Is Your Flat Free of the Builder's Bank Loan? What Karnataka's New Apartment Law Requires

One certificate from one bank. Under Karnataka's new apartment law, that is what stands between a Bengaluru flat buyer and the builder's project loan. If the project land is mortgaged, the bill says the flat cannot be conveyed until the lender issues a release or no-due certificate for that particular apartment.

The rule is in section 6 of the Karnataka Apartment (Ownership and Management) Bill, 2026. FoxMandal reported on 16 October that the law was gazetted on 15 October 2026 as Act No. 45 of 2026 after the Governor's assent on 9 October, and is not yet in force. We covered how a mortgage on a resale flat works under general property law in our guide to buying a mortgaged flat.

The short answer. The bill requires the promoter to disclose every mortgage or charge on project land in the declaration and in every deed of transfer. Where the land is mortgaged by the promoter, no flat can be conveyed without the lender's release or no-due certificate for that flat, and once it is conveyed on that basis, the earlier mortgage cannot affect it. After the declaration is registered and the first flat is conveyed, any new mortgage over the land or common areas as a whole is void as against flats already conveyed. Owners can mortgage their own flats; the association cannot mortgage owners' flats or common areas. The trade-off: the release certificate protects you, but it depends on the promoter clearing the lender for your unit, so a project under financial stress can still delay your registration.

What must the builder disclose about mortgages?

Section 6(1) says the promoter shall disclose in the declaration, and in every deed of transfer of an apartment, all mortgages, charges or other encumbrances affecting the land of the project. That makes the builder's financing visible in two places a buyer can ask to see: the declaration filed with the Competent Authority and the deed you sign.

For a buyer, the practical step is to ask for the encumbrance details before signing the agreement for sale, so that the lender's name and the release process are known well before registration.

When can a flat on mortgaged land be conveyed?

Section 6(2) says that where the project land or any part of it is subject to a mortgage, charge or other encumbrance created by the promoter, no apartment with its undivided interest in land and common areas shall be conveyed unless the promoter has obtained from the mortgagee or charge-holder a release or no-due certificate for that apartment.

Section 6(3) then gives the buyer the benefit: on conveyance in accordance with sub-section (2), the apartment shall not be affected by any mortgage, charge or encumbrance created by the promoter before the conveyance, provided the conveyance was done after the release or no-objection certificate for that apartment. Section 6(4) adds that the lender's rights over unsold apartments and the promoter's remaining interest are unaffected.

Can the builder borrow against the land after flats are sold?

Not over the land or common areas as a whole. Section 6(7) says that after registration of the declaration and conveyance of one or more apartments, no mortgage, charge or other encumbrance shall be created over the land of the project or the common areas and facilities as a whole, and any such charge shall, to the extent it purports to affect the apartments already conveyed with their undivided interest, be void.

This sits alongside the RBI's rules on how banks lend to builders, which we explained in our guide to RBI rules on bank loans to builders.

What about your own home loan?

Section 6(5) says an apartment owner may create a mortgage or charge on the apartment together with its undivided interest, in accordance with the laws on transfer of immovable property, and that such a charge shall not affect the apartments or property rights of any other owner. Section 6(6) says the association shall not create or permit any mortgage, charge or encumbrance on any owner's apartment or on the common areas.

In other words, your home loan is a charge on your flat alone, and, on the bill's terms, a neighbour's home loan does not affect your apartment or your property rights.

What does the deed of transfer have to do?

Section 10(1) says the promoter shall execute and register, in favour of the allottee or transferee, a deed of transfer of the apartment with its undivided, non-exclusive interest in the land and common areas, in the manner and with the particulars specified under the RERA Act and the Registration Act, and with additional particulars that may be prescribed.

Section 10(2) to (4) deal with a separate deed: once the association is formed and registered, the promoter executes a registered deed transferring management, maintenance and administration of common areas to it. That deed does not transfer ownership, which stays with the owners in proportion to their undivided interest. Section 10(8) says the promoter remains liable for all RERA obligations, including rectifying structural or other defects during the liability period. Section 52(1)(c) of the bill allows a penalty of up to Rs 1 lakh, and Rs 1,000 a day for a continuing failure, where a promoter fails to execute the deed of transfer under section 10.

What record does registration leave behind?

Section 10(6) says that when the deed of transfer and the management deed are registered, the registering officer forwards a certified copy to the Competent Authority for entries in the register kept under the Act. Section 10(7) says no deed transferring management of the common areas can be executed unless the association has been duly formed and registered. Section 10(9) adds that after management passes to the association, the promoter shall not keep possession or control of common areas, except as needed to complete remaining works under the sanctioned plan.

Together, these create a paper trail an owner or later buyer can rely on: a registered deed for each flat, a registered management deed for the common areas, and an entry for both with the Competent Authority.

What if you signed an agreement before the law starts?

Section 10(5) addresses this. Where sale agreements were executed before the Act's commencement but no sale deed had been executed for any apartment in the project, the Act applies when the sale deeds are executed. But if a sale deed had already been executed for any apartment in the project before commencement, deeds for all apartments in that project are executed under the laws in force before commencement.

So the date of the first sale deed in your project, not your own agreement date, decides which regime your deed follows. A worked illustration: if the Act were to commence on 1 March 2027 and the first sale deed in your project was registered in January 2027, your later deed would follow the earlier laws; if no deed had been registered by then, it would follow the new Act. The commencement date here is hypothetical.

What should a Bengaluru buyer check before registration?

Whether you are booking in a large township such as Kalyani Living Tree in Bagalur or a smaller building, these checks follow the bill's logic:

1. Ask the promoter to name any bank or lender holding a mortgage or charge on the project land.
2. Get an encumbrance certificate for the land and compare it with what the promoter discloses.
3. Ask how and when the lender will issue a release or no-due certificate for your unit.
4. Do not register the sale deed until that certificate for your apartment is in hand.
5. Check that your deed of transfer lists the encumbrances on the land, as section 6(1) requires.
6. Ask whether any sale deed has already been registered in the project, since section 10(5) turns on it.
7. Keep the release certificate, your deed and your lender's documents together for the life of your loan.

Frequently asked questions

Can a Bengaluru builder sell me a flat on land mortgaged to a bank?

Under section 6(2) of the Karnataka apartment bill, where project land is mortgaged by the promoter, no apartment with its undivided interest shall be conveyed unless the promoter has obtained a release or no-due certificate for that apartment from the mortgagee or charge-holder.

Will the builder's loan still affect my flat after I buy it?

Section 6(3) says that once an apartment is conveyed after the lender's release or no-objection certificate for that apartment, it shall not be affected by any mortgage or charge the promoter created before the conveyance. The lender keeps its rights over unsold apartments under section 6(4).

Can the builder take a new loan on the land after flats are sold?

Section 6(7) says that after the declaration is registered and one or more apartments are conveyed, no mortgage or charge shall be created over the project land or common areas as a whole, and any such charge is void to the extent it affects apartments already conveyed.

What must a deed of transfer of a flat contain under the new law?

Section 10(1) requires the promoter to execute and register a deed of transfer of the apartment with its undivided interest in land and common areas, with particulars specified under the RERA Act and the Registration Act, plus any additional particulars to be prescribed under the new law.

This article summarises the Karnataka Apartment (Ownership and Management) Bill, 2026 as introduced and a law firm's update on its enactment, for information. Dates in the worked example are hypothetical. The final Act and rules govern; it is not legal advice.

Last updated 2026-11-12. PropNewz Team.