All You Need To Know About Release Deed

Law
25-Jun-2024
blog-img

Have you ever found property transactions to be complex and confusing? Property transactions are an integral part of our everyday lives and it’s not something that you can avoid when the need arises. Having a thorough understanding of the elements that make up property transactions can help you make sound decisions without any worries. 

One such important element of property transactions is the release deed. It plays a crucial role in ensuring that the transfer of property occurs smoothly. Let us understand the role of a release deed, the elements of a release deed, and whether you have the power to challenge a release deed in India.

What is a Release Deed?

A release deed is nothing more than a legal document used for property transactions in real estate. It is a formal agreement between the releasor and the releasee where the former releases his rights, interest, or claims in a property for the releasee.

Purpose

The release deed has multiple purposes that are outlined as follows:

  • When a new person buys a property, they do not want to acquire the existing claims or liens. The title should be clear before the property is transferred to them. In such cases, a release deed helps in clearing any existing interests or claims to ensure that the new owner gets a clear title.
  • Many people mortgage their property to get money in exchange during financial difficulties. Once the debtor settles all the dues, the lender produces the release deed to signify that the property that was mortgaged is free from lien.
  • Release deeds can be used to denote the termination of any agreement between two or more parties.
  • When a couple files for divorce, a release deed plays a significant role in the distribution of property where one spouse may have to relinquish his or her claims in favor of the other spouse once the divorce is finalized.

How Does a Release Deed Work?

Release deed is used in real estate scenarios. When you pay your mortgage before the stipulated time, you can ask for a payoff amount to assess the debt that is due for prepayments. Once this step is completed, a release deed of a formal nature will be issued to you. Keep this formal deed in a safe place as part of your other long-term records to use as and when the need arises. This deed will help you establish that there is no lien, charges, etc on your property and that you are the property owner in all respects.

Common scenarios where release deeds are used

A release deed is commonly used in the following scenarios:

  1. A release deed is used to transfer property rights among family members from one member to another. It is done so that that property remains within the family. Moreover, it helps in inheritance and succession planning too.
  2. When a couple jointly owns a property or more than one property, either spouse can choose to release their interest, claim, or right in the property to denote a legal and crystal-clear ownership transfer.
  3. When you borrow money from someone, you put your property as collateral. Once the mortgage is paid, the lender issues you a release deed. This release deed signifies that there is no existence of a lien on the property and that you are the undisputed owner of the full property.
  4. When two or more people own a property and choose to terminate their joint ownership, one party can issue a release in favor of the other(s) by transferring his share, right, interest, etc in the property to the other(s).

Type of Release Deeds

Different types of release deeds are as follows:

  1. Full Release Deed - In the context of a full release deed, a releasor releases all his rights, claims, or interest in the property in favor of another, that is the releasee. This is effective for the transfer of full ownership of the property from one party to another. Full release deed is typically used in family settlements. Once the full release deed is executed, the releasor cannot claim any right over the property.
  2. Partial Release Deed - In the context of a partial release deed, instead of the full rights, interests, or claims, only a portion of a releasor’s right in a property is transferred to the other person. This deed is typically used in co-ownership scenarios where one co-owner chooses to release a portion of his rights in favor of another or a third party. Once the deed is executed, the releasor retains only a few rights or interests in the property.
  3. Conditional Release Deed - In the context of a conditional release deed, the releasee has to fulfill the stipulated condition of purpose before the releasor releases the property rights in favor of the releasee. This deed is typically used in business transactions. In such transactions, the releasing of rights is connected to the performance or fulfillment of a condition. Hence, the deed becomes enforceable only when the stipulated conditions are successfully met.
  4. Release deed without consideration - In the context of release deed without consideration, a releasor transfers his right, interests, or claims in the property to the releasor without any monetary compensation. This type of deed is typically used in gifting properties to someone from the family or transferring properties to a charitable trust. However, it must be noted that even though the financial compensation is absent from the picture, the deed has to be legally executed and registered.

Legal Framework Governing Release Deeds in India

The rules governing release deeds in India are as follows:

  1. Transfer of Property Act, 1882 - This Act outlines the rules and procedures that must be followed for the effective transfer of property from one person to another in the Indian landscape. Moreover, it throws light on the rights and liabilities of both the transferor and the transfer along with the legal requirements that must be met for effective transfer of the property.
  2. The Registration Act, 1908 - This Act carries information about the registration process that must be followed in the Indian landscape. Moreover, it makes it mandatory to register the deeds of release, sale, mortgage, etc so that these deeds have validity in the eyes of law. Section 17 of the Act states that if the property value is more than Rs. 100, the release has to be registered.

Key Elements of a Release Deed

A legal document can be termed as a release deed only when it contains essential elements. If any of these essential elements are missing from the release deed, it will not be valid in the eyes of the law and fail to fulfill the purpose for which it was prepared.

Let us understand the elements that are indispensable for a deed to be categorized as a release deed:

  • Names - It is absolutely essential for the document to contain names of the releasor and releasee.
  • Addresses - The deed must contain the permanent addresses of the releasor and releasee and the data should be accurate.
  • The deed should provide some contextual information that sheds light on the reasons for the release. The deed should trace the history of the property or asset concerned and pinpoint the nature of the relationship or the transaction between the releasor and the releasee that resulted in the preparation of the release deed.
  • While most deeds of release do not have any monetary consideration, in case any monetary exchange takes place between the releasor and the releasee for the release, such amount has to be disclosed in the deed. The payment or compensation made can be nominal.
  • The deed has to outline the complete detail of the property or right in the question that is being released by the releasor. Certain details that must be included are:
  1. Legal description of the property.
  2. Address of the property or the asset.
  3. Any information that makes it easier to identify the property or asset in question.
  • The language should clearly state that the releasor has released the property in favor of the releasee and there is no existing claim, interest, obligation, or right of the releasor in the property or the asset.
  • The deed must contain the dates on which the reed of release becomes valid or applicable.
  • The deed must contain the signature of both parties that is the releasor and the releasee. When the deed of release is in relation to real estate, it should also include the names of witnesses. Moreover, the date on which the release deed has been signed must be present in the deed.
  • If there is any provision of the law that must be mandatorily included depending upon the nature of the deed of release such as the law that will have effect if there is a dispute between the releasor and the releasee and the mechanism that parties will choose to resolve their dispute.

Legal Implications of a Release Deed

The legal implications of a release deed are mentioned as follows:

  1. Ownership transfer

A release deed enables a releasor to legally release his claims, rights, or interest in the property in a seamless manner.

  1. Prevention of conflicts/disputes

Since a release deed contains necessary information related to rights, interests, or claims that are being released by the releasor, it minimizes the room for any future disputes or conflicts whether legal or non-legal. After the registration of the release deed, it acts as a safeguard for the involved parties.

  1. Inheritance and Succession Planning

Since many families in India follow a joint-family setup, many people use release deeds for inheritance and succession planning. A member of the family may decide to release his claim, right, or interest in the property in favor of another family member. This helps in smoothing out the property transfer within the family, hassle-free.

  1. Tax Implications

It is critical to note that a release deed may have tax implications even if it is executed without any monetary consideration. If the property value has increased over time than what it was at the time of purchase or acquisition, the releasor will be liable to pay capital gain tax. Similarly, he may be subject to other tax liabilities depending upon the nature of the transfer.

Process of Creating a Release Deed

The process of creating a release deed is discussed as follows:

Step-by-step guide to drafting a release deed

Step 1 - You must draft a release deed on a stamp paper of Rs. 100. Include all the relevant information such as names and addresses of the releasor and the releasee(s), property details, terms or release, and consideration, if there is any. You must ensure that the release deed adheres to the local laws and meets legal standards.

Step 2 - Now, you have to visit the sub-registrar’s office which is situated in the jurisdiction of the concerned property. The releasor and the releasee must be present when the deed is being registered. Not only that, but the presence of two or more witnesses is mandatory.

Step 3 -  Before the registration process begins, you have to pay the required stamp duty. The amount differs depending on the property valuation and the state where the property is situated. After this, submit the release deed to the registrar along with the necessary documents. Don’t forget to carry the original papers along with their copies.

Step 4 - Once the officials finish verifying the documents and the release deed, the releasor and the releasee have to sign the deed. The sub-registrar will be present during this process. Once he verifies the identity proofs, the release deed will be considered registered in the official sense.


Necessary documentation

A release deed will not be valid in the eyes of the law if some documents are not provided for its registration. So, the list of documents that must be produced for its smooth registration is as follows:

  • There should be an original deed of release that is signed by both the releasor and the releasee.
  • If the nature of the deed of release is such that it requires a copy of the lease or the sale deed, the same must be produced.
  • Tax receipt of the property of the asset in question.
  • If the registration requires a no-objection certification, the same must be collected from the concerned association or housing society.
  • A notarized affidavit of release.
  • The releasor and the releasee must produce authentic identification issued by the government such as an Aadhaar card or PAN card.

Stamp duty and registration fees

The stamp paper used for the execution of the release deed should be of non-judicial nature. The value of the stamp paper will depend upon the location of the property and the stamp act applicable in the scenario.

Similarly, the registration fees will be determined as per the location of the property and rules prescribed by the state.

Release Deeds in Family Relationships

Release deeds in family relationships are of two kinds. Let us understand them briefly:

Release Deed in Blood Relations

When a release deed is used in matters of blood relations, it is not very different from the ones used in the case of family members. However, unlike the transfer on a broad scale, this deed is used to transfer properties among direct relatives. For example, A being the father of child C, can transfer the property to C as they are direct blood relatives. The legal and tax treatment is separate in this type of deed. Sometimes, the stamp duty is even less depending upon the jurisdiction.

Release Deed Among Family Members

Sometimes, the release deed is prepared with the intent of transferring property among family members. In most cases, there is no monetary consideration in such release deeds. It is generally used to allocate properties among heirs or for the purpose of legacy planning. This has immense value in the context of families. However, when it comes to stamp duty and registration charges, it is necessary to comply with the legal and tax regulations.

Common Mistakes to Avoid

Some of the common mistakes that must be avoided in terms of a release deed are as follows:

  1. It is often noticed that parties fail to include accurate property details while drafting a release deed. This creates a lot of confusion and may become a cause of legal dispute at a later stage. For example, if the deed contains the wrong address, it can pose a significant challenge during the registration of the deed.
  2. Parties do not consider it important to take legal advice before drafting the registration deed. While parties can draft a deed themselves, they cannot ensure that it's legally binding and enforceable as a lawyer can. Moreover, a lawyer can throw light upon any significant issues or challenges that may arise at a later stage that is before or after registration.
  3. It is common knowledge that when two parties are involved in a legal transaction, a dispute can arise between them. If a clause related to dispute resolution is missing from the deed, it can create complications for the parties.
  4. Sometimes, parties fail to clearly outline the rights, claims, or interests that are being released which may create room for legal disputes in the future.

Frequently Asked Questions 

Q1. Is it necessary to register a release deed?

Yes, it is crucial to register a release deed otherwise the same won’t have any validity in the eyes of the law and result in ownership disputes between the parties at a later stage. Hence, to avoid any such situation, it is best to register a release deed as per Section 17 of the Registration Act, 1908, as soon as possible.

Q2. What are the rules for release deeds?

Some of the rules related to release deed are as follows:

  1. The release deed has to be registered with the sub-registrar in the place where the property concerned is situated.
  2. The release deed has to be executed on a non-judicial stamp paper.
  3. The release deed must contain the signatures of all the parties that are involved.
  4. The release deed must be attested by two or more witnesses.
  5. The release deed should carry all details related to the parties involved, properties, consideration, rights being released, and legal declaration.

Q3.  Can release deeds be challenged?

While you already know the essential elements that go into preparing a valid release deed, you must be thinking if the release deed can be challenged in traditional courts, right? Well, a deed of release can be definitely challenged in courts under the following scenarios:

  1. When it is found that the deed of release was executed through fraud where either one of the parties was defrauded.
  2. When it is found that the deed of release was executed through coercion where one party compelled the other party against his will to enter the contract using force or threat.
  3. When it is found that the deed of release was executed through misrepresentation where one party made a false statement of a material fact which influenced the decision of the other party.
  4. When it is found that the deed of release was executed without any consideration.

When a party challenges a deed or release in India, it is their duty to supply evidence to back their statement. Hence, it is important that both the releasor and the releasee read the document carefully before signing it.