Agreement to Sell

Agreement to Sell
The 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 provisions of the Indian Contract Act 1372 and the Transfer of Property Act 1882.
To attract 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 to complete the transactions, 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 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 im-pleaded in the suit and heard on the basis of the agreement to sell (Azeemur Rehman Vs Union of India Air 1995 A11316).
The execution of agreement to sell needs to be witnessed by two persons capable of entering into contract. 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.
It is cautioned 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 is to be ensured that the agreement is legally enforceable and binding on the parties and it is not a mere formality.
Persons entering into the agreement:- Persons must be competent to enter into a contract. They must be major, of sound mind and not disqualified from contracting. The names of the parties to the contract, their age. father’s name, in case of married women 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.
Title to property :- 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 executant of the agreement is not the owner, then his status and his authority under which the agreement is executed should. be mentioned. A CPA 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, could be detailed.
Exact location and description of the property agreed to he sold:- Location and description should contain the roads on which they front, i.e. existing and former occupancies, the municipal number, street, road, with complete boundaries, and properties surrounding the property greed to be sold. It should also include the area of the site, built up area, floors, type of constructions, materials used. The details should be exhaustive to identify the property. Sections 21 & 22 of the Indian Registration Act makes it mandatory to disclose the details.
Agreed consideration amount and mode of payment:- Consideration mount, 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 does 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 material. 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 n 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:- 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 have 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 position to get back the 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 doqator. in such cases, a clause regarding token delivery of possession by the purchaser, and issue of allotment letters should be included.
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. In the absence of such a time stipulation, the sale process may be unduly delayed. As such a clause stating that the time is the essence of contract is to be included.
In the absence of such clause, if the purchaser delays the completion of the process, the seller may issue a notice to the purchaser to complete the process within a reasonable time by fixing a deadline. Alternatively, the purchaser may pay off the consideration amount to the seller and a draft of the conveyance for execution.
Conditions and obligations to he complied with..- There may be local laws and other statutory obligations to be complied with for completion of sale. Permissions 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 he 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 Se shall during the period between the date of agreement to sell and actual handing over of the property to the purchaser, he shall not create any charges on the property and at the same time maintain the property.
Remedy : – If any of the parties fails to perform, parties 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 1-4-2002, where it is mentioned the purchaser should pay the final installment of consideration and get the conveyance completed by the seller on 31-05-2002 and the limitation started from that date. The Agreement to Sell is to be executed on a requisite stamp paper as prescribed by the state.