Know the difference: Agreement to Sell and Sale Deed!

Know the difference: Agreement to Sell and Sale Deed!

Whether you plan to buy a property or already own one; whether you are a home buyer or a home owner, you should know the legal documents that establish absolute ownership over the Property. When we talk about Sale, there are two terms which are widely used i.e. Sale Deed and Agreement to Sell.  Many times we have come across buyers who hold Agreement to Sell and mistake it for the Sale Deed. Lack of understanding of the difference could lead to grave errors and at times, dire consequences.

What is an Agreement to Sell?

When a buyer approaches a house owner to buy his property, certain terms are agreed upon including the offer price. These buying terms, advance amount and other ‘conditions precedent’ (agreed conditions under which the sale can conclude) for the sale are recorded in writing and accepted by the parties in what is called the Agreement to Sell. It is important to note that the Sale Agreement in only an agreement where one party agrees to sell and the other party agrees to buy. Through this document, the transfer of property from one owner to the other does not take place. For the property to be transferred from the owner’s name to the buyer’s name, it requires an additional action,  the execution of the Sale Deed.

Let us now look at a scenario, where a buyer has paid advance to the seller towards the purchase of a property but the seller refuses to sell it afterward. To safeguard oneself from such situations, one should have a legally enforceable Agreement to Sell.  In such cases, the buyer can approach the court for enforcing the specific performance of the contract or Agreement to Sell. This would mean that if the buyer is willing to buy the property and has paid the advance to the seller, the buyer’s right to buy is protected and the court can intervene and order the seller to sell the property to the buyer as per the agreed terms.

For an Agreement to be legally enforceable, the following are essential:

• It needs to be in writing
• Buyer and Seller need to affix their signatures in all the pages
• The document should also be signed by two witnesses
• The document needs to be adequately stamped
• It needs to incorporate proper clauses 

Merely by entering into to an Agreement to Sell, no interest of right is created over the Property for the buyer. It needs to be followed by the Sale Deed.  The term ‘Sale’ is defined under the Transfer of Property Act, 1882, as “under which a property is conveyed from one person to another subject to the price paid or promised to be paid”. It implies that the legal ownership, rights, and liabilities are transferred from the property owner to the buyer. Here again, for the rightful ownership, the Sale Deed needs to be registered and adequately stamped. The Sale Deed must have the standard clauses like:

• Name of the parties correctly mentioned;
• Complete description of the Property;
• Sale price and mode of payment;
• Representations gave by the owner that all taxes, cess etc. are paid and there is no encumbrance created on the property;
• Indemnities to be taken from the Property Owner against any losses the buyer may suffer in future owing to commissions and omissions on his part;
• Handover of possession;
• Handover of original documents,
• No objection by the buyer on the transfer of municipal records and electricity meter in the name of the buyer.

To summarize, the buyer must ensure that while buying a property, even if there is a sale agreement done, a sale deed must eventually follow.  Otherwise, though the buyer may have paid the entire price for the property, he does not become the legal owner of the property.