Date: September 25, 2023 Author: Team Piramal Realty
Agreement to Sell | Sale Agreement– Meaning, Importance, legal Rights & Benefits
When selling or buying a property, the transaction will be completed by executing and registering an agreement to sell. This document is essential as it sets out the terms and conditions of the sale. It is also crucial that this document is correctly drawn up, as it can protect the rights of the seller/buyer and help ensure the transaction goes through smoothly. This blog post will discuss what an agreement to sell is, its importance, and the stamp duty that may be payable on it. So, if you’re planning on selling or buying a property, read on!
What is an Agreement to Sell?
An Agreement to Sale is a formal contract between a buyer and a seller that outlines the terms and conditions of a property transaction. It is a promise by the seller to sell the property and by the buyer to purchase it, under mutually agreed terms.
However, this document doesn’t transfer ownership of the property. Instead, it sets the foundation for the Sale Deed, which is the final step in transferring legal ownership.
Key Features of an Agreement to Sale
An Agreement to Sale contains specific details that protect the interests of both the buyer and the seller. Some of its essential elements include:
Property Details: A precise description of the property, including its location, size, and title details.
Sale Price: The agreed-upon price for the property, along with payment terms (advance, installment structure, etc.)
Timelines: Deadlines for completing payments, property registration, and other necessary formalities.
Conditions Precedent: Specific conditions that must be fulfilled by either party, such as clearing loans on the property or obtaining approvals from authorities.
Default Penalties: Provisions for penalties if either party fails to honor the agreement.
Signatures: The agreement is only valid when signed by both parties and, in some cases, witnesses.
Understanding the sale agreement format is essential to ensure all necessary clauses are included for a legally binding contract. A well-structured format outlines the rights and obligations of both parties, reducing the risk of disputes and ensuring a smooth property transaction.
Difference Between Agreement to Sale and Sale Deed
Many homebuyers and sellers confuse the Agreement to Sale with the Sale Deed, but they serve entirely different purposes:
Agreement to Sale
Sale Deed
It is a promise to sell and purchase the property.
It is the final document that legally transfers ownership.
Outlines terms and conditions of the sale.
Establishes the buyer as the legal owner of the property.
Signed before the actual transfer of property.
Signed after fulfilling all terms in the Agreement to Sale.
Conditional, subject to specific clauses.
Absolute and unconditional.
The Agreement to Sale acts as a stepping stone, while the Sale Deed is the final legal document that ensures the ownership transfer.
Importance of Agreement to Sale
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. Having a properly drafted sale agreement helps avoid legal complications and ensures compliance with state regulations. Additionally, a well-documented agreement serves as a reference point in case of any legal disputes, providing both parties with a safeguard against potential conflicts.
Having a properly drafted sale agreement helps avoid legal complications and ensures compliance with state regulations. Additionally, a well-documented agreement serves as a reference point in case of any legal disputes, providing both parties with a safeguard against potential conflicts.
Agreement to Sell: Rights of the Seller
The seller has certain rights under an agreement to sell, which are as follows:
The right to receive the sale consideration from the buyer.
The right to deliver possession of the property to the buyer.
The right to sue the buyer for specific performance of the contract in case of breach by the buyer.
The right to terminate the contract in case of breach by the buyer.
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.
Having a clear sale agreement format helps in structuring the document correctly, ensuring it includes all essential clauses such as payment terms, property details, and penalties for default. A well-drafted agreement safeguards both parties and provides legal validity to the transaction.
Frequently Asked Questions
What is meant by an agreement to sell?➕
An agreement to sell is a legal contract between a buyer and a seller that outlines the terms and conditions of a future property sale. It signifies a commitment to transfer ownership at a later date, subject to specific conditions. Unlike an outright sale, an agreement to sell does not immediately transfer ownership but creates a legal obligation to do so in the future.
What is the Supreme Court judgement on agreement to sell?➕
The Supreme Court has consistently upheld that an agreement to sell does not confer ownership rights but creates an enforceable obligation for the transfer of property. In various judgments, the court has ruled that such agreements must be duly stamped and registered to be legally valid and that failure to comply may impact enforceability in legal disputes.
What is the difference between a sale and an agreement to sell?➕
The key difference is that in a sale, property ownership is immediately transferred from the seller to the buyer, whereas an agreement to sell is a future commitment where ownership is transferred only after certain conditions are met. A sale is executed through a registered sale deed, while an agreement to sell serves as a preliminary contract leading to the final sale.
How do I write a property agreement to sell?➕
A property agreement to sell must include details such as the names of the buyer and seller, property description, sale price, payment terms, possession date, and conditions for transfer. It should be drafted clearly, signed by both parties, and preferably registered to ensure legal validity. Consulting a legal expert is recommended to avoid disputes.
How do you prove an agreement to sell?➕
To prove an agreement to sell, one must provide a duly signed document that includes all essential terms of the sale. A properly stamped and registered agreement serves as strong legal evidence. Supporting documents such as payment receipts, witness statements, and correspondence between the parties can further substantiate the agreement in case of a legal dispute.
Is the agreement to sale valid?➕
If an agreement to sale is not registered, it is presumed to be invalid. However, ownership of the property is considered to be legal based on years of peaceful occupancy.
Can the agreement to sell be transferred?➕
An agreement to sell is not legally regarded as a sale transaction or a document transferring the ownership rights to an immovable property, but the prospective buyer who has fulfilled his obligations under the agreement and is legally in possession gains possessory title, which entitles him to transfer the property.
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.
