Explain in brief the various modes of the transfer of immovable property. How does a mortgage differ from a gift?

Question: Explain in brief the various modes of the transfer of immovable property. How does a mortgage differ from a gift? [RJS 1992]

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Answer

Transfer of property is regulated under the Transfer of Property Act, 1882. It includes both movable and immovable property. Section 5 of the Transfer of Property Act, 1882, defines the term “Transfer of Property” as an “act by which a living person conveys property, in present or in future, to one or more living person or to himself and one or more other living persons”.

While the Act does not define what “immovable property” is, it specifies what is excluded, namely, standing timber, growing crops or grass.

Definition of immovable property in other legislations:

a) General Clauses Act, 1897: Section 3(26) - “immovable property” to include land, benefits to arise out of the land, and things attached to the earth, or permanently fastened to anything attached to the earth.

b) The Registration Act, 1908: Section 2(6) - "immovable property" includes land, buildings, hereditary allowances, rights to ways, lights, ferries, fisheries or any other benefit to arise out of the land, and things attached to the earth or permanently fastened to anything which is attached to the earth, but not standing timber, growing crops nor grass.

Modes of Transfer

1) Sale:

Sale is defined under Section 54 of the Act and involves “transfer of ownership for consideration”. The rights and liabilities of the parties are provided in Section 55 of the Act. A sale deed must be compulsorily registered and stamped. Once a conveyance deed is executed and registered, the transferee gets the ownership and possession of the property. The tax implications vary based on the nature of the transaction and the property being transferred.

2) Mortgage:

Section 58 of the Act defines a mortgage as a “transfer of interest” in immovable property for securing repayment of money advanced or to be advanced. The owner of the property who creates the lien is the mortgagor, and the lender is referred to as the mortgagee. Mortgage can be through various modes, namely:

a. Simple mortgage

b. Mortgage by conditional sale

c. Usufructuary mortgage

d. English mortgage

e. Mortgage by deposit of title deeds

f. Anomalous mortgage

If the mortgagor deposits the title deeds as collateral for repayment of the loan, a mortgage is established by virtue of the deposit and is known as a "mortgage by deposit of title deeds” and does not require registration. However, if this mortgage is reduced to writing, then it has to be registered.

In a mortgage by conditional sale, the mortgagor ostensibly sells the property on the condition that:

a. on default of payment by a certain date, the mortgage shall become absolute; or

b. on such payment being made, the sale shall become void; or

c. on such payment being made, the buyer shall transfer the property to the seller.

3) Lease:

Lease is defined under Section 105 of the Act to mean a “transfer of right” to enjoy the immovable property

a. for a certain time (express or implied) or perpetuity, and

b. in consideration for a price paid or promised.

A lease of immovable property from year to year, or for any term exceeding one year, or reserving a yearly rent must be registered and stamped. For all other instances, an oral agreement along with the transfer of possession is considered adequate.

When creating a lease, it is important to clearly state whether the property will be used for residential or commercial purposes. The modes of determination of lease are provided in Section 107 of the Act. During the term of the lease, the tenant has exclusive control over the property and may sublet the premises to a third party unless expressly forbidden or restricted by the lease deed.

4) Exchange:

Exchange is defined under Section 118 of the Act and refers to a transaction when two persons mutually transfer the ownership of one thing for the ownership of another. An exchange can be made only in the manner provided for the transfer of such property by sale. An exchange deed must be registered and stamped. The tax implications vary based on the properties exchanged.

5) Gift:

Section 122 of the Act defines a gift as the transfer of (movable or) immovable property voluntarily and without consideration. Section 123 of the Act states that for a gift of immovable property, the transfer must be effected by a registered instrument signed by or on behalf of the donor and attested by at least two witnesses. The acceptance of the gift by the donee must be done during the lifetime of the donor, for the gift to be valid.

A donor cannot revoke or cancel a registered gift deed unless a provision to that effect is mentioned in the gift deed. A conditional gift deed under Section 126 of the Act is when the parties agree that the gift shall be suspended or revoked on the happening of a specified event which does not depend on the will of the donor.

How does a mortgage differ from a gift?

There are certain differences between a gift and a mortgage as a mode of transfer of property as both serve different purposes and have different legal and financial implications:

Gift as a Mode of Transfer of Property:

a) No Financial Obligation: A gift is a mode of transfer of property without any expectation of repayment. The donor voluntarily transfers ownership of the property to the recipient as a gift.

b) Ownership: Once the gift is given and accepted, the donee becomes the sole owner of the transferred property, with no financial obligation to the donor.

c) Legal Procedure: The transfer of property via gift may be of informal procedure.

d) Purpose: Gifts are typically given for reasons such as generosity, inheritance, or transferring property within a family. They are not meant to facilitate a financial transaction.

Mortgage as a Mode of Transfer of Property:

a) Mortgage: A mortgage is a loan transaction in which the property owner (mortgagor) borrows money from a lender (mortgagee) and uses the property as collateral to secure the loan.

b) Repayment: The borrower is required to repay the loan amount plus interest over a set period of time, often in monthly instalments.

c) Ownership: The borrower owns the property, but the lender has a claim on it until the mortgage is paid off in full.

d) Legal Procedure: Mortgages involve legal agreements, typically recorded through a deed of trust or mortgage contract. In case of default, the lender can initiate foreclosure proceedings to take possession of the property.

a) Purpose: Mortgages are used to facilitate property purchases when the buyer does not have sufficient funds to pay for the property outright. It allows the borrower to gradually pay off the property while living in or utilizing it.

In summary, the key distinction between a mortgage and a gift as modes of property transfer is that a mortgage is a financial transaction involving repayment obligations and collateral, whereas a gift is a voluntary transfer of property with no expectation of repayment. Mortgages are typically used to finance property purchases, while gifts are often used for non-financial purposes, such as inheritance or gifting property within a family.