Should I buy a property with no occupancy certificate but people living in it?

I am a 42-year-old woman intending to purchase a residential property in Mumbai. We have nearly finalized a particular property; however, during the process, it has come to our notice that the building has not yet been issued an occupancy certificate. The existing residents have stated that they have been residing in the premises for a considerable period without facing any difficulties. In these circumstances, I seek to understand whether it would be prudent and legally advisable to proceed with the purchase of such a property.

With property rates skyrocketing, it is strongly advisable for buyers to ensure that all documentation is proper and complete to facilitate a smooth sale and purchase process. An occupancy certificate, commonly referred to as an OC, is a crucial document that homebuyers must verify while investing in a property. As per Section 2(zf) of the Real Estate (Regulation and Development) Act, 2016, an OC is defined as a certificate issued by the competent authority permitting occupation of any building, as provided under local laws, which includes provisions for civic infrastructure such as water, sanitation, and electricity. In other words, an OC certifies that the building or infrastructure complies with the rules and regulations governing the property in question.

An occupancy certificate is issued by the local authorities and confirms that the property has been constructed in accordance with the approved plans. It permits occupation of the premises as it complies with the applicable safety regulations. Obtaining an occupancy certificate before occupying a building is mandatory; any violation constitutes an illegal act.

It is true that in India, there are several localities with numerous buildings that do not possess an OC, even though residents have been living there for many years. The primary concern with such properties is “uncertainty”, not only in relation to potential legal actions but also regarding safety hazards. Therefore, it is strongly advisable that, while purchasing a property, one must always verify whether an occupancy certificate has been issued.

Since such buildings are patently illegal, they may be directed to be demolished or declared illegal, which would not only result in a financial setback but also cause hardships for the affected people who would be forced to be relocated. Nevertheless, this is without prejudice to the rights of buyers of flats/properties/flat owners’ associations, as the case may be, to avail legal remedies by initiating proceedings before the RERA [Real Estate (Regulation and Development) Act, 2016] authorities and/or Consumer Dispute Redressal Forum.

The necessity of an occupancy certificate also arises from an insurance perspective, considering that insurance companies may, subject to particular terms and conditions in any given instance, require the OC before extending coverage to a property. Additionally, the absence of an occupancy certificate can create complications during resale, as buyers today are increasingly aware of the legal and regulatory aspects of real estate and prefer investing only in properties that are fully compliant with the applicable laws and regulations.

It is highly discouraged to invest in properties that lack proper documentation. As far as the occupancy certificate is concerned, it is one of the most important documents to be verified. At first, buying a property that has not been issued an occupancy certificate might not seem problematic. However, it is, in fact, a highly risky decision, considering that the occupation of such a property is illegal in the first place.

Aditya Chopra, Managing Partner and Fatima Ali, Associate, The Victoriam Legalis (TVL)