Purchasing a property is a significant financial and legal commitment, making it essential to navigate the process carefully. One crucial step in this journey is drafting a well-structured sale agreement, which serves as the foundation for a smooth transaction. This document helps set clear expectations between the buyer and seller, minimising potential conflicts. In this article, we delve into the key aspects of a sale agreement, its significance, and how to draft it effectively to ensure a hassle-free property purchase.
What is a sale agreement?
Also known as an agreement for sale, a sale agreement is a legally binding document that outlines the terms and conditions of a property transaction between the buyer and the seller. It serves as a preliminary agreement before the actual sale deed is executed. The document includes details such as the agreed sale price, payment schedule, possession date, and other mutual obligations. It ensures that both parties are on the same page and establishes a commitment to complete the transaction under the specified terms. While it does not confer ownership, a sale agreement is crucial as it forms the basis for drafting the final sale deed.
Sale agreement vs sale deed: What’s the difference?
Although often confused, a sale agreement and a sale deed serve distinct purposes in a property transaction.
- Sale agreement: This is a preliminary document that outlines the terms and conditions agreed upon by the buyer and seller before the final transaction takes place. It includes details such as the sale price, payment schedule, and responsibilities of each party. However, it does not transfer ownership or any legal rights to the buyer.
- Sale deed: This is the final document that legally transfers ownership of the property from the seller to the buyer. It is executed after the terms mentioned in the sale agreement are fulfilled. The sale deed is registered with the appropriate authorities, making the transaction legally enforceable.
In essence, the sale agreement establishes intent, while the sale deed finalises the transaction and ownership transfer. Both documents are integral to a seamless property purchase process.
Importance of a sale agreement
A purchase and sale agreement is crucial for ensuring smooth and clear transactions. Here’s why it’s important to use one:
Prevents misunderstandings
Having a formal contract in place ensures that all details, even those not previously discussed, are clearly outlined, preventing confusion. Even when both parties have a good rapport, it’s safest to document the terms in writing, particularly if the agreement was made informally or over the phone.
Offers legal protection
A sale agreement clarifies the rights and responsibilities of both parties. By specifying the terms and conditions, it provides legal protection that can be enforced if disputes arise. This framework ensures both parties are held accountable and offers a means to resolve any conflicts.
Clarity and structure
The agreement outlines the entire transaction process, making the expectations and timelines clear for both the buyer and seller. This structured approach helps prevent miscommunications, ensuring a smoother and more organised transaction.
Risk management
A purchase and sale agreement helps manage potential risks by outlining conditions and contingencies such as inspection requirements, financing terms, or specific deadlines. Addressing these concerns upfront reduces the likelihood of surprises and allows both parties to make informed decisions.
Limitations of purchase and sale agreement
While a sale agreement provides many advantages, it also has certain limitations that you should consider:
Not a final transfer document
A sale agreement establishes the terms and conditions of the deal but does not complete the transfer of ownership. The actual transfer typically occurs through a separate document, such as a deed in real estate transactions or a bill of sale for goods. This means that while the agreement lays the foundation, additional steps are necessary to finalise the transaction.
Possibility of renegotiation
The terms in a purchase and sale agreement may need to be revised before finalising the deal. This could happen due to new information uncovered during due diligence or changes in market conditions. Consequently, the negotiation process might extend, causing delays in closing the sale.
What does a sale agreement include?
When drafting a purchase and sale agreement, it’s crucial to include the following elements to ensure clarity and enforceability:
- Identity of the parties: List the full legal names and contact details of both the buyer and the seller to clearly identify the parties involved in the transaction.
- Purchase price: State the agreed-upon price for the sale, including any relevant details about the pricing structure, such as whether it includes taxes or additional fees.
- Payment terms: Specify the payment method and schedule, whether cash, financing, or another form of payment. Include conditions attached to the payment, like deadlines.
- Description of the property: Provide a detailed description of the property being sold, ensuring clarity by specifying characteristics, quality, and any distinguishing features to avoid ambiguity.
- Delivery terms: Outline when and how the goods or property will be delivered or transferred, specifying delivery dates, methods, and the responsibilities of each party.
- Closing date: Mention the exact date when the transaction will be completed, marking when the transfer of ownership and final payment will take place.
- Warranties: Specify any guarantees provided by the seller concerning the quality or condition of the property.
- Definition of terms: Include a section to define key terms used throughout the agreement, ensuring all parties have a consistent understanding of the terminology.
- Dispute resolution: Outline the process for resolving disputes, such as arbitration or mediation, and specify the legal jurisdiction for any court proceedings.
- Deposit amount: Clarify any deposit or earnest money required, the amount, where it will be held (usually in escrow), and the conditions under which it may be refunded or forfeited.
- Contingencies: List any conditions that must be fulfilled for the sale to proceed, such as inspection results, financing approval, or property appraisal.
- Penalties for Default: Specify penalties or actions to be taken if either party defaults on the agreement without a valid reason, which may include financial penalties or other remedies.
Key clauses in a sale agreement to pay attention to
Certain clauses in property sales agreements require close attention, as they may not always work in your favour. Here are some critical ones to watch for:
- “As is, where is” Clause: This means the property will be handed over in its current condition, without any repairs or modifications from the seller.
- Access restrictions: Some agreements may state that buyers can only access the property after full payment, limiting pre-purchase inspections.
- Right of way: If applicable, you may need to allow others access through parts of your property, such as shared pathways or stairs.
- Lease clauses: If the property is leased, ensure the terms clarify that the sale won’t negatively impact the tenant or buyer.
- Mortgage details: Confirm who is responsible for settling any loans tied to the property.
- No dues certificate: Verify that the seller provides proof of no outstanding dues on the property.
- Title verification clause: If the buyer finds issues with the title, the seller must refund any advance payments within seven days, potentially with interest if delayed.
When purchasing a property still under construction, pay special attention to:
- Delivery timelines: Insist on precise handover dates rather than vague timelines.
- Tax responsibilities: Confirm whether the builder’s quoted price includes taxes or if you will need to cover them separately.
- Specification alteration rights: Builders may reserve the right to modify the design or specifications before the handover, so clarify this in advance.
Sales agreement for commercial property
A property sales agreement, whether for residential or commercial property, is an essential legal document. It outlines the terms and conditions of the transaction, serving a similar purpose regardless of the property type. The necessary documents for buying or selling commercial property typically include:
- Sale deed
- Sales agreement
- Mother deed
- Building approval plan
- Encumbrance Certificate (EC)
- Khata certificate and extract
- Betterment charges receipt
- Stamp duty
- Up-to-date tax receipts
Although the formats of agreements for immovable properties like homes or office spaces differ from those for movable assets, both transactions involve receipts and tax payments, ensuring proper documentation and compliance.
Process of executing a sale agreement
The process of executing a sales agreement for real estate remains consistent across most states, with minor variations. Here’s a step-by-step guide to help you understand the key aspects to keep in mind:
- Stamp paper execution: The sale agreement must be prepared on the required stamp paper. For example, in Karnataka, the stamp duty is 0.1% of the transaction value, capped at Rs 20,000 for residential properties and Rs 50,000 for commercial ones.
- Stamp duty payment: Buyers must pay the stamp duty at the sub-registrar’s office (SRO) using a demand draft or banker’s cheque drawn in favour of the Sub-Registrar. The document is then authenticated with an official signature and seal.
- Sales deed registration: If there are no modifications to the sales deed after the agreement, additional stamp duty isn’t required during registration.
- Optional registration: A sale agreement doesn’t necessarily need registration unless both parties decide otherwise.
- Signatures: Use black ink and provide full signatures on the last page and at the bottom of each page. The signatures of both buyer and seller are mandatory.
- Corrections: Any changes should be made using a whitener, followed by a signature over the corrected text for authenticity.
- Joint signatures: In cases involving joint buyers or sellers, all parties must sign the documents as required.
Sale agreement format
Here is the format of a sale agreement for the sale and purchase of a property.
AGREEMENT FOR SALE
THIS AGREEMENT FOR SALE is made and executed on this the____________ day _____________ of ___________, 200-
BETWEEN
Mr. ____________s/o. ____________ aged_________________ years residing at _____________Hereinafter called “The SELLER” (which expression shall mean and include her legal heirs, successors, successors-in-interest, executors, administrators, legal representatives, attorneys and assigns) of ONE PART.
AND
Mr. ______________ s /o __________ aged ________ years residing at__________ ___Hereinafter referred as “The PURCHASER” (represented by his power of attorney) which expression shall mean and include his heirs, successors, executors, administrators, legal representatives, attorneys and assigns of the OTHER PART.
WHEREAS THE SELLER is the absolute owner in possession and enjoyment of the more fully described in the schedule hereunder and hereafter called the “SCHEDULE PROPERTY.
WHEREAS the property more fully described in the schedule hereunder is the self acquired property of the SELLER who purchased the same from Mr._____________ in and by sale deed dated _____________ and registered as Doct No._________of Book1VolumeNo________________Pagenos._____to_________, registered on and filed on the file of the Sub-Registrar,
WHEREAS the SELLER is the absolute owner of the property and he has been enjoying the same with absolute right and he has clear and marketable title to the Schedule Property
WHEREAS the SELLER being in need of funds for the purpose of ________________ has decided to sell the property more fully described in the Schedule hereunder and the PURCHASER has offered to purchase the same..
WHEREAS the SELLER offered to sell and transfer the schedule property to the PURCHASER for a sale consideration of Rs.___________(Rupees___________ only) and the PURCHASER herein has agreed to purchase the same for the aforesaid consideration on the following terms and conditions:
NOW THIS AGREEMENT WITNESSETH AS FOLLOWS:
The Sale consideration of the Schedule Property is fixed at Rs. __________ (Rupees________ only).
The PURCHASER has paid a sum of Rs.___________(Rupees _________ only) by cash/ cheque /D.D. bearing No _________ drawn on ___________ dated________ as advance, the receipt of which sum the SELLER hereby acknowledges.
The balance payment of Rs._____________(Rupees _________ only) will be paid by the PURCHASER to the SELLER at the time of execution of the absolute Sale Deed and thus completing the Sale transaction.
The parties herein covenant to complete the Sale transaction and to execute the Absolute Sale Deed by the end of
The SELLER confirms with the PURCHASER that he/she has not entered into any agreement for sale, mortgage or exchange whatsoever with any other person relating to the Schedule Property of this Agreement.
The SELLER hereby assures the PURCHASER and he/she has absolute power to convey the same and there are no encumbrances, liens, charges, Government dues, attachments, acquisition, or requisition, proceedings etc.
The SELLER agrees to put the purchaser in absolute and vacant possession of the schedule property after executing the sale deed and registering the same in the jurisdictional Sub-Registrar’s office.
The SELLER covenants with the purchaser that he/she shall not do any act, deed or thing creating any charge, lien or encumbrance in respect of the schedule property during the subsistence of this Agreement.
The SELLER has specifically agreed and covenants with the PURCHASER that he/she shall do all acts, deeds and things which are necessary and requisite to convey absolute and marketable title in respect of the schedule property in favour of the PURCHASER or his nominee.
IT IS AGREED between the parties that all expenses towards Stamp Duty and Registration charges shall be borne by the PURCHASER only.
The PURCHASER shall have the right to nominate or assign his right under this agreement to any person / persons of his choice and the SELLER shall execute the Sale Deed as per terms and conditions of this Agreement in favour of the PURCHASER or his nominee or assignee.
The SELLER has agreed to get consent deed duly executed to this Sale transaction from his wife/her husband, sons and daughters on or before date of registration of Sale Deed and assured that they all join to execute sale deed in favour of the purchaser.
It is hereby expressly provided and agreed by the parties here to that both parties are entitled to enforce specific performance of the agreement against each other in case of breach of any conditions mentioned in this Agreement.
The original of the “AGREEMENT” signed by both the parties shall be with the PURCHASER and copy of the same similarly signed shall be with the SELLER.
SCHEDULE
IN WITNESS WHEREOF the SELLER and the PURCHASER have signed this Agreement of Sale on the day month and year herein above mentioned in the presence of the witnesses:
WITNESSES:
1.
2.
Signed by SELLER_____________
In presence of __________
Signed by PURCHASER______________
In presence of ___________
Documents required for drafting a sale agreement
While there are no specific documents required for the drafting and execution of a buyer-seller agreement for sale, certain key documents should be reviewed to ensure a smooth and legitimate transaction:
ID proofs
It’s essential to verify the identities of both parties involved in the sale. Scrutinise the ID proofs of the buyer and the seller to confirm their names and permanent addresses.
- Acceptable ID proofs in India include driver’s licences, passports, or Aadhaar cards.
- Ensure that the ID proofs are valid and current.
Proof of ownership
Documents proving the seller’s clear ownership of the property or goods should be examined to confirm their legal right to sell.
- Examples of proof of ownership include property title deeds, purchase receipts, or registration documents.
- Verify the authenticity and validity of these ownership documents to ensure there are no legal disputes regarding the property or goods in question.
Procedure for drafting a sale agreement
Here are the steps you can follow for drafting a sale agreement:
Draft the agreement
It’s advisable to hire a lawyer who specialises in legal documentation to assist in drafting the agreement. Make sure the agreement includes all relevant terms and conditions, covering every important aspect of the transaction.
Review and revisions
Review the drafted agreement thoroughly to check for any errors or omissions. If any issues are found, revise the agreement accordingly before finalising it.
Sign the agreement
Verify whether your jurisdiction requires the agreement to be executed on judicial or e-stamp paper and comply with the local requirements. Ensure that witnesses are present when the agreement is signed. Both the buyer and the seller should sign the document for it to be legally binding.
Preservation
Each party should retain a signed copy of the agreement for their records. Store the signed agreement in a secure place for future reference.
Legal considerations for drafting a sale agreement
Here are some legal considerations for drafting a sale agreement:
- Judicial or e-stamp paper: In India, it is necessary to print a sale agreement on the appropriate stamp paper as mandated by the state. This step ensures the document’s legal validity. Regulations regarding stamp paper values differ by state, so it’s important to consult local laws or seek legal advice to determine the correct stamp paper value for your agreement.
- Modifiability: It’s important to understand that a sale agreement can be amended if both parties agree. During negotiations or due to unforeseen circumstances, changes to the agreement may be necessary. The agreement should include a clause outlining the process for modifications, and any amendments must be agreed upon by both parties. Written modifications should be signed by both parties to ensure enforceability.
Housing.com POV
Drafting a sale agreement is a critical step when purchasing property, as it ensures that both the buyer and seller are on the same page regarding the terms of the transaction. By clearly outlining details such as the purchase price, payment terms, property description, and closing date, a well-structured sale agreement minimises the potential for misunderstandings or disputes. Although it does not transfer ownership, it sets the groundwork for the final sale deed. By following the outlined procedure, reviewing key documents, and considering legal requirements, you can draft a comprehensive and enforceable sale agreement, ensuring a smooth property purchase process.
FAQs
What happens if the seller doesn't fulfil the sale agreement terms?
If the seller fails to meet the terms of the sale agreement, the buyer can seek legal action for breach of contract. This could involve demanding specific performance or compensation for damages.
Can a sale agreement be terminated?
Yes, a sale agreement can be terminated if both parties agree or if a condition outlined in the contract is not fulfilled. However, termination may involve penalties or legal consequences depending on the agreement terms.
Is a sale agreement valid if it's not registered?
While a sale agreement does not require registration, it must be executed on appropriate stamp paper to be legally enforceable. However, the final transfer of ownership must be done through a registered sale deed.
How long is a sale agreement valid?
A sale agreement is valid as long as the terms within it are not fulfilled or the contract is legally terminated. Typically, the agreement is in effect until the sale is completed or cancelled.
Can a sale agreement be modified after signing?
Yes, a sale agreement can be modified if both the buyer and seller agree to the changes. Any modifications should be documented in writing and signed by both parties to remain legally binding.
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