Agreement for sale versus sale deed: Main differences

Property sales are formalised in a stage-wise manner. One of the first documents that is executed, to provide a proper legal status to an understanding between a buyer and a seller, is known as agreement to sell or agreement to sale or agreement for sale or sale agreement.

An agreement for sale is different from a sale deed. While the former is an agreement document, the latter is a conveyance deed. We discuss the key differences between the two documents.

What is an agreement to sell?

Once the buyer and the seller reach an understanding to enter into a property transaction, they draft an agreement, which puts in place the terms and conditions based on which the transaction would take place. This document is known as sale agreement or agreement to sell.

The Transfer of Property Act, 1882, which regulates the matters dealing with the sale and transfer of house property, defines the contract for sale or an agreement for sale as under:

“A contract for the sale of immovable property, is a contract that a sale of such property shall take place on the terms settled between the parties” – Section 54. Section 54 further provides that “It does not, of itself, create any interest in or charge on such property.”

From the above definition, it becomes amply clear that an agreement for sale contains a promise to transfer a property in question in future, on satisfaction of certain terms and conditions. So, this agreement itself does not create any rights or interest in the property, for the proposed buyer.

What the sales agreement creates, is a right for the purchaser to purchase the property in question on satisfaction of certain conditions. Likewise, the seller also gets the right to receive the consideration from the buyer on complying with his part of the terms and conditions.

In case of failure of the seller to sell or hand over possession of the property to the buyer, the buyer gets a right of specific performance, under the provisions of the Specific Relief Act, 1963. A similar right is available to the seller under the agreement, for seeking specific performance from the buyer.

Even though the signing of the agreement for sale does not mean the sale has been concluded, it is a crucial step in that direction. This is why buyers must be acutely aware of the terms and condition as mentioned in the agreement.

What is a sale deed?

A is a legal document that proves that the seller has transferred the absolute ownership of the property to the purchaser. Through this document, the rights and interests in property are acquired by the new owner. A sale deed usually consists of the following information:

1. Details of the buyers and sellers (name, age and addresses)
2. Property description (total area, details of construction, the exact address and surroundings)
3. Sale amount including advance payment paid as well as the mode of payment
4. Time frame when the property title will be actually passed to the buyer.
5. Actual date of delivery of possession.
6. Indemnity clause (The seller promises to pay the buyer for any damages in case of disputes with regard to the ownership, resulting in monetary losses to the buyer)

Agreement for sale versus sale deed

Importance of agreement for sale

Signing an agreement for sale becomes important in light of several factors. First, this is a legal proof of the buyer and seller entering into an agreement, based on which the future course of action would be decided, in case of a dispute. Also, if you are applying for a home loan, the bank would not accept your application till you sign an agreement for sale.

Recall here that both parties will have to abide by the conditions laid in the agreement to sale. Any party flouting any of the terms, as prescribed in the agreement, might be dragged to court, if the other party so wishes. All parties concerned should also be mindful of the fact that this document can be cited as a legal proof in the court of the law and all those who have agreed to abide by the terms are obliged to do so legally.

Can sale agreement be verbal?

Section 9 of the Transfer of Property Acts states that the title of a property can be transferred through a verbal agreement, unless the law explicitly states that a written agreement must be prepared to conclude the transaction. In the case of immovable property of a value less than Rs 100, such transfer may be made either by a registered instrument or by delivery of the property, for instance. Since it is seldom the case, where immovable properties are valued less than Rs 100, all sale agreement have to be documented and a verbal agreement will not suffice.

Agreement for sale format for property

THIS AGREEMENT for SALE executed on the…………………. day of………………. 2021

between (name of seller) son of …………,, resident of…………………., hereinafter called the “Vendor” of the one part and (name of buyer), son of …………, resident of…………………. hereinafter called the “Purchaser” of the other part.

WHEREAS the vendor is the sole and absolute owner of the property more fully set out in the Schedule hereunder:

AND WHEREAS it is agreed that the vendor shall sell and the purchaser shall purchase the said property for the sum of Rs………………….. (Rupees in words) free of all encumbrances.

NOW THIS AGREEMENT OF SALE WITNESSES AS FOLLOWS:

1. The price of the property more fully set out in the Schedule is fixed at Rs…………………..(Rupees………………….) free of all encumbrances.
2. The purchaser has paid to the vendor this day the sum of Rs………………….(Rupees………………….) by way of earnest money for the due performance of the agreement, the receipt of which the vendor doth hereby admit and acknowledge.
3. The time for performance of the agreement shall be…………………. months from this date, and it is agreed that time fixed herein for performance shall be the essence of this contract.
4. The purchaser shall pay to the vendor the balance sale price of Rs…………. (Rupees…………………………………………………) before registration of the sale deed.
5. The vendor agrees that he will deliver vacant possession of the property to the purchaser before registration of the sale deed.
6. The vendor shall execute the sale deed in favour of the purchaser or his nominee or nominees as purchaser may require.
7. The vendor shall hand over all the title deeds of the property to the purchaser or his advocate nominated by him within………………. days from the date of this Agreement for scrutiny of title and the opinion of the vendor’s Advocate regarding title of the property shall be final and conclusive. The purchaser shall duly intimate the vendor about the approval of the title within……………. days after delivering the title deeds to him or his advocate.
8. If the vendor’s title to the property is not approved by the purchaser, the vendor shall refund to the purchaser the earnest money received by him under this Agreement and on failure of the vendor to refund the earnest money within…………………. days he shall be liable to repay the same with interest thereon at…………………. per cent per annum.
9. If the purchaser commits a breach of the Agreement, he shall forfeit the earnest amount of Rs…………………. (Rupees………………….) paid by him to the vendor.
10. If the vendor commits a breach of the Agreement, the vendor shall not only refund to the purchaser the sum of Rs…………….. (Rupees………………….) received by him as earnest money, but shall also pay to the purchaser an equal sum by way of liquidated damages.
11. Nothing contained in paras 9 and 10 supra shall prejudice the rights of the parties hereto, to specific performance of this Agreement of sale.

(Schedule of Property)

IN WITNESS WHEREOF the vendor and the purchaser have set their hands to the Agreement of sale on this the………………day of…………………. 2021 in the presence of the witnesses:

Witness: Vendor

Witness: Purchaser

Specimen Schedule of the Property

1. Municipal No/ward no/plot no/khasra no
2. Location: Street number, name
3. Place/Area: North, South, East,West
4. Sub-District Hqrs./Tehsil/Mandal:
5. Police Station
6. District/State
7. Measurement of all sides
8. Plinth area/floor area
9. Carpet area
10. Fixtures 
11. Permitted use of the land/building:

Can verbal agreements be challenged in court?

Yes, verbal agreements can be challenged in court but it can be complicated. It is very difficult to prove the dishonesty of one party or their misdeeds, because the agreement is verbal and there is no documented evidence.

Is sale deed the same as conveyance deed?

Even though one often gets to hear the two terms being used interchangeably, a sale deed and a conveyance deed mean different things. The sale deed is basically a type of conveyance deed, considering the latter is rather a wide term, which also covers gift deed, exchange deed, mortgage deed, lease deed, etc. Basically, all these documents are various types of conveyance deeds.

“Each type of legal document that transfers the ownership of property from one person to another is a conveyance deal. In that sense, a sale deed is a conveyance deed too. Buyers should be mindful of this and should not get unduly confused, thinking that they need two documents for the property purchase rather than one,” says Prabhanshu Mishra, a Lucknow-based lawyer with expertise in property law.

Sale agreement at the time of property registration

At the time of property registration, home buyers also have to present, along with other key documents copies, the agreement to sell. Doing so is important, for the authorities to ensure that the transaction is being concluded, based on the agreement made between the buyer and the seller previously.

Supreme Court ruling on sale deed and agreement for sale

The sales agreement may or may not result into an actual sale of the property in question. Some of the stamp duty laws, like the Maharashtra Stamp Act, deem an agreement for sale of an immovable property, on the same footing as a proper deed of conveyance and therefore, are subject to the same stamp duty as is applicable on the proper deed of conveyance or sale deed of an immovable property. Due to such deeming provisions, requiring payment of stamp duty on an agreement for sale, people mistakenly perceive an agreement for sale, as a proper sale deed.

The Supreme Court of India in 2012, in the case of Suraj Lamp & Industries (P) Ltd (2) v State of Haryana, while dealing with the validity of sales of immovable properties made through power of attorney, has held as under:

“Immovable property can be transferred/conveyed only by a deed of conveyance (sale deed), duly stamped and registered as required by law. We, therefore, reiterate that immovable property can be legally and lawfully transferred/conveyed only by a registered deed of conveyance.”

“Any contract of sale (agreement to sell), which is not a registered deed of conveyance (deed of sale), would fall short of the requirements of Sections 54 and 55 of the Transfer of Property Act and will not confer any title, nor transfer any interest in an immovable property (except to the limited right granted under Section 53A of the Transfer of Property Act).”

According to the Transfer of Property Act, an agreement for sale, whether with possession or without possession, is not a conveyance. Section 54 of the Transfer of Property Act enacts that the sale of an immovable property can be made, only by a registered instrument and an agreement for sale does not create any interest or charge on its subject matter.

The Supreme Court further reiterated the importance of sale agreement between the builder and buyer, as it recently ruled that the period of allotment of a housing unit to a home buyer has to be considered from the date of the builder-buyer agreement and not from the date of registration of the project under the Real Estate (Regulation and Development) Act, 2016. The court further ordered the RERA authorities to order payment of compensation from the builder as per the sale agreement, the sanctity of which has been upheld through this order.

Consequence of failure to execute a sale deed

As per the Indian Registration Act, 1908, any agreement for transfer of any interest in an immovable property of value more than one hundred rupees, is required to be registered.  So, if you have purchased any property under any agreement for sale, without it being followed by a proper sale deed, you do not get any right or interest in the property purported to be transferred under the agreement of sale.

This absolute rule is subject to the exception provided under Section 53A of the Transfer of Property Act. Section 53A provides that where the buyer has obtained possession of the property that is subject matter of the transfer, while fully complying with his part of the obligation under the agreement, the seller shall not be entitled to disturb the possession so granted to the buyer. It may be noted that Section 53A provides a shield to the proposed transferee against the transferor and debars the transferor from disturbing possession of the transferee, but it does not cure the title of the buyer to the property. The ownership of the property still remains with the seller.

So, in the cases where you have purchased any property under a sales agreement and got possession, the title of the property still remains with the developer, unless a sale deed subsequently has been executed and registered under the Indian Registration Act. Thus, it becomes clear that a title in an immovable property can only be transferred by a sale deed. In the absence of a duly stamped and registered sale deed, no right, title or interest in an immovable property, accrue to the buyer of the property.

Who pays the stamp duty for sale deed registration?

It is the responsibility of the buyer to pay the stamp duty and the registration fee for registration of the sale deed.

Who pays the stamp duty for sale agreement registration?

It is the responsibility of the buyer to pay the stamp duty and the registration fee for the registration of agreement for sale.

What if the sale deal fails after sale agreement registration?

In case a property deal cannot be materialized after the sale agreement is executed, each party will have to settle the matter based on the terms and conditions stated in the sale agreement. If the sale could not complete because of a fault of the buyer, the seller may be entitled to not refund the earnest deposit or token money given by the buyer. In case the seller is responsible for the sale deal to be unsuccessful, he may have to compensate the buyer for loss of time and mental agony.

FAQs

(The author is a tax and investment expert, with 35 years’ experience)