AGREEMENT TO SELL – MEANING, IMPORTANCE, RIGHTS & STAMP DUTY

What is an Agreement to Sell?

An agreement to sell is a contract between a seller and a buyer where the seller agrees to sell an asset or property to the buyer at a specified price. The agreement to sell is also known as a sale agreement. It is generally used to sell immovable property such as land or buildings. The Agreement to Sell includes all the terms and conditions agreed upon by both parties. Generally, in India, sale agreements are made before registering the sale deed so that all conditions can be negotiated and finalized between the parties before making it legally binding.

Importance of Agreement to Sell

An Agreement to Sell a contract is crucial because it legally binds the parties involved in the sale of a property. This contract outlines the terms and conditions of the sale, including the price, date of sale, and any contingencies that must be met before the sale is finalized. The agreement also protects both buyers and sellers from fraud or misrepresentation by clearly stating all material facts about the property. Lastly, this contract can be used as evidence in court if there are any disputes between the parties after the sale has been completed and the Agreement is registered.

The Maharashtra Stamp Act of 1958 governs the stamp duty payable on an Agreement to Sell property in India. Under this Act, any document which transfers or assigns an interest in immovable property for consideration must pay stamp duty and registration fees as prescribed therein and also register the Agreement to Sell with the relevant Office of the Sub-Registrar of Assurances. The registration fee for an Agreement to Sell is calculated as a percentage of the sale price/market value of the property.

Agreement to Sell: Rights of the Seller

The seller has certain rights under an agreement to sell, which are as follows:

1. The right to receive the sale consideration from the buyer.
2. The right to deliver possession of the property to the buyer.
3. The right to sue the buyer for specific performance of the contract in case of breach by the buyer.
4. The right to terminate the contract in case of breach by the buyer.
5. The right to withdraw from the sale completely if there is no agreement between the parties, or if either party cancels or backs out of the sale, etc.

Stamp Duty on an Agreement to Sell

In India, the buyer is liable to pay stamp duty whenever any immovable property is transferred. The amount of stamp duty payable depends on the state in which the property is situated as well as the value of the property.

Similarly, when an agreement to sell is executed, stamp duty is also payable on it. The amount of stamp duty payable on an agreement to sell depends on various factors such as the property’s value, the nature of the transaction (sale/purchase/exchange/lease), etc.

The party who executes the agreement to sell is liable to pay stamp duty. In most cases, the buyer pays stamp duty on an Agreement to Sell. However, there are some instances where the seller may also be liable to pay stamp duty.

It is important to note that the amount of stamp duty payable on an Agreement to Sell is generally lower than the stamp duty payable on a sale deed. This is because an “Agreement to Sell” is only a preliminary contract and does not transfer property ownership.

Contents of an Agreement to Sell

A registered sale agreement or agreement to sell is a legally binding document that outlines the terms mutually agreed upon by both parties involved in the property transaction. These terms typically include penalties for breaches and provisions for terminating the agreement if necessary.

Key details such as the names and contact information of the buyer and seller, the property’s specifics (like carpet area, super built-up area, and address), and its ownership type (freehold or leasehold) are explicitly mentioned. For properties under mortgage or lease, the agreement also details the relevant terms and conditions.

One essential clause ensures that the property will be free of any encumbrances when ownership is transferred. The agreement also specifies the amount of token money, usually 10-20% of the total property value, paid at the time of signing. The timeline for completing the sale is clearly outlined unless otherwise stated in the contract.

It’s important to note that an agreement to sell pertains only to future sales and does not cover transactions already completed.

Is an Agreement to Sell Legally Binding?

An agreement to sell becomes a legally binding contract between the buyer and the seller, enforceable by law. This written document outlines key terms of the property sale, such as the purchase price, payment schedule, possession date, and other critical conditions. For an agreement to sell to hold legal validity, it must meet specific requirements. It should be signed by both parties, provide a clear description of the property, and explicitly state the terms of the sale. Additionally, the agreement must be entered into willingly, without any coercion or undue influence.

Once signed, the agreement obligates both parties to honor its terms. If either party fails to comply, the other has the right to pursue legal remedies, including enforcing the agreement, seeking damages, or canceling the contract.

It’s crucial for both buyers and sellers to fully understand the legal implications of signing an agreement to sell. Ensuring that all terms are clearly outlined and mutually agreed upon is essential. Consulting a legal expert can help confirm that the agreement is both enforceable and compliant with the law.

Key Clauses to Include in an Agreement to Sell

Every legal document carries essential clauses that provide structure and clarity, ensuring a smooth course of action for all parties involved. Including the following clauses in an Agreement to Sell can help prevent future disputes:

• Details of the Parties: Full names, ages, and residential addresses of the buyer and seller.
• Execution Details: The date and location where the agreement is signed.
• Property Description: A precise address and detailed description of the property.
• Ownership History: A brief summary of how the seller acquired the property, supported by relevant documents.
• Competency Clause: Confirmation that all parties are legally eligible to enter into the agreement.
• Property Status: A declaration from the seller confirming that the property is free of encumbrances, government acquisition, or other claims.
• Payment Terms: The total consideration amount and payment details.
• Outstanding Dues: Assurance that all dues related to the property are cleared.
• Timelines and Responsibilities: Defined deadlines for specific actions to be completed by the parties.
• Transaction Period: The timeframe for completing the property transfer.
• Transfer Costs: Details on expenses and which party will bear them.
• Penalty and Forfeiture: Consequences outlined for defaults by either party.
• Possession Conditions: Clear terms for delivering possession of the property.

The Bottom Line

A sale and agreement to sell is a contract between a buyer and seller that outlines the terms of sale for a property. This contract is important because it delineates the buyer’s and seller’s rights and obligations and the purchase price. The sale agreement should also be registered with the local government office to ensure its legality. Lastly, the agreement to sell may be subject to stamp duty, a tax levied by the government on certain legal documents.

Frequently Asked Questions

Disclaimer- This article is based on the information publicly available for general use. We do not claim any responsibility regarding the genuineness of the same. The information provided herein does not, and is not intended to, constitute legal advice; instead, it is for general informational purposes only. We expressly disclaim/disown any liability, which may arise due to any decision taken by any person/s basis the article hereof. Readers should obtain separate advice with respect to any particular information provided herein.