A Due Diligence Checklist Before Buying Commercial Property

Vikrant D. Shetty

Jun 10

10 min read

Updated: Aug 26

Business professionals conducting due diligence before a commercial property purchase in Mumbai

Due diligence before buying commercial property in India means verifying that the seller holds clear, marketable title, that the property carries no undisclosed encumbrance, and that its construction and use comply with applicable zoning and the Real Estate (Regulation and Development) Act, 2016 where the project is under construction. A title that appears clean on inspection can still conceal decades of disputes, an unregistered mortgage, or unauthorised construction that only surfaces after payment. This post sets out the areas of due diligence that most often catch commercial buyers off guard, from chain of title to seller-side verification.

Due diligence is how you verify that the property you are paying for is what the seller claims it is: legally, physically, and regulatorily. In our experience, buyers who skip or abbreviate this process usually pay for it later, through litigation, delayed possession, or a property they cannot use for its intended purpose.

This checklist covers the key areas of due diligence for commercial property purchases in India. It is not exhaustive. Every transaction has its own complexities, but it covers the ground that catches most buyers off guard.

The Due Diligence Checklist: What to Verify Before Signing

1. Title Verification and Chain of Title

The starting point of any property due diligence is title verification. You need to establish that the seller has clear, marketable, and unencumbered title to the property and the right to transfer it. This requires examining the chain of title, meaning the sequence of ownership documents going back at least 30 years, or to the original grant if the property is newer. Examine the original sale deeds, conveyance deeds, partition deeds, gift deeds, or any other document through which title was acquired at each stage. Look for any gaps in the chain, missing documents, or suspicious execution dates. A title certificate from a qualified lawyer, based on title search at the Sub-Registrar's office, is essential before proceeding.

2. Encumbrances, Charges and Liens

An encumbrance is any charge, lien, mortgage, or claim against the property that may affect the buyer's title or use of the property. An Encumbrance Certificate (EC) obtained from the Sub-Registrar's office shows all registered transactions against the property for the period covered. However, the EC is not foolproof; it captures only registered encumbrances. Equitable mortgages (created by deposit of title deeds) may not appear. A thorough search must also include a check with financial institutions and relevant government databases. Banks will typically require a clear EC before sanctioning a loan against the property; if a property carries an existing mortgage, ensure it is discharged before or simultaneously with your purchase.

3. Is the Under-Construction Project Registered With RERA?

If you are purchasing a commercial unit in an under-construction project, verify that the project is registered under the Real Estate (Regulation and Development) Act, 2016. In Maharashtra, check MahaRERA's website for the project registration number, the developer's registration details, the sanctioned plan, the declared completion date, and any complaints filed against the project. An unregistered project cannot legally be marketed for sale, and the developer can face significant penalties. Purchasing in an unregistered project also deprives you of the statutory protection RERA provides, including the right to a refund with interest if the developer defaults. For more on RERA remedies available when a developer delays possession, see our article on RERA remedies vs civil court remedies for builder delays.

4. Land Use, Zoning and FSI Approvals

Confirm that the land on which the property sits is zoned for the intended commercial use under the relevant Development Plan (DP) and Local Development Control Regulations. In Mumbai and the MMR, the Brihanmumbai Municipal Corporation (BMC) and MMRDA are the relevant authorities. Buying a commercial property that sits on land zoned for residential or industrial use, and expecting to use it for your business, can result in notices, fines, and, in the worst case, demolition orders. Verify the Floor Space Index (FSI) available and consumed, and check whether the construction has exceeded permissible FSI. Excess FSI construction is a common issue in older Mumbai buildings and creates major regularisation and litigation risk.

5. Does the Property Have an Occupation Certificate?

An Occupation Certificate (OC) issued by the municipal authority certifies that the building has been constructed in accordance with the sanctioned building plans and is fit for occupation. Many commercial properties in India are occupied without an OC, which creates regulatory risk, affects the buyer's ability to obtain bank financing, and in some jurisdictions, affects utility connections. Ask for the sanctioned building plan, commencement certificate, and OC. Verify that the actual construction matches the sanctioned plans. Unauthorized constructions (additional floors, extended floor plates, or changed use) are regularization risks that become the buyer's problem post-purchase.

6. Outstanding Tax Dues and Utility Arrears

Property tax dues, water charges, electricity arrears, and local body dues attach to the property and are inherited by the buyer unless expressly resolved before the purchase. Obtain no-dues certificates from the relevant municipal body, electricity supplier, and water authority. In Maharashtra, property tax dues can be verified through the BMC's or relevant municipal body's online portal. Unpaid dues that are not discovered at the time of purchase become the buyer's liability and can result in coercive recovery proceedings against the new owner. Ensure the sale agreement contains appropriate representations and warranties from the seller about the absence of such dues, and structure the payment in a way that allows verification before the final tranche is released.

7. Vendor Due Diligence: Verifying the Seller's Authority

Do not neglect due diligence on the seller itself. If the seller is a company, verify its incorporation documents, authorised signatories, board resolutions authorising the sale, and whether the company is facing insolvency proceedings before the NCLT. Properties sold by companies in CIRP require specific NCLT approval. If the seller is a partnership firm, verify the partnership deed and the authority of the selling partner. If the seller is an individual, verify identity documents and, in the case of jointly owned property, ensure all co-owners are parties to the transaction. Issues that arise from seller-side due diligence failures, such as an unauthorised sale by one co-owner, can result in protracted litigation similar to the disputes we discuss in our article on recovering outstanding business dues through commercial courts.

The Cost of Skipping Commercial Property Due Diligence

Due diligence on a commercial property purchase is the difference between a sound investment and a litigation waiting to happen. The checklist above covers the most important areas, but the depth of due diligence required will vary with the nature of the property, its history, and the transaction structure. A single-owner property with a short, clean chain of title requires less investigation than a property with multiple changes of ownership, partial family partitions, or a disputed development history.

Engage a lawyer experienced in commercial property transactions before you sign any document, including a letter of intent or an MOU. Many buyers discover title defects only after they have paid an advance that is difficult to recover. Front-load the legal work; it costs a fraction of what litigation costs.

Frequently Asked Questions

How far back should a title search go for commercial property in Mumbai?

A prudent title search examines the chain of ownership documents for at least 30 years, and further back to the original grant where the property's history is complex, such as ancestral or partitioned land. A shorter search increases the risk of missing an undisclosed encumbrance, a defective earlier transfer, or a competing claim that surfaces only after the purchase is complete.

What is the difference between an Encumbrance Certificate and a lawyer's title certificate?

An Encumbrance Certificate is a document issued by the Sub-Registrar's office listing registered transactions against the property for a specified period. A lawyer's title certificate is an independent legal opinion, based on examining the chain of title documents, the Encumbrance Certificate, and revenue records, confirming whether the seller holds clear and marketable title. The certificate is a registry record; the opinion is a professional risk assessment.

Can a buyer obtain bank financing for a commercial property that has no Occupation Certificate?

It is difficult. Most banks require a valid Occupation Certificate, or at minimum a clear regularisation pathway, before sanctioning a loan against commercial property, since the absence of an OC signals unresolved regulatory risk affecting the property's value as security. Buyers relying on financing should confirm OC status before making any non-refundable payment.

Is stamp duty on commercial property different from stamp duty on residential property in Maharashtra?

The stamp duty rate itself is generally the same percentage of the property's market value or agreement value, whichever is higher, regardless of whether the property is residential or commercial, though the ready reckoner rate used to value commercial property is typically higher per square foot than comparable residential property in the same location, which increases the absolute stamp duty payable on a commercial transaction.

What documents should a buyer insist on seeing before paying a token advance?

Before paying any advance, a buyer should obtain and review the title documents establishing the seller's ownership, the latest property tax receipt, the Encumbrance Certificate, the sanctioned building plan and Occupation Certificate where applicable, and, for under-construction property, the RERA registration certificate. Paying an advance based only on a broker's assurance, without independent document verification, is a common cause of disputes buyers later regret.

Does buying commercial premises within a co-operative society require the society's no-objection certificate?

Usually yes. Most co-operative societies require a No Objection Certificate before recording a transfer and admitting the buyer as a member, and the society's bye-laws may impose conditions such as clearance of outstanding dues by the seller or transfer fees payable at the time of transfer. Buyers should confirm the society's specific requirements early, since delay in issuing the NOC can hold up possession even after the sale deed is executed.

What happens if the seller conceals pending litigation involving the property?

A sale agreement concealing known litigation exposes the seller to a claim for damages or rescission, and the buyer, once aware, may be able to avoid the contract on the ground of fraud or misrepresentation. Because litigation does not always appear in registry records, buyers should ask the seller for written disclosure of pending or threatened litigation and, where the transaction value justifies it, search relevant civil court records involving the property or the seller.

Is GST payable on the purchase of commercial property, and who bears it?

GST applies to the sale of under-construction commercial property, since the transaction is treated as a supply of construction service, and it is typically charged by the developer to the buyer as part of the consideration under the agreement for sale. GST does not apply to completed, ready-to-use commercial property where a completion or occupation certificate has been issued before the sale, since transfer of a completed building falls outside the scope of GST.

Does due diligence differ when buying from a developer compared to buying from an individual seller?

The core areas, title, encumbrances, and regulatory compliance, remain the same, but buying from a developer adds RERA registration verification, checking the developer's track record and any pending complaints on the RERA portal, and confirming the construction-linked payment schedule. Buying from an individual seller places more weight on verifying the chain of title, succession status where relevant, and obtaining consent from all co-owners before payment.

Can a buyer purchase commercial property from a company that is undergoing CIRP before the NCLT?

Purchasing from a company under CIRP is possible, but only through the process the Insolvency and Bankruptcy Code, 2016 prescribes. Once a company is admitted into Corporate Insolvency Resolution Process, a moratorium under Section 14 generally bars alienation of its assets outside that process, and any sale of the company's immovable property ordinarily requires the approval of the resolution professional, and in many cases the Committee of Creditors or the National Company Law Tribunal, depending on the stage of the process. A buyer approached to purchase such a property should verify the company's insolvency status before proceeding, since a sale concluded without proper approval risks being unwound.

Why does exceeding the sanctioned Floor Space Index (FSI) create a legal risk for a commercial property buyer?

Floor Space Index is the ratio of a building's permitted built-up area to its plot area, sanctioned by the local planning authority such as the Brihanmumbai Municipal Corporation, under the applicable Development Control and Promotion Regulations. Construction beyond the sanctioned FSI is unauthorised and exposes the building to regularisation proceedings, penalties, or in serious cases demolition orders. A buyer acquiring a unit in a building with excess FSI construction can find their purchase affected by an enforcement action they had no part in, which is why verifying sanctioned versus consumed FSI is a standard part of due diligence.

How can a buyer detect an equitable mortgage created by deposit of title deeds, since it may not appear on the Encumbrance Certificate?

An equitable mortgage created by depositing title deeds with a lender is not always registered and can therefore be missed by an Encumbrance Certificate obtained from the Sub-Registrar's office, which records only registered transactions. A buyer should independently ask the seller to produce the original title deeds, since a lender holding them under an equitable mortgage would have retained the originals, and a seller unable to produce originals is a red flag. Written confirmation from the seller's bankers, and a specific representation in the sale agreement that no equitable mortgage exists, provide further protection against this gap in the registry search.

Is registration of the sale deed mandatory for a commercial property transaction in Maharashtra?

Yes. Under Section 17 of the Registration Act, 1908, a sale deed transferring immovable property valued above Rs 100 must be registered with the Sub-Registrar to be legally effective, and in practice this covers essentially every commercial property transaction. An unregistered sale deed does not pass valid title and cannot be relied upon as proof of ownership in most legal proceedings. Registration also requires payment of applicable stamp duty, and the two steps, stamping and registration, are typically completed together at the Sub-Registrar's office as part of completing the transaction.

What representations and warranties should a buyer insist the seller give in the sale agreement?

A commercial property sale agreement should ordinarily include the seller's representations that it holds clear and marketable title, that the property is free of undisclosed encumbrances, charges, or mortgages, that there is no pending or threatened litigation involving the property, that all property tax and utility dues are paid up to date, and that the seller has obtained any consents required, such as a co-operative society's no-objection certificate. These representations give the buyer a contractual remedy for damages or rescission if a specific statement later proves false, in addition to whatever the buyer's own due diligence uncovers before completion.