Agreement to Sell vs Sale Deed - A Detailed Analysis

This article analyses how an agreement to sell and a sale deed may involve the same aspects however, one is enforceable in case of a dispute and the other has its limitations.

Mon Aug 08 2022 | Real Estate, Wills, Probate and Trust | Comments (0)

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Understanding the meaning of Sale

Sale is understood as a transfer of ownership of a property for a price or charge. It indicates complete and total transfer of all rights in the property and the seller retains no rights in the transferred property. The concept of Sale is effected through instruments, which are called Agreement to Sell and Sale Deed. In addition to this, there are other modes of transferring property by gift Deed, Wills etc but such transactions do not involve consideration, which is the main ingredient for Agreement to sell and Sale Deed.

Meaning of Agreement to Sell

In any process of sale and purchase of property, we start the transaction with an Agreement to Sell which can also be called a Memorandum for Sale. It is  a document that encompasses the terms and conditions settled and decided between the parties, and is binding upon the parties concerned, once the exchange of money has taken place. It always precedes the execution of a sale deed and is registered in some States in India for E.g. Maharashtra . Therefore, it is a promise to carry out the entire transaction as spelt out in the Agreement to Sell and has legal sanctity.

Meaning of Sale Deed

A sale deed is the document that follows the Agreement to Sell and is the main legal document for substantiating sale, assignment or transfer of ownership of property in favour of any buyer.  It establishes the buyer’s ownership of the property, and is the main document in any transaction. The execution of this document means the transaction is completed, as per the spelt out terms and conditions of the Agreement. The document needs to be presented for registration within 4 months from date of execution. A grace period of further 4 months can be granted with a payment of penalty which amounts to 10 times the charges of Registration.

A comparison between Agreement to sell and Sale Deed

Particulars Agreement to Sell Sale Deed
Registering of DocumentNot mandatory to register but Registration is done in some States in India. E.g. Maharashtra  This document has to be Mandatorily registered all over India. 
ValidityGenerally it is as per the clauses in the Agreement and as mutually agreed between the parties. However, if it is not clearly spelt out, then its 3 years from the date the Agreement was fixed for performance or the seller/ buyer gets notice about non-performance.The Sale Deed executed means that the Title has devolved and such title will now be with the buyer, for as long as he does not further transfer it. The seller must clear all payments related to the property such as property tax, cess, water and electricity charges before the sale deed is signed.
Transfer of RiskThe Risk is still with the seller till the complete title is passed on.On signing, the risk is fully transferred to the buyer.
Legal remedyIf either party refuses to comply it is a suit for Specific Performance and subsequent damages.In this case since title is passed on the buyer can sue for the damages
Payment processThe entire manner in which the payments will flow is specified in the Agreement to Sell.The Sale deed is executed with the entire consideration amount, after all the payments are completed.
Stamp DutySome States in India for eg Maharashtra has a stamp duty to be paid on Agreement to Sell on par with a Sale Deed document.There is a definite Stamp duty prescribed for this document, as per the Stamp Act of the particular State.
Future LegitimacyIt is valid only till the Sale Deed is signed. Once the Sale deed is signed it becomes null and void.Once executed it is always in force till any further transfer.
Title SearchThe entire search reports of the title of the property is in the Agreement to Sell.The titles have all been verified before completion of execution.

 

The procedure for transfer of Property

Sale is defined under Sec 54 of the Transfer of Property Act , as under

“Sale” defined. ''Sale” is a transfer of ownership in exchange for a price paid or promised or part-paid and part promised. Delivery of tangible immoveable property takes place when the seller places the buyer, or such person as he directs, in possession of the property.

Thus, sale is understood as a transfer of ownership by a deed for a price consideration and the same is paid or promised to be paid. The Stamp duty on the various Agreements to Sell or Sale Deed is payable, as per applicable state laws. In states like Maharashtra, lot of importance is placed on Agreement to sell and Stamp duty is collected on it, thereby holding it on par to transfer title to the purchaser. The minimum price at which stamp duty is payable, in case of transfer of immovable property, is called Circle of Government rate. If price paid by any buyer is less than the circle rate, then stamp duty is paid on the Circle/ Government rate. Generally, state governments collect stamp duty and registration charges on the declared value or the circle/government rate, whichever is higher, depending  on the value of the property being transferred. After stamp duty, 1% of the value of the property is charged as registration fee, which has to be paid to get the instrument registered.

Conclusion

Thus, both documents are instrumental in transferring title to the purchaser, albeit at different  moments of the sale transaction. However, for these documents to be executed there is a requirement of two  parties viz: Buyer and Seller to be present in the transfer of property. The seller needs to be competent to enter into an Agreement to sell or Sale Deed, by virtue of having an undisputable title on the property desirous of being sold. There must also be a money consideration involved to convey the property in favour of the buyer. The said transfer of ownership amounts to transfer of rights and liabilities associated with the subject property and such transfer along with money involved results in a sale, which is guided by the Agreement to Sell and eventually concluded by the Sale Deed.

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