Table of Contents
- Agreement for sale vs sale deed
- What is an agreement for sale?
- Importance of agreement for sale
- What is a sale deed?
- Is sale deed the same as conveyance deed?
- Sale agreement at the time of property registration
- Supreme Court ruling on sale deed and agreement for sale
- Consequence of failure to execute a sale deed
Property sales are formalised in a stage-wise manner. One of the first documents that is executed, to provide a proper legal status to an understanding between a buyer and a seller, is known as agreement to sell or agreement to sale. This crucial legal document is also known as sale agreement. However, an agreement for sale should not be confused with a sale deed – while one is a deed another is an agreement and thus, different from each other.
Owing to some similarity in the two names, i.e., sale deed and agreement to sale, one tends to assume they may mean the same thing. However, a sale deed is quite different from an agreement for sale. We discuss the key differences between the two documents.
Agreement for sale vs sale deed
|Sale Deed||Agreement for sale|
|Sale deed is an actual transfer of property ownership||Sale agreement is a promise of a future transfer of property ownership|
|Sale deed includes information about both the parties (buyer & seller), their ages, addresses and other details||Sale agreement specifies the terms and conditions under which the property will be transferred|
|Sale deed gives the rights and interests in the property to the new owner.||Sale agreement gives a right for the purchaser to purchase the property in question on the satisfaction of certain conditions.|
|Buyer has to pay stamp duty and registration fee to execute a sale deed||Sale agreement precedes sale deed, signed and executed by the seller and buyer on a non-judicial stamp paper.|
What is an agreement for sale?
An agreement for sale, is an agreement to sell a property in future. This agreement specifies the terms and conditions, under which the property in question will be transferred. The Transfer of Property Act, 1882, which regulates the matters dealing with the sale and transfer of house property, defines the contract for sale or an agreement for sale as under:
“A contract for the sale of immovable property, is a contract that a sale of such property shall take place on the terms settled between the parties” – Section 54. Section 54 further provides that “It does not, of itself, create any interest in or charge on such property.”
From the above definition, it becomes amply clear that an agreement for sale contains a promise to transfer a property in question in future, on satisfaction of certain terms and conditions. So, this agreement itself does not create any rights or interest in the property, for the proposed buyer.
What the sales agreement creates, is a right for the purchaser to purchase the property in question on satisfaction of certain conditions. Likewise, the seller also gets the right to receive the consideration from the buyer on complying with his part of the terms and conditions.
In case of failure of the seller to sell or hand over possession of the property to the buyer, the buyer gets a right of specific performance, under the provisions of the Specific Relief Act, 1963. A similar right is available to the seller under the agreement, for seeking specific performance from the buyer.
Even though the signing of the agreement for sale does not mean the sale has been concluded, it is a crucial step in that direction. This is why buyers must be acutely aware of the terms and condition as mentioned in the agreement.
Importance of agreement for sale
Signing an agreement for sale becomes important in light of several factors. First, this is a legal proof of the buyer and seller entering into an agreement, based on which the future course of action would be decided, in case of a dispute. Also, if you are applying for a home loan, the bank would not accept your application till you sign an agreement for sale.
Recall here that both parties will have to abide by the conditions laid in the agreement to sale. Any party flouting any of the terms, as prescribed in the agreement, might be dragged to court, if the other party so wishes. All parties concerned should also be mindful of the fact that this document can be cited as a legal proof in the court of the law and all those who have agreed to abide by the terms are obliged to do so legally.
What is a sale deed?
A sale deed is a legal document that proves that the seller has transferred the absolute ownership of the property to the purchaser. Through this document, the rights and interests in property are acquired by the new owner. A sale deed usually consists of the following information-
- Details of the buyers and sellers (name, age and addresses)
- Property description (total area, details of construction, the exact address and surroundings)
- Sale amount including advance payment paid as well as the mode of payment
- Time frame when the property title will be actually passed to the buyer.
- Actual date of delivery of possession.
- Indemnity clause (The seller promises to pay the buyer for any damages in case of disputes with regard to the ownership, resulting in monetary losses to the buyer)
Is sale deed the same as conveyance deed?
Even though one often gets to hear the two terms being used interchangeably, a sale deed and a conveyance deed mean different things. The sale deed is basically a type of conveyance deed, considering the latter is rather a wide term, which also covers gift deed, exchange deed, mortgage deed, lease deed, etc. Basically, all these documents are various types of conveyance deeds.
“Each type of legal document that transfers the ownership of property from one person to another is a conveyance deal. In that sense, a sale deed is a conveyance deed too. Buyers should be mindful of this and should not get unduly confused, thinking that they need two documents for the property purchase rather than one,” says Prabhanshu Mishra, a Lucknow-based lawyer with expertise in property law.
Sale agreement at the time of property registration
At the time of property registration, home buyers also have to present, along with other key documents copies, the agreement to sell. Doing so is important, for the authorities to ensure that the transaction is being concluded, based on the agreement made between the buyer and the seller previously.
Supreme Court ruling on sale deed and agreement for sale
The sales agreement may or may not result into an actual sale of the property in question. Some of the stamp duty laws, like the Maharashtra Stamp Act, deem an agreement for sale of an immovable property, on the same footing as a proper deed of conveyance and therefore, are subject to the same stamp duty as is applicable on the proper deed of conveyance or sale deed of an immovable property. Due to such deeming provisions, requiring payment of stamp duty on an agreement for sale, people mistakenly perceive an agreement for sale, as a proper sale deed.
The Supreme Court of India in 2012, in the case of Suraj Lamp & Industries (P) Ltd (2) v State of Haryana, while dealing with the validity of sales of immovable properties made through power of attorney, has held as under:
“Immovable property can be transferred/conveyed only by a deed of conveyance (sale deed), duly stamped and registered as required by law. We, therefore, reiterate that immovable property can be legally and lawfully transferred/conveyed only by a registered deed of conveyance.”
“Any contract of sale (agreement to sell), which is not a registered deed of conveyance (deed of sale), would fall short of the requirements of Sections 54 and 55 of the Transfer of Property Act and will not confer any title, nor transfer any interest in an immovable property (except to the limited right granted under Section 53A of the Transfer of Property Act).”
According to the Transfer of Property Act, an agreement for sale, whether with possession or without possession, is not a conveyance. Section 54 of the Transfer of Property Act enacts that the sale of an immovable property can be made, only by a registered instrument and an agreement for sale does not create any interest or charge on its subject matter.
The Supreme Court further reiterated the importance of sale agreement between the builder and buyer, as it recently ruled that the period of allotment of a housing unit to a home buyer has to be considered from the date of the builder-buyer agreement and not from the date of registration of the project under the Real Estate (Regulation and Development) Act, 2016. The court further ordered the RERA authorities to order payment of compensation from the builder as per the sale agreement, the sanctity of which has been upheld through this order.
Consequence of failure to execute a sale deed
As per the Indian Registration Act, 1908, any agreement for transfer of any interest in an immovable property of value more than one hundred rupees, is required to be registered. So, if you have purchased any property under any agreement for sale, without it being followed by a proper sale deed, you do not get any right or interest in the property purported to be transferred under the agreement of sale.
This absolute rule is subject to the exception provided under Section 53A of the Transfer of Property Act. Section 53A provides that where the buyer has obtained possession of the property that is subject matter of the transfer, while fully complying with his part of the obligation under the agreement, the seller shall not be entitled to disturb the possession so granted to the buyer. It may be noted that Section 53A provides a shield to the proposed transferee against the transferor and debars the transferor from disturbing possession of the transferee, but it does not cure the title of the buyer to the property. The ownership of the property still remains with the seller.
So, in the cases where you have purchased any property under a sales agreement and got possession, the title of the property still remains with the developer, unless a sale deed subsequently has been executed and registered under the Indian Registration Act. Thus, it becomes clear that a title in an immovable property can only be transferred by a sale deed. In the absence of a duly stamped and registered sale deed, no right, title or interest in an immovable property, accrue to the buyer of the property.
What is agreement for sale?
An agreement for sale, is an agreement to sell a property in future. This agreement specifies the terms and conditions, under which the property in question will be transferred.
What is sale deed?
The sale deed is the main legal document by which a seller transfers his property right to the purchaser, who then acquires absolute ownership of the property.
What is the difference between agreement for sale and sale deed?
An agreement for sale is a promise in future, that the property will be transferred to the rightful owner while sale deed is the actual transfer of property ownership to the buyer.
(The author is a tax and investment expert, with 35 years’ experience)