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 inaccordance 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 generallyhigh 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 imp leaded in the suit and heard on the basis of the agreement to sell (Azeemur Rehman Vs Union of India Air 1995 ALL316).
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.
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 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.
Nature of the title held by the seller, including any encumbrance such as lease, mortgage, charges on the property should find a place in the agreement. If the executants of the agreement is not the owner, then his status and his authority under which the agreement is executed should be mentioned. A GPA holder can execute a sale on behalf of the owner if he has the power to do so. However, he is accountable for the money received from the purchaser. Any material defect in the property, defect in the title disclosed by the seller, or advantages, benefits which have come to the notice of the purchaser, should be detailed.
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.
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.
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.
Possession is the most important ingredient of the sale transaction. The mode and time of possession should be clearly and specifically mentioned. It may please be noted that the seller need not give possession of the property to the purchaser on execution of agreement and on part payment. Possession has to be given on completion of the sale process and receipt of full consideration amount after execution of the conveyance deed.
If the possession is given on part payment of the consideration, section 53 A of the Transfer of Property Act operates. In such an event the seller shall never be in a possession. The only recourse available to the seller is to recover the balance amount due.
The agreement should also refer to the mode of possession of the property and whether it is vacant or not. If the property is let out, the seller may give a letter of allotment to the tenants, to acknowledge the purchaser as the future transferee. In such cases, a clause regarding token delivery of possession by the purchaser, and issue of assignment letters should be included.
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 eg. “The balance payment shall be made on or before 30.10.2003, i.e., at the time of registration of sale deed”.
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.
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.
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.
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 31-08-2003. The Purchaser, however, failed to pay the final installment on 31-080-2003 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.