To all the interested Home Buyers, there is never a bad time to close on a well-deserved home, be it as a future investment or for an end-use. Provided you do a value investment just like how Warren Buffett says it for stocks. However, the entire process of purchasing a property is difficult and at times overwhelming.

More so when you are inching towards a deal, there are just too many paper works. Here is a guide to carefully evaluate Property Sale Agreement – perhaps the most important document in a property purchase.

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Real Estate market is a segment that interests all individuals, couples and families. There is no denying that the process of buying a home involves a fear factor. What if the property is under dispute in court? What if there are some hidden charges that are not disclosed? Such “what ifs” haunt both Buyers and Sellers(end-owners). So will this fear stop you from buying your dream home? No, it’s not that difficult too. Let’s dig deeper. 

Concerns like whether the commercials agreed between a Buyer and Seller in return of exchange of a product (“property” in this case) are clear or vague. While in most cases, price is always clear but the state of the product or the property is not what is expected.

Either there will be delays in possession, construction quality as promised will not be up to the mark, there can be structural defects, there is a mis-match in the size of the property(a big loss for the Buyer!) and so on. There can be hundreds of issues when the quantum of money being exchanged is huge.

Consider it as this, a car manufacturing company incurs production cost for the entire vehicle at different levels – engine, interiors, exteriors etc. When there is a severe market competition and prices cannot be increased from current levels or they can only be marginally increased, the company will do whatever possible to retain its market share with a competitive price as well.

How is it possible? Well a complex machine like a car has several parts where quality can be compromised without endangering the safety of passengers. No wonder why you see so many recalls of vehicles worldwide. Same is the case with real estate. Because of sheer magnitude of money involved. And since quantum involved here in most cases will be much higher than a car, you can imagine data points that you need to be vigilant of before making a purchase.    

Your offer and other Terms and Conditions of the purchase need to be in a written format rather than just a mere handshake. A proper agreement that highlights every detail needs to be made where the interests of both a Buyer and a Seller are safeguarded. And failing to follow this agreement will lead to penalties for both parties.

Here is a simple guide to all you need to know about a Property Sale Agreement and its important clauses.

What is a Property Sale Agreement?

A Property Sale Agreement (hereinafter sometimes referred to as the “Sale Agreement”) is a legal agreement between the Buyer and Seller of a property, to transfer the ownership of the property at a future date.

A Sale Agreement is generally drafted and signed after the Buyer and Seller have sat down and negotiated the Terms and Conditions of the sale and the Buyer has paid the token amount to the Seller (also referred to as the initial deposit or Earnest Money).

It is important to define some facts about a Property Sale Agreement –  

  • It is a ‘promise’ – It signifies that the Seller promises to sell the property to the Buyer.
  • It does not involve an actual sale – No legal ownership is transferred as a result of a Sale Agreement. It is a promise to sell if all the Terms and Conditions listed in the Sale Agreement are satisfied. The actual sale occurs at a future date.   
  • It promises a sale at a future date – A property is not transferred overnight. It takes time to execute. Often the Buyer requires some time to arrange for funds and further inspect the property. The agreement allows for sale at a future date fixed as per the convenience of both parties.
  • It is legally enforceable – A Sale Agreement is a legally binding contract and can be enforced by a court of law. 

What is a Sale Deed? 

A Sale Deed is not to be confused with a Sale Agreement.

A Sale Deed legally transfers the ownership and title of the property to the Buyer. 

While the Sale Agreement acts as a promise to sign a Sale Deed, based on the Terms and Conditions specified within the Sale Agreement.

When do you prepare a Property Sale Agreement?

A typical property sale transaction involves various steps as under:

    1. Searching and inspection of various properties in the area.
    2. Shortlisting a favourable property.
    3. Sitting for negotiation with the Seller.
    4. Transfer of the token deposit amount or Earnest Money.
    5. Entering into a Sale Agreement.
    6. Sale Deed, Payment of consideration to the Seller.
    7. Registration of the property.
    8. Possession and moving into the property. 

A Sale Agreement is prepared after payment of the token money to the Seller (existing Owner or the Builder) followed by the drafting and signing of a Sale Deed.

Property Sale Agreement

Property Sale Agreement, Source – Template.Net

What does a Sale Agreement look like?

The skeletal format of a Sale Agreement is similar to any standard legal contract. It is prepared on stamp paper and preferably notarized by a Notary. The Terms and Conditions are enlisted in the various clauses. It is signed by the Buyer, Seller and a minimum of two witnesses.

However, a Sale Agreement is a customized legal property contract. The enlisted clauses are drafted as per the requirements mutually agreed upon by both parties to the contract. They can vary significantly from case to case. 

In some cases, the Builder may have unfavourable terms listed in the Sale Agreement for a Buyer, so it is important to review the Sale Agreement and take help of a property lawyer if required. 

Points a Home Buyer must keep in mind before signing a Sale Agreement

  1. Make sure the agreement clearly states the Company or Builders’ correct name you are purchasing the property from.
  2. The agreement should mention the true occupation of the Company or Builder in simple and direct words.
  3. The roles of a Buyer and Seller shall be clearly defined in a Sale Agreement that is a Seller is a proposer/promiser who is interested and willing to sell the property and a Buyer is an acceptor who is willing to buy the property.
  4. Definitions of each term stated in the agreement should be crystal clear and easy to understand. For example, the definition of a Carpet Area should be stated exactly the way it is defined by RERA, and if you are buying in Mumbai, then as per Maharashtra Regional and Town Planning (MRTP) standards and not according to the terms of the Builder. 
  5. Home Buyers must also be aware of the Terms and Conditions to adhere to when disputes occur. For instance, Home Buyers must not agree to bear all charges when a dispute arises regarding the evaluation of the Carpet Area for any part of the flat, whether it is the balcony, rooms, living room or kitchen area.
  6. Payment related terms should be clearly stated, understood and followed by both – the Builder and the Home Buyer. If the Buyer fails to process any payment or if a Builder fails to deliver projects even after the grace period then both must be charged with penalties. RERA guidelines clearly state penalties for both parties in case of delay in payment by the Buyer or in case of delay in possession granted by the Builder. 
  7. All conditions stated in the Sale Agreement related to recreational facilities, common areas, amenities within the society must not be misleading and shall be delivered as promised in the agreement.
  8. Home Buyers must be well aware of maintenance clauses stated in the Sale Agreement. As well as clauses related to payment refund if the Home Buyer chooses not to continue the purchase.
  9. The Builder and the Home Buyer both shall be in a win-win situation at the termination of the Sale Agreement and neither of the parties should be at a disadvantage or face any difficulties in terms of money.
  10. Most importantly, the Home Buyer should be very careful while signing the Sale Agreement especially on terms such as the Home Buyer is completely satisfied with the project or the Home Buyer has approved the project, etc. 

Why do you need a Sale Agreement?

A Sale Agreement serves as a road map on how the property transaction will be completed. A properly drafted Sale Agreement safeguards both the Buyer and the Seller from any changes or the non-performance of the Terms and Conditions agreed upon, by either of the parties. Hence, it is of paramount importance that the Sale Agreement be properly drafted and capable of handling any dispute which arises while or before the execution of the Sale Deed.

It is advisable to enlist the help of a good property lawyer for the task. However, even while enlisting the help of a lawyer, it is always good to be aware of the matter in the Sale Agreement that you sign. Certain clauses if left unexamined, the agreement might cause a significant amount of trouble in the future. 

Clauses and Precautions

Let’s look at a few clauses in a Property Sale Agreement that one should examine closely before signing it.

  • Property and its Description

The actual address of the property, its sqft area, the amenities and other property-related details should be clearly specified. Furthermore, all original documents in respect of the property are to be transferred to the Buyer in exchange for the transaction. There are three basic ways in which the area of a property can be measured – Super Built-up, Built-up and Carpet Area.

The first includes a proportionate share of the common facilities like the stairs, lobby etc in addition to the built-up area. The built-up area is the size of the property, including the walls. The Carpet Area is the actual size of the property.

Precaution- It is advisable to have the agreement specify the Carpet Area. 

  • Details of the Buyer and Seller 

A Sale Agreement generally mentions the full legal name, parent name, age, and address of the Buyer and Seller (“the Parties”). Properties held or to be purchased in a joint name should include details of both Sellers or Buyers. Certain transfers may include the need for specification of PAN Card details in the Agreement.

Precaution – It is advisable to check some proof of the identity of the parties to the contract. 

  • Payment – Mode and Terms

The payment terms are specified in the Agreement. Payment may be made by cheque, cash or other means. Payment may be made in full or in instalments. These details are specified in the Agreement.

Precaution – The mode and terms of payment must be clearly mentioned. The final consideration (the amount payable less token amount) and the payment schedule (with calendar dates) should be clearly mentioned. 

  • Token Money (also called Earnest Money/ Initial Deposit)

The token money amount is specified in the agreement along with the cheque number (or details if using another payment mode). The conditions of refund and forfeit of the deposit are specified. The token money forfeit terms are very important.

Precaution – Generally, the Buyer forfeits the deposit if he fails to make any payments for the property or decides against the purchase.

  • Default Penalty

This clause entails the penalty proceeding and defines the monetary amount for failure to adhere to the terms in the agreement. It is essential to define what acts constitute a penalty.

Precaution – The clause should mention the penalty and refund of deposit in-case the Seller refuses to sell. It must specify the penalty amount for the delayed payment of instalments by the Buyer. 

  • No Pending Dues

The agreement should specify that there are no pending dues which are unpaid before the date of transfer of ownership. 

Precaution – All taxes, bill payments for electricity, telephone, maintenance charges, etc. should be settled in full by the Seller. The Buyer should ensure that the agreement explicitly states the conditionality of no dues pending.

  • Free from Encumbrances

This is a crucial clause in a Property Sale Agreement. Many cases arise where the Buyer later realizes that the property was under a mortgage or attached to a court injunction or dispute. The Seller must give a clear guarantee that the said property is free from encumbrance (any outsider claims on the property) or attachments and this should reflect in the agreement. 

Precaution – The agreement should be clear that, in the case of a dispute arising after the agreement, the seller is liable and responsible for the same.

Conclusion

Whether you are a seasoned investor or just looking for self-use, entering into a Property Sale Agreement is a must. Equipped with the information in this article, we hope that your quest for a new home will be a lot less troublesome.

All it takes is a little bit of homework for Home Buyers to avoid problematic situations like being stuck with their booking amount when Terms and Conditions are not read well. As they say, prevention is better than cure. Happy property hunting!

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