What should a seller check for in a sale agreement?

When planning to sell a property, a seller must arrange several documents before proceeding with the transaction. Documents such as encumbrance certificates are crucial as they help establish the seller’s ownership rights over the property. The sale agreement or agreement of sale is one of the most important documents. The terms sale agreement and sale deed are often used interchangeably when handling property transactions. However, there are key differences between the documents. An agreement of sale is contract to promise the transfer of property to a person at a certain date. On the other hand, a sale deed is a document that is used for the immediate transfer of property rights. In this guide, we will discuss about the significance of a sale agreement and what sellers must check before completing any property deal.

What is an agreement of sale?

An agreement of sale is a legally binding contract specifying the terms and conditions for the property sale between a buyer and a seller. The document includes details such as the amount to be paid by the buyer to the seller, the date of the full payment, the transfer of ownership, etc. Basically, the sale agreement proves the willingness of both parties to enter the property transaction upon fulfilling the terms and conditions.

A property sale agreement has significance under the Indian Contract Act, 1872, the Regulation Act, of 1908 and transfer of Property Act. Several amendments have been made to these laws.

Importance of sale agreement

Every buyer and seller must meet some requirements before finalising any property deal. More importantly, documenting the specific details of the sale is necessary, especially from a legal point of view. Here is where the role of sale agreement becomes important as it helps establish the authenticity of the property’s ownership and the transaction that will take place between the buyer and the seller.

The sale agreement is an executory contract represents the future transfer of the property, unlike the sale deed.  At the same time, violation of the agreement can have legal consequences, including termination of contract. The seller is responsible for all the risks or liabilities until the property transaction is completed.

What does a sale agreement contain?

A sale agreement must have the following elements:

• Details of the parties (buyer and seller) involved in the transaction
• Property’s description with a certified building plan and floor plan
• Proof of the property being leasehold or freehold (in case of land)
• Transfer of titles
• Property’s consideration value involved in the sale
• References to the agreement of sale and details of the price
• Transfer of rights, interests and claim of the property to the new buyer
• A clause regarding the shift of authority on privileges, facilities and easements of the property from the seller to the buyer
• Compensation to the buyer for losses in case of the seller’s negligence
• The authority of the vendor to sell the property

A property sale agreement is supported with proof of address, photo identity and reference to the title deed of the property with registrar’s official records.

Essential things a property seller must check in a sale agreement

• Name of the parties: The sale agreement should mention details of the parties entering the transaction. That is, the document should have the legal names of the buyer and the seller, including any co-signer.
• Property details: Without a clear description of the property in the document, the seller’s ownership rights can be questioned. Hence, the seller must check if complete details of the property has been mentioned. These include the type of property (residential or commercial), identification number, carpet area covered, construction specifications, open spaces, location, etc. The sale agreement should have the property map and property address.
• For under-construction property: In case of an under-construction property, the seller should ensure the date of delivery is mentioned. Moreover, one should check if the developer has the right to make alterations in the property any time before the handover.
• Tax payment: Details such as the party responsible for the payment of taxes and whether the developer covers the taxes in the final amount should all be mentioned in the agreement.
• Time required for transfer: The document should clearly state the time (date) by which the transfer of property from the seller to the buyer will take place.
• Payment terms: The sale agreement should clearly specify the payment terms. It should mention the negotiated price of the property and a detailed schedule of the payment. In case of an under-construction property, the payment is scheduled based on the different construction stages. On the other hand, for a ready-to-move-in property, the payment terms are based on the mutual consent between the parties and it is completed before taking the possession.
• Mode of payment: The contract should also mention the mode of payment made by the buyer such as cash, cheque, demand draft, etc. The same should be agreed by the seller.
• Property title: Financial institutions approve home loans only when there is a clear title of the property. In case a property which is under any lien or mortgage, it becomes difficult for buyers. The agreement should prove the seller has the right to legally transfer the property title in the name of the buyer immediately after the full payment for the property has been done in the local registrar office.
• Possession details: The possession of the property will be transferred from the seller to the buyer after the property registration process has been completed. The sale agreement should mention a clause confirming when the actual delivery of the possession will happen.
• Mortgage: In case, there is an ongoing loan on the property, the party that will settle the loans should be clearly mentioned in the sale agreement.
• Penalty clause: A sale agreement must have a clause mentioning that in case of any default by seller or buyer, the party must pay for the damages to the other party when there is a breach of contract. This will ensure the execution of the sale deed does not get affected.
• No dues: The encumbrance certificate is an important document that establishes the seller’s ownership rights, title, interest in property, etc. It is required to proves that there are no legal claims or encumbrances over the property, which ensures a smooth sale transaction. The encumbrance certificate can be obtained from the relevant government authority in the state by paying a specified fee.
• Dispute resolution methods: In case of any legal disputes between the parties, one should be clear about how the dispute will be resolved. Thus, such details should be specified in the sale agreement. One can consult a legal professional for guidance.

Clauses that can be added in a property sale agreement

When selling a property, the seller should note that specific clauses can be added to the sale agreement. These include:

• As is, where it is: This addresses whether the buyer will get the possession of the property in the exact condition it is in, and the seller would not make any repairs.
• No access to property: According to this clause, the buyer will not be permitted to see the property until they make the full payment to the seller.
• Right of way: Sometimes, the owner may want to allow other people to use sections of the property. This can be possible if there an upper floor and you want to provide certain access to others, in such cases, the clause must be specifically mentioned in the sale agreement. Otherwise, it can lead to legal disputes.
• Lease: The buyer and the lessee should not be affected by the sale in case the property is leased out by the buyer. This clause can be added to the sale agreement.
• Dispute resolution and jurisdiction clauses: The seller is required to hand over all the title deeds of the property buyer within 15 days of the date of the agreement. This is vital for scrutiny of the title, the opinion of the seller and advocate will be final.
• Clause with regards to title verification: In case the seller’s title to the property has not been approved by the buyer, the seller should refund any token money the buyer has paid him as per the sale purchase agreement. This should be done within 7 days, or the seller is liable to pay an interest on this amount (12% per annum).

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A sale agreement can serve as a legal protection for seller, saving them from any potential disputes. The process of preparing a sale agreement is a standard one, followed across states. However, there could be some minor differences. Thus, every property seller should know about these minute details and ensure the property sale agreement is prepared mentioning all the details and terms and conditions. For this, it is recommended that the seller approaches an experienced lawyer.

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