Tripartite Agreement: Meaning, Importance and How it Works

Since 2010, the real estate market in India has experienced a boom with many people choosing to invest in residential and commercial properties. Industry experts were predicting that the pandemic might put a halt to this but, to everyone’s surprise, there is still a tremendous demand for real estate in urban India. Thanks to the incredibly low rate of interest on home loans, many first-time homebuyers in urban India are looking to buy a property, they see it as an excellent investment in the long term.  If you are one of the many first-time buyers that wish to buy property, by taking financial aid or a home loan, you will surely hear the term tripartite agreement. In this blog, we take a deep dive into the details that every property buyer needs to know, especially if you are buying an under-construction property and plan to take the assistance of a home loan!

What is a Tripartite Agreement?

If you are buying a property that has already been constructed and ready to move in, any agreement will normally include only two parties – the buyer (you) and the seller (property developer/owner). But in some situations, the buyer may wish to buy a property that is under construction and to fund the purchase, chooses to take out a home loan. In such a case, the agreement shall be between 3 parties mainly – the buyer, the seller, and the bank, this agreement is known as a tri party agreement Agreement.

This agreement is a critical element of seamlessly securing a “bridge loan” and thus, the tripartite agreement in India is a legal contract or agreement that buyers, banks, and sellers. It is mostly needed when a buyer wants to apply for a home loan to buy a property that is in an under-construction state at the time of loan processing.

Useful Circumstances for a Tripartite Agreement

There are several circumstances under which a tri-party agreement finds its use.

• When a property is being sold and the society is registered, it becomes necessary to create a tripartite agreement between the seller, buyer, and the society.
• In case a property has been bought from a builder and during the resale, a society has not been established, you would find much use in a tri party agreement between builder buyer and seller format.
• In case of an encroachment on a property including a land, home, farm etc., a tripartite agreement finds much use for establishing legal obligations.
• You will find use of a tri party agreement for sale of property format when a registered society has agreed to sell and buy and has no objection against the transfer of the flat and the subsequent change of ownership.
• You will also find use of a tri party agreement for third party payment format if a builder has been made a third party, and the builder itself becomes responsible for making a new society, new buyer, or an apartment.

Why is the Tri-Party Agreement Important?

“A tripartite agreement in India is important when purchasing under development property because, during the development phase, the buyer doesn’t get any legal property documents and that’s why developers are included in an agreement with the bank”, said Rohan Bulchandani, Co-Founder and President of Real Estate Management Institute

As with any legal and property documentation, a tri-party agreement in India has various terms and conditions that must be adhered to before finalizing the sale. One of the reasons why the format of the tripartite agreement is important is because the agreement clearly states the responsibilities regarding the construction and payments of all the parties. Before signing on the dotted line, the buyer must ensure that every key detail and all relevant information of the property is mentioned in the agreement and that the property developer presents the original documents such as the sale deed, dimensions, and area details about the property.

How Does Tri-party Agreement Work?

According to experts, a tripartite agreement is made to take a loan from the bank for the purchase of a property, which also includes the developer. As per the law, whether a buyer has bought a property or goes to buy a property within the project, any developer who builds housing societies must have to make a tripartite agreement in India with all buyers. Lastly, the buyers also need to make sure that the tripartite contract is stamped in a state where the property is located.

Key Details Mentioned in the tripartite agreement format for a home loan:

• All parties involved in the agreement.
• Purpose or objective of the agreement.
• The remedies and rights of the parties.
• Legal processes.
• The perspective of the buyer/Load taker.
• The perspective of the Bank/Loan giver.
• The perspective of the developer.
• Fixed selling price.
• Date of possession.
• Phases and process details of construction.
• Applicable interest rates.
• Equal monthly instalment (EMI) details.
• Information on penalties for booking cancellation.
• Consent on common features.

The tripartite agreement format must represent the seller or developer stating that the title of the property is clear. The agreement must also state that the developer is not in an agreement with another party for the sale of the same property. For example, complete legal details of the property have to be given. The tripartite documents must also include the developer’s obligation. The developer can only construct a building under the specification and plan approved by the local administrator. One can easily go through a sample tripartite agreement to under the more delicate details.

Don't Get Trapped: Protect Yourself with These Tripartite Agreement Tips

When signing a tripartite agreement, it is essential to ensure that all parties involved are protected. Here are some essential steps to follow to protect yourself:

Understand the Purpose of the Agreement

Before signing a tripartite agreement, it is crucial to understand its purpose. Tripartite agreements are legal documents that involve three parties, each with their specific role. They are commonly used in real estate, where a builder, buyer, and seller enter into an agreement.

Check for Legality

Ensure that the agreement is legally binding and has been drafted in compliance with Indian laws. NoBroker's legal services can help you verify the legality of the tripartite agreement you are signing.

Review the Confidentiality Agreement

Check for the confidentiality clause in the tripartite agreement. A tripartite confidentiality agreement ensures that all parties involved keep the terms and conditions of the agreement confidential.

Review the Terms and Conditions

Thoroughly review the terms and conditions of the tripartite agreement. Make sure that all parties involved have agreed to all the terms and conditions stated in the document.

Look for Dispute Resolution Mechanisms

Ensure that the tripartite agreement has a dispute resolution mechanism in place. This will protect you from future legal disputes.

It is essential to take steps to protect yourself when signing a tripartite agreement. Understand the purpose of the agreement, check for legality, review the confidentiality agreement, review the terms and conditions, and look for dispute resolution mechanisms.

Whether you are entering into a tripartite agreement for the sale of mortgaged property, a tripartite lease agreement, or a tripartite agreement for a home loan, NoBroker's legal services can help you protect yourself. With our expertise in real estate laws and experience in the industry, we can ensure that your tripartite agreements are legally binding and protect your interests. Contact us today to learn more about our legal services.

Tripartite Agreement Format

The tripartite agreement meaning ‘an agreement between three parties’ essentially includes the essential information of a transaction, its rights, as well as remedies, within its format. A tri party agreement format should have a clear title of the sale, as well as the term that the developer during the sale of a property will not enter into a new one with another party. As per the Maharashtra Ownership of Flats Act of 1963 for example, it is mandatory to fully disclose all the details relevant to the property being purchased, as well as the liabilities in constructing the building, approved plans, and sanctions specified. If you are wondering what is the tripartite agreement for home loan, the sample of for home loans from IndiaBullsHomeLoans.com shows clearly what the format looks like:

What Kind of Property Deal Requires a Tri-party Agreement?

The tripartite agreement format and the legal requirements are clear about which kind of properties need to sign it.

• When the owner sells an apartment or flat that is a part of a registered society, the parties will have to take permission before proceeding with the sale. 
•  A tri party agreement is important if the registered society finds out that the developer has sold the flat without notifying the society committee member. 
• A tripartite agreement between builder buyer and seller format, and the bank becomes necessary at the time of selling flats in the registered society.
•  A tripartite agreement format bank of Baroda also states between the buyer, seller, and the bank is required to be made aware of when flats are purchased from a developer, especially if the resale property is a part of a housing project where a registered society is not formed yet.

While these situations are a bit complex to deal with, the parties are not always obliged to find a suitable format for the tri-party agreement. They may choose not to get into it after agreeing with all the other party’s requirements and expectations.  It is important to note that each bank has its different format and tripartite agreement format SBI may be different from any other bank. You can download the sample tri party agreement directly from the respective bank website.

Advantages of Tri-party Agreement

• A third party that is indirectly related to the agreement may not take a stand that it is unaware of any such transaction.
• Even third-party legal heirs and successors cannot challenge the so-called transaction.
• Banks and other financial institutions are always ready for loan selection when they are convinced of the genuineness of the transaction.
• It also indicates that there are no arrears to be paid by the seller to a third party.
• Financial institutions and banks will easily provide housing loans and other types of loans after submitting a tripartite agreement with them.

https://www.youtube.com/watch?v=AvuPGFoXzoA&list=PL8ALKCUsagw07Cmc-1SoSoAWQ5loza9tZ&index=1

Other Uses of the Tripartite Agreement

A tri-party agreement in India may cover the property owner, the designer or architect, and the building contractor in some cases. Such agreements are called “no-fault” arrangements, in which all parties acknowledge to remedy their negligence or mistakes, and not to hold other parties responsible for any misunderstandings or omissions.

Tripartite Agreement for Sale of Mortgaged Property

A tripartite agreement for the sale of mortgaged property is a legal document between the borrower, the lender, and the buyer. It is crucial to protect yourself when entering into such an agreement. Here are some steps you can take:

• Check the tripartite agreement for sale of property Format

Ensure that the tripartite agreement has been drafted in the right format. NoBroker's legal services can help you with the tripartite agreement format.

• Verify the Seller's Credentials

Before entering into a tripartite agreement for the sale of mortgaged property, verify the seller's credentials. Make sure that the seller is the legal owner of the property and has the right to sell it.

• Check the Property's Encumbrances

Check the property's encumbrances before signing the tripartite agreement. This will ensure that there are no legal disputes over the property's ownership.

• Ensure that the Agreement Includes the Sale Price and Payment Schedule

The tripartite agreement must include the sale price and payment schedule to ensure that all parties involved are on the same page.

• Verify the Property's Title

Make sure that the property's title is clear and free of any disputes. NoBroker's legal services can help you with the verification process.

Tripartite Lease Agreement

A tripartite lease agreement is a legal document between the landlord, the tenant, and the guarantor. It is essential to protect yourself when entering into a tripartite lease agreement. Here are some steps you can take:

• Review the Lease Agreement Format

Ensure that the tripartite lease agreement has been drafted in the right format. NoBroker's legal services can help you with the lease agreement format.

• Check the Tenant's Credentials

Before entering into a tripartite lease agreement, verify the tenant's credentials. This will ensure that the tenant is a trustworthy person who can pay rent on time.

• Check for the Guarantor's Credentials

The guarantor is responsible for the tenant's payment obligations in case of default. Verify the guarantor's credentials before entering into a tripartite lease agreement.

• Review the Terms and Conditions

Thoroughly review the terms and conditions of the tripartite lease agreement. Make sure that all parties involved have agreed to all the terms and conditions stated in the document.

• Ensure that the Agreement Includes a Security Deposit and Maintenance Charges

The tripartite lease agreement must include the security deposit and maintenance charges to ensure that all parties involved are on the same page.

Alternate to Tripartite Agreement

If a situation where-in the third party does not wish to be a part of the “third party” in the agreement, it is necessary to obtain NOC (No Objection Certificate) showing its stand towards the ongoing transaction. In this way, the name of the third party can be deducted and NOC can be submitted in the legal office fee bodies while transferring the title of the piece of land from the name of the seller to the name of the buyer. The No Objection Certificate must include details such as the name of the third party, their position in the transaction, and the reason behind signing the NOC.

The blog covers every key detail of a tripartite agreement and aims to clear any doubt that a buyer may have about what aspects are included in the contract, the importance of the agreement, and different sample formats of the same. If you are a first-time buyer, you can get assistance from experts at NoBroker and stay stress-free about legal compliance. These experts are available to assist you round-the-clock and can be reached out via different ways such as the NoBroker website, mobile application, or email. 

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