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Everything About A Sales Agreement

In India List of fraud and scams in Real Estate, Goods and Services are Increasing day by day the reason for this fraud are such as; Title fraud (Title fraud is something where the owner is not clear), Fake Promises, Selling without authorization, Forcefully cancellation due to prices went higher, Selling the same unit to multiple buyers, etc, therefore, it is important to prepare proper registered sales agreement before any deal.

This Article identifies the procedure of registering a sales agreement, the document required for a sales agreement, registration charges, important clauses of a sales agreement, sample format of a sales agreement, etc. This may help you draft a sales agreement on your own.

What is a sales agreement?

Section 4(3) in the Sale of Goods Act, 1930 defines it as, "where the transfer of the property in the goods is to take place at a future time or subject to some condition thereafter to be fulfilled, the contract is called an agreement to sell."

A sale agreement is an important legal document that evidence ownership of goods and property in the future. A proportion of risk reduces by clearly mentoring the terms of a particular agreement and getting it signed by both parties, i.e. the buyer and the seller. If one party violets it, then the other can seek redressal by filing a suit for specific performance in civil court. The sale agreement is not a title document. Failure to register the sale agreement of a property could put you at high risk.

Advantages of a Sales Agreement

  1. Minimizes Risk
    A sales agreement is always advantageous because it reduces the loss risk of a company or individual and also reduces the risk of a person getting sued. A proportion of risk reduces by mentioning terms clearly on the particular agreement and get it signed by all the important parties. Having of proper sales agreement will provide you ground to take legal action in the failure of meeting conditions mentioned in the contract.
     
  2. Clarity
    A sales agreement provides clarity to both buyer and seller. A sales agreement contains all important details which are required for a valid contract and expectations from both parties. The agreement makes both the parties stay true to what they have agreed on while writing an agreement and avoid the risk of a lawful suit.

Types of A Sales Agreement

  1. Conditional Sale Agreement
    A conditional sale agreement safeguards a seller's repossession right regarding a transaction where a buyer purchase goods or property without giving advance payment. Such agreement is important from a seller's point of view as it prevents any chance of non-payment or fraud.
     
  2. Sale Agency Agreement
    A sale agency agreement is usually drafted between a seller and an agent. Such an agreement enables the seller to grant the right to sale negotiation to the agent in exchange for a mutually used agreed commission.
     
  3. Amendment to the sale agreement
    In Amendment Agreement parties decides to draft an agreement to amend one or multiple clauses of the existing agreement.
     
  4. Commission Sale Agreement
    A commission sale agreement is a legally binding document that reflects the terms regarding the work paid on commission. Such an agreement helps in prevent disputes that are likely to be arisen between the parties over the percentage of commission to be paid.

Essentials of a sales agreement:

  1. Lawful Consideration
    Lawful consideration is nothing but the value of goods and services at may be transferred in exchange for something else of value. Thus there must be mutual consideration between both parties.

    Example: A decides to sell goods to B in exchange for Rs 1000.
     
  2. Free Consent
    Section 13 of the Indian Contract Act 1872, "Consent is when to or more persons agrees upon the same thing and in the same sense."

    Example: A agrees to sell his bike to B.
     
  3. Competent Parties
    Competent parties are parties who are themselves legally capable of entering into the agreements and contracts. Peoples who may not qualify as competent parties include minors and people with severe mental disabilities.

    Example: A is a 14year old child who wants to purchase land from B who is 60years old person, hence this contract will not be considered valid.
     
  4. Two Parties
    There must be a minimum of two parties to the agreement of sales. In a sale agreement contract, the ownership of goods has to pass from one party to another party. Hence the seller and buyer must be different persons because one person cannot be both the buyer and the seller.

    Example: A is buying a car from B.
     
  5. Transfer of Ownership
    In a sale agreement, ownership over goods and services or property is transferred to the buyer by the seller.

    Example: A agreed to buy a new bike at Rs. 50000 from agent B. A paid the price and got the bike registered in his name and the registration book was delivered by B to A. hence ownership of the bike transferred to A.

The Procedure for registering a sales agreement

As per Section 17 of the Indian Registration Act, 1908, any agreement for the transfer of any interest in immovable property of value more than one hundred rupees, is required to be registered. A sale agreement is compulsory to make a sale deed in the future. To be considered valid evidence in a court of law the agreement of sale needs to be registered.
The agreement should be registered in the Sub-Registrar Office within four months from the date of execution of the document.

The Sub-Registrar verifies the document to ascertain whether it is legal to register it or not. He further verifies that the full stamp duty is paid. In his presence, both the parties executing the document admits that they have executed the document presented for registration. Parties who are present and admitting to executing the document are then personally identified by two independent witnesses. Both parties and witnesses present, again sign in the presence of a sub-registrar on an additional page attached to the document.

Parties photograph to the document and also thumb impression is taken and then photograph and thumb impression is affixed on the additional page attached to the document. The sub-registrar puts his official seal on each page of the document and on the last page he signs the document as being registered. He records the content of the document, including the additional pages, either by photocopying the content or by scanning the content of the document.

The photocopy or scanned image is permanently retained by him in his records so that in the future whenever a copy of the document is required it can be obtained. Also, that copy becomes a public document, as mentioned above, on the record, and after completing the above formalities the original document is returned to the party presenting the document for registration. This completes the process.

Documents required for a sales agreement:

  • Aadhar Card of both parties (buyer and seller)
  • Pan card of buyer and seller
  • Passport size photographs of both the parties.
  • Date and place of execution of the agreement
  • Aadhar card of 2 witnesses
  • The deal value and all the financial details (including TDS payment) plus receipt of registration charge payment and stamp duty fees.
  • 7/12 extract or Record of Rights and Tenancy Crops (RTC)
  • A Copy of all registered last agreements (in case of resale property)
  • Copy of No objection certificate under the land ceiling Act.
  • Copy of Municipal tax bill
  • Construction completion certificate
  • Building plan authorized by the Statutory Authority
  • Documents If any loan on the property (Past/Current)
  • Recorded agreements between the builder and landowner.
  • Allotment letter from the Builder/Co-Operative Society/Housing Board
  • NOC from Apartment Association (in case of resale property)
  • All title documents of a landowner


Registration Charges for a sales agreement

In every state, there are different registration charges for sales agreements, All the charges put together can come up to 7% to 10% of the total market value of the property or more than that. In most states in India charges are from 5% to 7% of the total market value of the property as a stamp duty while 1% or Rs.30000 whichever is less is charged as registration fees.

Important Clauses in a sales agreement

Every legal document consists of clauses that carry significant meaning. A clause can be a sentence or paragraph of a document that identifies a situation that may arise in the future and directs a lawful course of action.

The buyer of a property is always at more risk than the seller. Having the following clauses in the Agreement to sell is a must to ensure there is no issue in the future for all parties concerned.
  1. Indemnity Clause
    Indemnity clauses in a sales agreement are designed to seek compensation from the seller should there be any losses or expenses in the future possible scenarios must be taken into account before drafting the indemnity clause.
     
  2. Penalty Clause
    The token amount is generally paid by the buyer to the seller to assure his interest in buying the property. Sometimes, the sale may not happen due to some genuine reason or the seller might find a better deal and may not return the token amount. To ensure the seller does not make a business out of such transactions a penalty clause is advised.
     
  3. Transfer of Membership/Advances/Deposits
    This clause prescribes the seller to pass on all privileges and conveniences that he may have had during his ownership. Deposits made by the seller for club membership, electricity, gas, gym, etc. subscription.
     
  4. Right to Call Of The Deal
    The right to refuse and call off the agreement helps the buyer or the seller to cancel the deal without any implication. Reasons to call off the deal may range from personal disputes and financial constraints to loan refusal.
     
  5. Outstanding Dues
    It helps to have this clause in the sales agreement as it prevents the seller from passing his outstanding dues to the buyer. Taxes, electricity, sewage, water, bills, etc. are covered in this clause.


Format of a Sales agreement

This is the sample format of a sales agreement Agreement to Sales

This Agreement of sales made at….…..on this…….day of……..20….,
Between ………………………..(name of seller) S/o…………………..(father's name of the seller), Address……….……….(residential address of the seller)
hereinafter called the SELLER of the ONE PART

and
………………………(name of the buyer) S/o…..………..(father's name of the buyer), Address……………………………...(residential address of the buyer)
hereinafter called the BUYER of the OTHER PART

WHEREAS the SELLER is absolutely seized and possessed of or well and sufficiently entitled to the house more fully described in the Schedule hereunder:

AND WHEREAS the SELLER has agreed to sell his house to the BUYER on the terms and conditions hereafter set forth.

NOW THIS AGREEMENT WITNESSETH AS FOLLOWS:
  1. The SELLER will sell and the BUYER will buy that entire house No……… Road
    ……………. More particularly described in the Schedule hereunder written for Rs. …………….……………………….. Free from all encumbrances.
     
  2. The BUYER has paid a sum of Rs. ………………..… as earnest money on ……………… the receipt of which sum, the SELLER hereby acknowledges) and the balance amount of consideration will be paid at the time of execution of the conveyance deed.
     
  3. The sale shall be completed within a period of ………… months from this date and it is hereby agreed that time is the essence of the contract.
     
  4. the SELLER shall submit the title deeds of the house in his possession or power to the BUYER's advocate within one week from the date of this agreement for investigation of title and the BUYER will intimate about his advocate's report within ……….. days after delivery of title deeds to his advocate.
     
  5. If the BUYER's Advocate reports that the SELLER's title is not clear, the SELLER shall refund the earnest money, without interest to the BUYER within ………. Days from the date of intimation about the advocate's report by the BUYER If the SELLER does not refund the earnest money within ……….. days
    from the date of intimation about the advocate's report, the SELLER will be liable to pay interest @ …………% p.m. up to the date of repayment of earnest money.
     
  6. The SELLER declares that the sale of the house will be without encumbrances.
     
  7. The SELLER will hand over the vacant possession of the house on the execution and registration of the conveyance deed.
     
  8. If the BUYER commits a breach of the agreement, the SELLER shall be entitled to forfeit the earnest money paid by the BUYER to the SELLER and the SELLER will be at liberty to resell the property to any person.
     
  9. If the SELLER commits a breach of the agreement, he shall be liable to refund earnest money, received by him and a sum of Rs. ………. By way of liquidated damages.
     
  10. The SELLER shall execute the conveyance deed in favor of the purchaser or his nominee as the purchaser may require, on receipt of the balance consideration.
     
  11. The SELLER shall at his cost obtain a clearance certificate under the Income-tax Act, 1961 and other permissions required for the completion of the sales.
     
  12. The expenses for, preparation of the conveyance deed, cost of a stamp, registration charges, and all other cuts of pocket expenses shall be borne by the purchaser.

The schedule above referred to

IN WITNESS WHEREOF the parties have set their hands to this Agreement on the day and year first hereinabove written.

Signed and delivered by Mr./Mrs. ……………………..
the within named Seller


Signed and delivered by Mr./Mrs. ……………………..
the within named Buyer

WITNESSES;
1.

2.


Conclusion
A sale agreement is the most important agreement which both parties should go through it before any important deal. After drafting a genuine sale agreement the seller and the buyer can confidently proceed without worrying about fraudulent or doubtful transactions.

A sales agreement is always advantageous as it protects both parties in the event of legal action. The purpose of a sales agreement is legally binding for both parties buyer and seller involved in the exchange of money for goods & services or properties.

Reference:
  1. https://en.wikipedia.org/wiki/Purchase_and_sale_agreement
  2. https://www.99acres.com/articles/all-about-the-sale-agreement.html
  3. https://www.99acres.com/articles/what-is-an-agreement-to-sell.html
  4. https://www.legalbites.in/registration-of-sale-deed/
  5. https://www.indiafilings.com/learn/maharashtra-property-registration/
  6. https://www.bankbazaar.com/home-loan/property-registration-fees-and-stamp-duty-charges.html
  7. https://legaldesk.com/business/agreement-sell-5-important-clauses#:~:text=Indemnity%20Clause&text=An%20indemnity%20clause%20secures%20the,or%20expenses%20in%20the%20future.
  8. https://lawrato.com/legal-documents/contracts-legal-forms/agreement-for-sale-of-a-house-sale-agreement-46
Written By Advocate Aashish Chimnani, Follow Us On Instagram At Legal.Lexis Linkedin

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