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.
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.
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.
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.
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 31-8-2003. 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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