What is a sale deed and terms and conditions that home buyers should be aware of

What are the main components that a sale deed must have and how should it be executed, to protect the interests of the home buyer? We explain

For a home buyer, the much awaited sense of ownership of the dream home, follows the execution and registration of the sale deed.

The sale deed, from the seller to the buyer, is the primary document evidencing ownership and vesting absolute title to the property. Hence, the buyer is advised to scrutinise the terms of the sale deed carefully, to ensure that his rights are protected and absolute title to the property is conveyed.

 

Important aspects of a sale deed

Section 54 of the Transfer of Property Act, 1882 (TP Act), defines a sale as a transfer of ownership of an immovable property for a consideration. To constitute a valid sale, the critical elements in a sale deed are:

(a) The property, being the subject matter of the transaction / conveyance.

(b) The seller, being the earlier owner, transferring the property.

(c) The buyer, being the person who acquires the title from the seller.

(d) The consideration, being the amount paid or payable by the buyer to the seller and such amount may either be fully paid, or promised to be paid, or partly paid and partly promised to be paid.

(e) The act of transferring ownership of the property, from the seller to the buyer.

The terms of the Contract Act, which govern all contracts, also mandate that the seller and buyer are competent to enter into the contract – (a) they have attained the age of maturity; (b) are not of unsound mind; and (c) are not prohibited under any law or judgment of a court, to enter into the contract.

For a sale deed to be valid and binding, it is necessary to give a correct and full description of the parties (the seller and the buyer) and the property, which is the subject matter of the sale. Any discrepancy in the description or identity of the property, may adversely impact the title of the seller. Where the consideration is agreed to be paid in future, either in part or in full, the buyer may obtain a deed of confirmation from the seller, upon making all payments, to pre-empt the possibility of any future claims or disputes.

See also: Agreement for sale versus sale deed: Main differences

 

Representations from the seller, for executing the sale deed

While the law mandates that a buyer should be aware and undertake caution, before entering into a contract of sale of property, Section 55 of the TP Act also mandates that the seller is required to provide disclosures and representations in the document to the buyer, which the buyer shall be entitled to enforce, in case of breach. The mandatory disclosures and representations to be obtained from the seller are:

  1. The seller possessing absolute ownership of the property and being entitled to convey the same, in favour of the buyer.
  2. Absence of any material defect, third-party claims and disputes, or if there exist any, the full disclosure of the same.
  3. Competence of the seller to convey the title in favour of the buyer.
  4. Nil encumbrance or lien on the property.
  5. Transfer and handover of deeds of title in the custody of the seller to the buyer, with receipt of entire consideration and handover of physical possession of the property.
  6. Payment and clearance of all government dues from the seller.
  7. Covenant of the seller to execute further documents, to fully secure the rights of the buyer, such as transfer of municipal records and utilities to the name of the buyer.

In addition to obtaining the representations and covenants, the buyer is also advised to secure indemnity from the seller in the sale deed, against any defect in title to the property or breach of the representations, terms and conditions of the sale deed.

The contract of indemnity will survive the execution of the sale deed and the buyer will be entitled to claim costs and remedies against the seller, at any time thereafter, if the title is found to be defective. The buyer should carefully read the language of indemnity, to ensure that it is not conditional, restrictive or limited to a certain time.

 

Stamping and registration of the sale deed

A crucial requirement for a sale deed to be valid, binding and enforceable is that the document being signed by both parties, should be stamped appropriately as required under the Indian Stamp Act, 1899 or the respective states’ legislations and registered at the office of the jurisdictional Sub-Registrar of Assurances, upon payment of requisite registration charges, as mandated under the Registration Act, 1908.

An inadequately stamped and unregistered document, will not be admissible as evidence and the transaction is incomplete, until the statutory requirements are fulfilled.

Where any party to the sale deed is unable to be present for the execution and registration and is represented by a power of attorney holder, it is necessary to examine that the document is also duly stamped and registered.

Particularly, where the seller is authorised by an attorney, the terms of the document may be scrutinised, to ascertain that the attorney is authorised to execute and register the sale deed, to receive consideration and to complete all formalities for conveying the title to the buyer. The buyer is entitled to retain the original sale deed, as evidence of his title and ownership of the property.

(The writer is associate partner, Khaitan & Co LLP)

 

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