Blog

What is an agreement to sell in Real Estate ?

A agreement to sell is a crucial precursor to the sale deed. It has legal sanctity and states the seller’s intention to sell the property and the buyer’s intention to purchase it in the future. The transaction concludes basis the pre-established terms and conditions between the parties. For more nuances of such contracts, read further.

The sale process for a property begins with a buyer researching and shortlisting a housing unit and the seller agreeing to sell. Upon deciding to enter into a property transaction, the buyer and the seller establish the terms and conditions of the transaction. Once these discussions conclude, the need for paperwork arises. One of the initial documents in this process is the ‘agreement to sell’ or the ‘sale agreement’. The main difference between a sale agreement and a sale is that the first is an executory contract, and the second is an executed contract.

Understanding the meaning of an agreement to sell

It is an agreement in which a seller agrees to transfer the property, subject to certain conditions and covenants, in the coming times. It is not an actual sale but a written intention to carry out the deal later. The contract specifies the terms under which the title of the property concerned will be transferred. The Transfer of Property Act, 1882 (TPA) is the Central legislation regulating the sale, lease, mortgage, and gift matters. Section 54 has defined an agreement to sell as ‘A contract for the sale of immovable property stating that the sale of the concerned property will take place as per the terms mutually agreed upon by both parties.’ However, it clarifies that an agreement to sell does not establish any interest or charge on the property concerned.

If the seller, who is a signatory to an agreement to sell, fails to proceed with the process, the buyer can ask for specific performance as per the provisions of the Specific Relief Act, 1963. Conversely, the seller can also seek the performance of the contract from the buyer. However, for the agreement to sell to have legal value, it must be registered in the respective office of the sub-registrar of assurances. To do this, the buyer needs to pay the applicable stamp duty. A lawyer who deals in such matters can help both parties in this endeavour. Usually, the contract mentions the provision of 2-3 months for the buyer to arrange funds for purchasing the property.

What information does an agreement to sell contain?

Since the registered document will have legal sanctity, certain clauses mutually agreed upon, are mentioned in the contract. These clauses are usually about the penalty for dishonouring the agreement and the right to call off the deal. The agreement also states the names and contact details of the parties, the size of the property (carpet area, super built-up area, etc.), and its address. The property type, freehold or leasehold, is also mentioned. The terms and conditions in the case of mortgaged or leasehold properties will be noted.

There is also a clause stating that the seller promises to give the property to the buyer free from encumbrances. In addition, the amount of token money, which is usually 10-20 percent of the total deal value, is paid when signing the agreement to sell, and the same is mentioned in the contract.

Lastly, unless otherwise specified in the contract, an agreement to sell must be executed at the specified future date. Sale agreements cannot cover sales that have already taken place. And thus, the deadlines are based on a specific future date and conditions.