentioning this clearly and causing confusion.

All the members of the society unanimously agreed to sell land/building. Do I or Society need to get permission from Education department OR Income Tax Department OR District Court if the Society wants to sell the property to an Individual?

Why you want to proceed with the deal, for tax relief, for purchasing asset or otherwise?
Kumar --- for purchasing asset.

Who owns the land/building i.e. an individual or society?
Kumar --- I verified the Encumbrance certificate in the government portal and the land/building is registered under the name of "Secretary/Correspondent XXXXXX Educational Society"

My main concern is how I can correctly register this property under my name so as to avoid any future complications and What kind of approvals/permissions are necessary from executive/legal authorities before registering the property in sub registrar office?

Thank you all for responding and all your responses helped my a lot.




Sudhir Kumar (Expert)
06 July 2020

@ experts.

He is bent upon losing money and land. Its OK for him then no amount of advise can help him.

He is asking

how I can correctly register this property under my name so as to avoid any future complications"

reply is

no way. whole proposal is invitation of complication and future enrichment of lawyers.

Rajendra K Goyal (Expert)
06 July 2020

Since this is a question of huge investment, it would be better to show all related documents i.e. society bylaws, powers of management, school registration documents, conditions if school has to be closed and such other related documents, to some senior local lawyer dealing in society matters and discuss in detail. Also discuss with district education department.

Dr J C Vashista (Expert)
08 July 2020

It would be appropriate to consult a local prudent lawyer with relevant documents/ records for proper analyses and professional guidance.

Kumar (Querist)
08 July 2020

Thank you all, Appreciate your inputs. Based on all the responses, I will consult a local lawyer about this matter.

Rajendra K Goyal (Expert)
08 July 2020

You are welcome, may revert in case of any further question.



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