Snapshot: negotiating real estate M&A transactions in India

Negotiation

Non-binding agreements

Are non-binding preliminary agreements before the execution of a definitive agreement typical in real estate business combinations, and does this depend on the ownership structure of the target? Can such non-binding agreements be judicially enforced?

Non-binding preliminary agreements such as term sheets, memoranda of understanding and letters of intent are typically executed prior to the execution of the definitive agreements, and the negotiation and finalisation of the definitive agreements. Non-binding preliminary agreements are primarily executed so that parties can obtain a brief outline of the commercial entities involved in the real-estate transaction to be pursued, the proposed rights and obligations of the parties, and the larger commercial understanding sought to be achieved in such a transaction. Generally, the clauses related to the exclusivity and the confidentiality are made binding on the parties. Where these preliminary agreements are followed by payment of advances, these preliminary agreements are binding on the parties. The clauses that the parties decide to make binding can be judicially enforced in a court of law.

Typical provisions

Describe some of the provisions contained in a purchase agreement that are specific to real estate business combinations. Describe any standard provisions that are contained in such agreements.

Purchase agreements for real-estate transactions that involve the purchase of shares, investments in an entity or the purchase of immovable property typically contain representation and warranties (R&Ws) concerning the title of the immovable property and the shares. Other R&Ws that are included in purchase agreements for real-estate transactions include, but are not limited to:

• obtaining and maintaining the status and validity of approvals such as development licences;
• the development potential of the immovable property;
• existence or non-existence of third-party rights or any other encumbrances;
• existing or threatened litigation;
• development restrictions on the immovable property such as not falling in forest zones, or subject to Archaeological Survey of India restrictions or other statutory and regulatory restrictions and the like; and
• compliance with laws such as environmental laws and local land laws.

These R&Ws are generally followed by highly negotiated indemnity provisions in the definitive agreement.

Stakebuilding

Are there any limitations on a buyer’s ability to gradually acquire an interest in a public company in the context of a real estate business combination? Are these limitations typically built into organisational documents or inherent in applicable state or regulatory related regimes?

A buyer’s ability to gradually acquire an interest in a public target is subject to certain compliances prescribed under the SEBI (Substantial Acquisition and Takeover of Securities) Regulations 2011 (the Takeover Regulations) to ensure the protection of the interests of the…