Sale Deed and Agreement to Sell: A Comparative Study

An agreement to sell an immovable property is not the same as a sale deed for the same property. These documents are not synonymous. We look at the meaning of the two documents, clauses, and differences that home and other property buyers and sellers should be aware of, from a legal standpoint

What is an agreement to sell?

An agreement to sell is an agreement to sell a property in the future. This agreement specifies the terms and conditions, under which the property in question will be transferred. The Transfer of Property Act, 1882, defines it as: 

“Contract for sale.—A contract for the sale of immovable property is a contract that a sale of such property shall take place on terms settled between the parties. 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 to sell contains a promise to transfer a property in question in the future, on satisfaction of certain terms and conditions. So, this agreement itself does not create any rights or interest in the property in favour of the proposed buyer.

Important clauses:

Apart from the seller’s covenant that he/she is the absolute owner having the authority to transfer the property in question, as well as the declaration that the said property is not subject to any land acquisition proceedings, the following are some important clauses:

  • Earnest money and Mode of Payment: The amount payed in advance, and the mode by which you will be paying the remainder amount—cheque, cash or DD must be mentioned along with the consent of the seller to accept it in that form.
  • Indemnity Provision: As a conscious buyer, you should scrutinize the status of encumbrance from the sub registrar or registrar's office. This clause is mostly applicable in case of a resale property. The clause states that the seller should clear all statutory charges such as electricity bill, property tax, water bills, maintenance charges and society charges and all other dues prior to the sales deed execution. In case a home loan was taken to purchase the property by the original buyer, then the seller must repay the loan and get the papers back from the bank. 
  • Default Clause: Sales agreements should ideally bear a clause that if there is any default on the part of the buyer or seller then the party defaulting shall have to pay a penalty to the non-offending party so that the execution of the sale deed is not affected.
  • Right to Call off the deal: As a buyer you should reserve the right to call off the deal under certain circumstances without being penalized financially. 

What is a sale deed?

A sale deed is the most valuable legal document that you shall possess upon purchasing a property. It is a legal instrument which is executed between the seller and the purchaser which evidences the sale and transfer of ownership of an immovable property. A sale deed is supposed to be compulsorily registered under Section 17 of the Registration Act, 1908 which mandates that all immovable property whose value is more than Rs. 100 has to be compulsorily registered. The sale of an immovable property is defined under Section 54 of the Transfer of Property Act, 1882 as “Sale is a transfer of ownership in exchange for a price paid or promised or part paid and part promised”.

Particulars generally included in a sale deed:

  • Parties: It should bear the name, age and addresses of the parties (buyer and seller) involved in the transaction. Both parties must sign and execute the deed with bona fide intention.
  • Description of the property: The sale deed should have the total plot area, identification number, details of construction, the exact location and surroundings. The property schedule must be incorporated in the sale deed to define the accurate location of the property.
  • Clause Of Sale Consideration: This is the amount that the buyer agrees to pay to the seller during the sale deed execution. The sale amount should be stated clearly on the deed, as it was agreed upon.
  • Advance Payment: If you have paid anything in advance to the builder or seller for booking the property, this should be mentioned in the sale deed clearly. The remaining amount payable must also be written in the document.   
  • Passing Of The Title: The sale deed should mention when the property title shall be passed to the buyer. The seller must be given a time limit for the title transfer. Once the title has been transferred, all related rights shall pass onto the buyer.
  • Delivery of Possession: A clause in the sale deed must bear the information that the possession of the property shall be transferred to the buyer by the seller after completion of the registration process. The sale deed should state the actual date of delivery of possession.

The two documents compared:

The agreement to sell may or may not result into an actual sale of the property in question. 

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).

Section 53A provides that where the buyer has obtained possession of the property that is the 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. 

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, the key differences are:

  1. A sale implies immediate transfer of property. It is accomplished through a Sale Deed, while an agreement to sell implies future transfer. 
  2. A Sale is an executed contract, while an Agreement to Sell is an executory contract. 
  3. Breach of Sale can result in a suit for price as well as damages, while any breach of terms of an Agreement to Sell can result only in suit for damages (specific performance of). 
  4. A Sale Deed is a compulsorily registrable instrument whereas an Agreement to Sell is subject to laws of the particular state.
  5. An Agreement to sell precedes a sale deed. 

To conclude:

Based on the sale deed, you shall be allowed to proceed with registration and mutation of the property. The sale deed or purchase deed is drawn upon a non-judicial stamp paper by legal draftsmen according to the value prescribed by the stamp duty act of a state. It needs to be compulsorily registered in the sub registrar’s office.

Once the sale deed has been prepared, it must be ratified by two witnesses from both sides. The witnesses shall have to provide their full addresses, signatures and names. The signatures of the buyer and seller must be present in every page.

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 immoveable property, accrue to the buyer of the property.