Prem PRAKASH RAI (ENGINEER) 05 November 2013

Building contract between friends

Sirs,

I am a salaried government professional(Mr. A). I have my friend( Mr B) who owns a land in the city. Now we are planning to construct an apartment/Multi story building on the land. As my friend owns the land, he wants me to invest financially in the construction of the building and we will be sharing the profit later. I will have to take loan from bank for making investment in the construction. Now, suggestion that i need is that:

1) How can i get loan for construction on a property that is owned by my friend.

2) What are the legal formalities that i need to complete in order to avoid any mess at later stages as my investment in this project would be a major decision of my life.

3) What are the major points that i shall keep in mind while deciding the shares that we will be dividing among us as the load that i will take from bank will also attract interest charges and I will not be receiving any money till completion of the project.

4) What happens to the ownership of the land/ what options are available for the ownership of the land in case of agreements like this.

I am new in this field and will be working with my friend for benefit of both of us. Suggestion from experts is highly solicited in this matter. Thanks in advance.

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3 Replies

BAALASUBRAMANNYAMM (Advocate) 05 November 2013

Your simple question will clarifies 100 doubts. It is not so easy to know all the doubts in a single para. It is better to consult an experienced person in the construction field. But any how I am giving you some points.

(1) You are not eligible for Project loan from the Bank. You can get only mortgaged loan on the proposed property.

(2) You should verify whether the said property is a legally valid property or not

(3) If so go for building permission.

(4) Then marketing. Execution of Sale Agreements/Sale Deeds etc.,

(5) And so many aspects, you have to follow.

Advocate Ravinder (Advocate/Attorney) 05 November 2013

This is called development of the property. Normally for development there will be owner and builder. Your friend will be the owner and you will be the Builder. Your friend will not have to take any risk. He will take his 40% built up area (which includes land area) and the Builder is entitled to take 60% of the built up area. The whole responsibility of construction, electricity, water, drainage, building permission will be of the builder. This is the procedure generally followed in cities. But you can alter the terms and conditions of the development agreement as per your convenience and accordingly the rate of sharing the built up area will change.