Difference between agreement of sale and sale deed
In real estate, people often use the terms - agreement of sale and sale deed - as synonyms. However, both are amply different and executed at separate events. While one validates the seller and buyer entering a deal, the other legally identifies the new buyer as the owner of the property. To know about the critical differences between the sale agreement and sale deed, read on.
What is an agreement of sale?
The agreement of sale shows the willingness of the parties to buy/sell the property in future upon the satisfaction of certain terms and conditions. However, since it does not involve an immediate transfer of ownership, the buyer has no right and interest in the property in question.
Terms included in agreement of sale
- Proposal to purchase and agreement to sell in future
- Detailed description of the property
- Disclaimer that the property is free from legal encumbrances
- Value of the property including payment details
- Delivery of the original documents on the final payment
- Execution of sale deed and registration of the same if the titles are found good
- Method of property delivery
- Payment refund in case of improper titles
- Action course for non-completion of sale on the part of the seller
- Loss of advance payment if the purchaser fails to complete the transaction
- Remedy if legal issues besiege the property
- Transfer of tax-related certificates
- All other matters related to the proposed sale
In some states such as Uttar Pradesh, a sale agreement is not considered as legally binding on the mentioned parties until the same is registered with the respective office of the sub-registrar of assurances. The process to register a sale agreement is the same as when registering a sale deed. Therefore, it would be prudent to check the local area regulations regarding the same.
Important points to check before signing an agreement to sale
Check the following field before signing the sale agreement:
- Name of parties
- Time period mentioned for property transfer from seller to buyer
- Penalty clause
- Encumbrance certificate
- Property details
- Possession details
- Elements of property such as carpet area, open area, etc.
- Property map
- Property address
What is a sale deed?
A sale deed is drafted on the actual sale/ transfer of the property. Once the deed is executed, the new buyer takes the complete ownership of the property. However, the deed is drawn only after all the contractual terms of the sale agreement have been explicitly settled. Moreover, it is mandatory to register a sale deed at the registrar’s office under the Registration Act, 1908.
Details included in sale deed
- Details of the parties involved in the transaction
- Description of the property
- Transfer of titles
- The clause of sale consideration
- References to the agreement of sale and the price details
- Transfer of rights, interests and claim of the property to the new buyer
- A clause that the previous owner does not hold any authority on the facilities, privileges and easements of the property
- Compensation to the purchaser for losses arising out of the negligence of the seller or heirs of the asset
- The authority of the vendor to sell the property.
Generally, the sale deed is brief as most of the contractual terms have been already delineated in the agreement of sale.
Key differences between agreement of sale and sale deed
| Points of difference | Agreement of sale | Sale deed |
|---|---|---|
| Transfer | It implies the future transfer of the property | It signifies an immediate transfer of the property titles |
| Risk involved | Risk/liabilities remain with the seller until the property is transferred in future | Risk is immediately transferred to the new buyer |
| Contract | It is an executory contract. An executory agreement is one which has not been fully implemented | It is an executed contract |
| Violation | Breach of sale may result in a suit for damages | Sale breach results in a legal complaint as well as monetary compensation for damages |
| Registration | It is not mandatory to register agreement of sale. However, norms may differ across States | It is mandatory to register a sale deed |
Supreme Court ruling on sale deed and agreement for sale
It was in 2012 when the Supreme Court held that, “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).”
The ruling came in the case of Suraj Lamp & Industries v State of Haryana while hearing the case on the validity of the sale of immovable properties made through power of attorney. From a legal standpoint, it is crucial to understand the terminologies mentioned above to arrive at a hassle-free closure. Lack of information might not only lead you to legal problems but may also risk your investment. For instance, if you bought a house under the agreement of sale and failed to execute a sale deed, then even after you avail the possession of the property, the right to property would remain with the developer. Even with regards to a resale property transaction, unless the registration of the sale deed follows the agreement to sell, the government will continue to consider the original owner as the current owner. Thus, to avoid such situations, it is imperative to draft a sale deed and get it registered. Only a stamped and registered deed guarantees legitimate property ownership to the buyer.
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