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What is Sales Agreement in Real Estate ? Definition and Details

A sales agreement, for the seller to the buyer, is the primary document that evidences ownership and vesting exact title to the property.

When an immovable property is to be sold, usually there are two types of agreements – a sale for agreement and a sale agreement or sale deed. The agreement for sale is necessarily needed to be stamped and registered, as per the registration law. There may exist a delay between the registration date and agreement execution. This is generally believed that with an agreement’s registration, the property’s rights would get transferred from the vendor to the buyer.  

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

Hence, the buyer is always advised to thoroughly scrutinize all the major terms of the sale agreement for ensuring that all rights are well-protected and an absolute title is conveyed to the property. If there is a delay between the registration date and an agreement’s full execution of selling a property, the question arises when the property’s transfer is considered to be complete?  

What is a sales agreement? 

Section 54 – Transfer of Property Act, 1882 (TP Act) clearly defines a particular sale as an ownership transfer of immovable property for consideration. For constituting a valid sale agreement, all the critical components of a sale agreement as mentioned below are to be fulfilled: 

1. The property, being the subject matter of the conveyance/transaction. 
2. The seller, being the earlier owner, transfers the property. 
3. The buyer, being the individual who acquires the title from the property’s seller. 
4. The consideration is the amount paid or payable by the buyer to the seller, and such amount may either be paid fully or promised to be paid in due course or partly paid and partly to be paid eventually. 
5. The act of transferring the ownership of the property from the seller to the buyer. 

The terms of the Contract Act will govern all the contracts, also mandate that the seller and buyer are competent for entering into the contract. Both the seller and buyer should – 

1. Have attained a mature age
2. Should necessarily be of sound mind 
3. Are not prohibited under any judgment or law of a court for entering into the contract

For a sale agreement to be valid and binding, this is necessary to provide all correct and full descriptions of the seller and buyer as well as the property that is subject to sale. Any discrepancy in the identity or description of the property may adversely affect the seller’s title. Where the consideration is agreed to be paid in future, either in full or in part, the buyer may obtain a confirmation deed from the seller upon clearing all necessary payments to pre-empt the possibility of any further future disputes or claims.

Required details in sale agreement

While the law mandates the buyer should necessarily be aware and undertake all the required cautions before entering into a contract mentioning the property sale. Section 55 of the Transfer of Property Act also strongly mandates that the seller is required to provide representations and disclosure in the document to the buyer, which the buyer is entitled to enforce. Those mandatory disclosures and representations that are to be obtained from the seller are: 

1. The seller who possesses absolute ownership of the concerned property is entitled to convey the sale agreement in favour of the buyer. 
2. Absence of any defect in material, third-party disputes and claims or if in case there exists any nature of full disclosure of the same. 
3. Competence of the property’s seller to convey the title in favour of the property buyer. 
4. Nil encumbrance/lien on the property. 
5. Transfer and handover of the title deeds in the custody of the seller to the property’s buyer, with the receipt of entire consideration and handover of the property’s physical possession. 
6. The payment as well as clearance of all the dues of the government from the property’s seller. 
7. Covenant of the seller for executing further documents to fully secure the buyer’s rights, such as the transferring of utilities and municipal records to the buyer’s name. 

In addition to obtaining the representations and covenants, the buyer is also advised for securing indemnity from the seller in the sale agreement against probable defects in title to the concerned property or any breach of the representations, conditions or terms of the sale agreement. 

The indemnity contract would survive the execution of the sale agreement, and the buyer would be entitled to claiming costs and remedies against the property’s seller at any time in the future in case the mentioned title proves to be defective. The buyer of the property should strictly read the indemnity contract for ensuring that this is not limited or restrictive for a certain period and is not conditional. 

What are the components of a sales agreement?

A sales agreement is a document that supports the execution of the sale deed and registration of the same. The components of a sales agreement include

• Proposal of sale and purchase of a property 
• Property Details and description 
• Information about the property being free from legal encumbrance
• Details on the value of the property and payment schedule 
• What will be the method of property delivery
• Delivery of property documents post the final payment 

Things to check before signing a sales agreement

Before signing a sales agreement, you should always double-check about the following things 

• Name of the parties involved in the signing of the agreement
• Schedule of payment
• Details of the property 
• Details relating to possession of the property
• Map of the property
• Address of the property
• Encumbrance certificate
• The minimum time period required for transfer of property 
• Penalty clauses, if any
• Methods of resolving a dispute, in case of occurrence

Difference between a sale agreement and a sale deed

In simple terms, a sale agreement is a promise for the future, which states that a specified property will be transferred to the buyer or the rightful owner at a later date. On the other hand, a sale deed is a document that is to be considered the actual transfer of property ownership between two or more parties.

When it comes to a sale agreement, the liabilities and risks remain with the seller until the property has been transferred to the buyer. For a sale deed, as you could imagine, the risk along with the document is immediately transferred to the new property buyer.

While a sale agreement is an executory contract, which means it is not to be fully implemented until a later date, a sale deed is a completely executed contract binding both parties to the terms therein.

Most importantly, it’s not mandatory to register a sale agreement immediately (regulations may differ across states). However, a sale deed needs to be registered mandatorily with the local and regional government authorities.

Stamping and registration of a sale agreement

A crucial requirement for a sale agreement format to be valid, enforcing and binding, the properly formatted copy with all the necessary clauses should be signed by both the parties –seller and buyer. 

This sale agreement copy should be appropriately stamped as per the requirement under the Indian Stamp Act, 1899 or the legislation of the respective states. The sale agreement is registered at the jurisdictional Sub-Registrar of Assurances office upon the payment of requisite registration charges as mandated under the Registration Act of 1908. 

A document that is not properly stamped or is unregistered will not be permitted as evidence, and this transaction is deemed to be incomplete until all the statutory requirements are completely fulfilled. 

When a party to the sale agreement is unable to be present for the execution and registration and is represented by a holder of power of attorney, this is necessary to examine this document thoroughly and is also duly stamped as well as registered. 

Specifically, where the seller of the property is authorized by an attorney, then the document’s terms may be suitably scrutinized. This is to ascertain that the attorney is authorized for executing and registering the sale agreement,to receive the right consideration and to complete all the necessary formalities for the purpose of conveying the suitable title to the buyer. The buyer is entitled to retain the original sale agreement as evidence of this property ownership. 

Conclusively, no matter if you are a seasoned investor or just looking for a property for self-use, ensuring a well-drafted Property Sale Agreement is a must. Equipped with the information in this article, we hope that your quest for a new home will be a lot less troublesome.

FAQs

What is the validity of a registered sale agreement?

A registered sale agreement is deemed to be valid for three years. In the presence of a negative clause in the agreement, for instance, in case the buyer is required to register a property within three months, the limitation is then extended by such a period. 

What are the things that I should necessarily check in a sale agreement

The major things that you should necessarily check in a sale agreement are-
1. Details of the sellers and buyers (name, addresses and age)
2. Description of the concerned property that is being sold
3. The sale amount includes the advance payment that has been paid and also the payment mode.

Does a sale agreement need to be registered?

A sale agreement necessarily needs to be registered as per the provisions mentioned in the Registration Act, 1908.

Is a sale agreement valid if not registered?

A sale agreement is deemed to be invalid if it is not registered. But on the basis of peaceful possession for the long term, ownership in the property is deemed to be valid. In your case, this is considered to be an evasion of stamp duty. If any time any question would arise, to get the sale agreement registered, you may have to pay the required stamp duty as per the present value.

What usually happens when a sale agreement has expired?

Within 45 days of the expiry of the sale agreement, both the seller as well as the buyer would have to revalidate the sale agreement’s duration as per mutual agreement and extend the same on mutually agreed terms. 

Is a sale agreement binding?

A sale agreement is a crucial document in the complete process of sales and purchase of a property. This particular agreement contains all the necessary terms and conditions that bind both parties. This records the necessary understanding that is reached between the parties and binds them.

What is meant by sale agreement possession?

The agreement of selling with possession is a special instrument that requires payment of the applicable stamp duty to a deed of conveyance. This is not in dispute that the property’s possession has been delivered in favor of the applicant. He has, thus, been exercising some rights in or over the concerned land. 

When does a sale agreement become a sale?

A sale agreement becomes a sale when time elapses or all the necessary conditions are fulfilled that are subject to which the property is to be transferred to the buyer.