Draft A Sale Deed / Property Purchase Agreement

What is a Sale Deed?

In the legal world, a deed is understood and accepted as a legal document and it confirms an interest or right on the mentioned thing or the privilege, mainly movable and immovable practice and for a deed to be accepted legally, it is important for it to meet below mentioned requirements:

1. For a legal document to be considered as a deed, it must mention the word “deed” on its face so that it is very obvious and clear to its readers. Also when the document mentions the word “deed” categorically, it makes clear that the document is nothing but a deed.
2. For a deed to be legally valid, it is important for it to carry the seal of the concerned department, for example if it is a sale deed, it must carry the appropriate seal on it, otherwise it shall not be considered valid.
3. A deed is basically an instrument in extending the privilege or thing to the nominee and thus it must mention the same in clear words.
4. One of the most important aspects of a deed is that both the donor and the acceptor (donee) must be in legal capacity to transfer and accept the mentioned thing or privilege.
5. For a deed to be legally accepted, it is important for it to be executed in presence of minimum two witnesses. In any other case, it shall be considered invalid.

A sale deed is considered as the most important document in a housing deal and is nothing but a legal document which is executed between the seller and the purchaser and affirms the transfer of ownership without any consideration and considering the magnitude of real estate in India; a sale deed is also one of the most common documents. Section 54 of the Transfer of Property Act 1882 defines the sale of an immovable property and describes it as “Sale is a transfer of ownership in exchange for a price paid or promised or part paid and part promised and as per Section 17 of the Registration Act 1908, it is mandatory to register the sale deed as per which all immovable property whose value is more than 100 Rs and it has to be registered compulsorily in the sub registrar’s office.

The main purpose why a sale deed is executed is to save its executors from getting duped and as a mandatory practice, it must contain details such as details of both the parties i.e. the donor and the donee, details of the property such as area, built area etc and is executed on a non-judicial stamp paper of value as set by the state government, which is different for each state i.e. each state has a predetermined value of stamp paper for drafting sale deed.

Ideally, a Sale Deed must contain following details:

1. Details of the parties involved: In a sale deed, it is mandatory to mention the complete details of the concerned parties such as full name, address, age, residence address, and such details are mentioned at the very beginning of the deed. If the details of the parties are not mentioned in the sale deed, it is not considered valid. In a sale deed, seller is referred as lessee and buyer is referred as lessor.
2. Title: Title is the foremost thing to decide in a sale deed and it becomes important to ensure if the title to the property is free of all encumbrances and once it is ascertained that there are no encumbrances, the next step is to check for any pending liabilities or payment of tax or bills such as water bill, electricity bill or property tax for that matter.
3. Details of the property: Considering it is sale deed, it goes without saying that it must contain details of the immovable property i.e. if it is a house or a flat, no of rooms, plot area, construction area, and number of balconies, any addition or subtraction in the mentioned property. Each and every detail, relevant the mentioned immovable property has to be mentioned in the sale deed.
4. Delivery and the passing of title: As per the sale deed, once the deed is signed by both the parties i.e. the seller and the buyer, it irrevocably transfers the title of the property to the buyer, to and when later has adhered to the compensation and paid it in full. In other words, the buyer holds no right on the mentioned property once the sale deed is executed i.e. signed by both the seller and the buyer on each page of the document.
5. Witnesses:A sale deed is not valid if it is not executed in presence of at minimum two witnesses.
6. Registration of the sale deed: As mentioned above, if the value of the mentioned property i.e. the immovable property is more than Rs 100, it is mandatory to get the sale deed registered with the office of sub registrar and as per Section 17 of Registration of Property Act 1908, it is mandatory for both the parties to be present within four months of the execution of the sale deed and other relevant documents.

Sale deed is more often mistaken by sale agreement, whereas in real both are as different as chalk and cheese and it is important to understand what makes them different and it is listed as below:

1. While a sale agreement is an important document in the process of sale and purchase of the property, a sale deed is executed at the concluding part of a sale or purchase and it comes after the sale agreement.
2. A sale agreement is an instrument to lay down the future intention of parties to sell the property, whereas once a sale deed is executed, the transfer of the immovable property goes immediately to the buyer.
3. Also, in a sale agreement, any risks and penalties related to the property remain with the seller till the execution of sale deed whereas all risks and liabilities associated with the property gets transferred immediately to the buyer in case of a sale deed.
4. It is not compulsory to register the sale agreement whereas it is mandatory to register the sale deed and if failed, the parties have to face heavy penalties.

Property Purchase Agreement

As mentioned above, property purchase agreement or sale agreement is an important document in the process of purchase or sale of an immovable property however it is quite different to a sale deed and although it is not mandatory to register sale agreement or property purchase agreement, it is important to include following clause in it to safeguard buyer’s interest:

1. Indemnity Clause: Reason why indemnity clause is an important and crucial part of a sale agreement is to save the buyer from getting involved in a legal litigation. There is a sudden increase in the property/land prices, especially in metro cities, a lot of properties are facing legal litigation and some of the main reasons for such disputes are either the mentioned property was transferred under duress or legal heirs of the seller are claiming their right on the property. Thus, to save the buyer from facing such situation, an indemnity clause is included in the property purchase agreement as per which in case of any legal dispute, the seller will compensate the buyer for any loss incurred by the buyer as per the current market rate. It is important to draft the indemnity clause.
2. Penalty Clause: As a normal practice, a seller is bound to pay a certain token amount to the buyer so that later does not look for any new buyer and in order to ensure this, it is important to include a penalty clause according to which if the seller backs out from the sale, he has to return the token amount to that particular buyer. Reason why it is important to have above mentioned clause is because in case it is not there, the seller will keep on looking for the new buyers who are ready to pay higher token amount as compared to the previous one.
3. Right to Call Off the Deal: It is again a crucial part of a sale agreement according to which a buyer should reserve the right to call of the deal under certain circumstances such as if the seller fails to provide legal/statutory property documents to the buyer or if the buyer has found any legal defect in the property.
4. Outstanding dues: A properly drafted sale agreement must mention it categorically that all pending dues will be cleared by the seller prior to the execution of the sale deed.
5. Transfer of Deposits / Membership of Owner’s Association: As per this clause, transfer of all deposits paid by seller, namely electricity connection, water connection, apartment owners association, club house membership, gym membership, contribution towards any association, to the buyer is mentioned in clear terms otherwise chances are much likely that the seller asks for extra money at the time of sale deed against all deposits made by him.