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What is an agreement for sale?

An agreement for sale, is an agreement to sell a property in future. This agreement specifies the terms and conditions, under which the property in question will be transferred. 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.

See also: Can RERA overturn ‘forced consent’ agreements procured by builders for changing project plans?

 

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.

 

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 rupee, 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 immoveable property, accrue to the buyer of the property.

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