Tripartite agreement meaning: How does it work?

[ecis2016.org] A tripartite agreement effectively states the relevant details of a housing loan or leasing transaction in an under-construction project. Here’s an analysis of what it entails

Buyers investing in under-construction properties invariably have to sign tripartite agreements while entering into a contract. Since there is a financial institution also involved in the process, there are a total of three parties in a tripartite agreement, which gives it this name.

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Tripartite agreements: How do they work?

According to experts, tripartite agreements have been established with a view to assist buyers with acquiring finance from banks against the planned purchase of a home from a developer.

“As per the law, any developer who builds a housing society must enter into a written tripartite agreement with every buyer who has already purchased or is about to purchase a flat in the project,” explains Vijay Gupta, CMD, Orris Infrastructures. “This agreement clarifies the status of all the parties involved in real estate transactions, and keeps a watchful eye on all documents,” he says.

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Tripartite agreements should contain the particulars of the subject property and include an annex of all the original property documents. Also, tripartite agreements need to be relevantly stamped subject to the state where the property is located.

What is a tripartite agreement?

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Terms and conditions of property deals, where a financial institution is also involved apart from the buyer and the seller typical, are laid under a different legal document, legally known as a tripartite agreement.

A tripartite agreement has to be signed by these three parties, when a buyer opts for a home loan to purchase a house in an under-construction project.

“Tripartite agreements have been established to assist buyers with acquiring loans for properties against the planned purchase of the property. Since the home/apartment is still not in the name of the customer until possession, the builder is included within the agreement with the bank,” states Rohan Bulchandani, co-founder and president, Real Estate Management Institute™ (REMI) and The Annet Group.

“In the leasing industry, tripartite agreements can be drafted among the lender, the owner/borrower and the tenant. These agreements usually state that if the owner/borrower is in breach of the non-payment clause of the loan agreement, the mortgager/lender becomes the new owner of the property. Furthermore, the tenants will have to then accept the mortgager/lender as the new owner. The agreement also restricts the new owner from changing any clauses or provisions of the tenants,” adds Bulchandani.

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When else is a tripartite agreement done?

A tripartite agreement is done when a person is selling his flat that is present in a registered society. So, there will be a tripartite agreement between the seller, the society where the property is and the buyer. Also, if the house has any encumbrance, like a mortgage, a tripartite agreement would be in order.

Tripartite agreements: Details mentioned in the document

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According to Bulchandani, tripartite agreements have to carry all the information mentioned below:

• Names of the parties to the agreement
• The objective of the tri party agreement
• Rights and remedies of the parties
• Legal implications
• The borrower’s perspective
• The developer’s  perspective
• Bank/lender’s perspective
• Agreed selling price
• Date of possession
• Stages and the progress details of construction
• Interest rate as applicable
• Equal monthly installment (EMI) details
• Agreed common area amenities
• Penalty details if the booking is cancelled

The tripartite agreement should represent the developer or the seller stating that the property has a clear title. Furthermore, the tripartite agreement should also mention that the developer has not entered into any new agreement for the sale property with any other party. For instance, the Maharashtra Ownership of Flats Act, 1963, requires full disclosure from the seller/developer to the buyer on all details as relevant to the purchased property. The tripartite agreement should also contain the developer’s liabilities to construct the building as per the approved plans and specifications sanctioned by the local authority.

Tripartite agreement for home loan: Advantages

As a tripartite agreement helps in applying for home loans, it also helps in doing the legal checks while investing in a property. With the help of documents presented by both, the seller and the buyer, to the bank, the bank does a check on any kind of illegality, thus, adding a safety net to the project in which a person is investing.

The tripartite agreement for home loan has all information regarding the property purchase deal, including the sale price, the EMIs to be paid, the interest rate at which the home loan is taken, any penalty that the buyer has to pay in case of booking cancelation of the property unit, etc. This acts as an important legal document, following which the developer cannot go ahead and sign an agreement with a new buyer for the same property. This again helps in eliminating fraudulent practices. Thus, signing a tri party agreement with bank is necessary.

Word of caution

Terms and conditions mentioned in such agreements could be complex and therefore, might be difficult to understand. It is advisable that the buyers seek the assistance of legal experts, to look into the document. Not doing so might lead to complications in future, especially in case of a dispute, or projects delays.

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