An
Agreement to sell is the first step taken towards purchase of a property. This
facilitates trouble free transfer of property based on the terms and processes
that have been already discussed and agreed to between the seller and the
buyer.
Sale and purchase of immovable property requires considerable time for completion of process and
compliance of various obligations, since the stakes are high. Hence both the
parties have to come to an agreement regarding the consideration amount, mode
of payment and time duration. The terms agreed are put in writing in the form
of an agreement, which is known as Agreement to Sell.The Agreement to Sell is
governed by the provision of the Indian Contract Act 1872 and the Transfer of
Property Act 1882.
Being in accordance
with the provisions of the Transfer of Property Act 1882, a legally valid
contract between the parties as per the provisions of Indian Contract Act, 1872
is mandatory.
This Contract may
be oral or written. Further it may be exhaustive or open. An open contract is
just a skeleton, referring to the names of parties to the contract, property to
be sold and the consideration amount.
An exhaustive
contract is a detailed one referring to the title, modes of payment, time
duration for competing the transaction, obligations to be complied with etc. In
immovable property dealings, it is not advisable to go for oral open type of
contracts, as the stakes are generally high and consequences are grave. Such
contracts need to be diligently prepared referring to minute details. The
services of an expert advocate in property matters should be availed. Section
54 of the Transfer of Property Act refers to the Contract of Sale/Agreement to
Sell.
It defines the
agreement to sell as a contract that a sale of such property that a sale of
such property takes place on terms settled between the parties. It further
specifies that the agreement to sell does not create any interest in property
or charge on such property. The purchaser who has entered into an agreement to
sell with the owner of the immovable property is not entitled to any
compensation if the property is acquired by the government. Further in case of
suit of injunction against the owner, the purchaser who has entered into an
agreement with the owner does not have any right to be impeded in the suit and
heard on the basis of the agreement to sell.
The execution of
agreement to sell needs to be witnessed by two persons capable of entering into
contract. Further, with regard to witnesses, it is advisable that the witnesses
be from the side of both parties i.e. one from the purchaser’s side and one
from the seller’s side. And in case of execution of a sale deed. It is
advisable that both witnesses be from the purchaser’s side. According to the
Indian Registration Act, 1908, the registration of the agreement to sell is
only optional. If registered it helps in establishing the bonafides of the
transaction. Further, encumbrance certificate discloses the subsistence of such
an agreement which deters any further agreements, unless the existing one is
cancelled.
The rights and
liabilities of the purchaser and seller:
Section 55 of the
Transfer of Property Act deals with the rights and liabilities of seller and
purchaser. If the agreement to sell does not specifically refer to the rights
and liabilities of seller and purchaser, the provisions of section 55 are
enforceable.
There is a caution
against the use of words like “as is where is basis”, since in such
circumstances, the purchaser has to specifically perform the contract
irrespective of the material defect in the title of property. There is no
prescribed format of agreement to sell in respect of an immovable property. It
has to be ensured that the agreement is legally enforceable and binding on the parties
and that it is not a mere formality.
Persons entering
into the agreement:
Persons must be
competent to enter into a contract. They must be major, sound mind and not
disqualified from contracting. The names of the parties to the contract, their
age, father’s name, in case of married woman, the husband’s name, and places of
their residence should be mentioned. Care should be taken to make all the
owners as parties to the contract. In case any of the joint owners is not
available to execute the agreement, a clause is added to the agreement that all
persons having interest in the property shall execute the conveyance deed. A
partnership firm is not a legal person and as such all the partners should sign
the agreement.
Exact location and
description of the property agreed to be sold:
Location and description should contain the roads on which they front, the
existing and former occupations, the municipal number, street, road with
complete boundaries, and properties surrounding the property agreed to be sold.
It should also include the area of the site, built up area, floors, type of
constructions, materials used etc. The details should be exhaustive so as to identify
the property clearly. Sections 21 and 22 of the Indian Registration Act makes
it mandatory to disclose the details.
Agreed
consideration amount and mode of payment:
Consideration
amount, the price at which the property was agreed to be transferred is very
important and an essential portion of the agreement. If the consideration
amount is not mentioned, the contract becomes void. The consideration disclosed
should be in money value, and it should not attract the provisions of exchange
of property as detailed in Sec 118 of the Transfer of Property Act. Whether the
consideration amount is adequate or not is immaterial. The agreement should
disclose any part payment of consideration or earnest money, the mode, place
and time of payment of balance money.
Production and
scrutiny of documents of title:
The agreement
should contain a clause that the seller should produce the documents of title
in his possession for scrutiny by the purchaser and his advocate. Sec 55 (1) of
Transfer of Property Act makes it mandatory to produce the documents for
scrutiny.
Period of
completion of sale process: The sale agreement should
contain a clause stipulating the time within which the purchaser will pay the
full consideration amount and get the sale deed executed and registered by the
seller. It is always advisable to pay less amount of the sale consideration as
advance and further, it should be kept in mind that the balance maximum portion
of the sale consideration must be paid only at the time of registration of the sale deed.
The agreement of
sale should mention the date/period of completion of the sale transaction and
registration of sale deed. The date for paying the maximum portion of the
balance payment must be mentioned, as at the time of registration. It is preferable to construct the sentence in
such manner for
Conditions and
obligations to be complied with:
There may be local
laws and other statutory obligations to be complied with for completion of
sale. Permission may have to be procured from certain institutions. Any such
obligations to be completed and the time for such acts are to be incorporated
in the agreement.
Expenses to be met:
Sale process
includes various expenses like legal fee, stamp duty, brokerage and expenses
towards statutory clearances. Terms of agreement should be clear as to who has
to meet these expenses.
Miscellaneous:
The agreement should
also contain penalties for non-performance of the terms of the agreement. The
onus on the seller is that he shall during the period between the date of
agreement to sell and actual handing over of the property to the purchaser, not
create any charges no the property and at the same time maintain the property.
Remedy:
If any of the
parties fail to perform, a party may sue the other party for specific
performance as per the terms of the agreement. The limitation available is
three years and it starts from the date on which the act is to be performed.
For example, a sale
agreement is dated 1-7-2003, where it is mentioned the purchaser should pay the
final installment of consideration and get the conveyance completed by the
seller on 31-8-2003. The Purchaser, however, failed to pay the final
installment on 31-8-2003 and the limitation started from the date.
The agreement to
sell is to be executed on a requisite stamp paper as prescribed by the state.
Purchase of property is a transaction where the parties to the transaction must
be of identical mind to ensure smooth and uncomplicated execution of the
transaction. The agreement to the sale contains all the terms and conditions on
the basis of which the physical process of transfer of property will take place
on a step-by-step basis. The agreement to sell clearly defines the duties of
the buyer and the seller and the tasks to be performed by each, ultimately
leading to the registration of the sale deed and thus ensuring a successful and
stress free sale and purchase of immovable property.
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