Sale Agreement : 7 points to consider in India

While executing a land transaction, be it buying or selling, often the issue of executing a Sale Agreement crops up.

In India, unlike many western countries and some East Asian countries, your LAWYER cannot represent you in a land sale. In the west a buyer and seller will operate through their trusted lawyers who will execute the sale on your behalf and will even handle the payments.

In India, where many land transactions involve payments through black money and due to trust deficit with the lawyers and due to the Indian system not allowing lawyers to act as proxy , the sale is handled directly by the buyer and seller at the Sub Registrar Office at every district.

Between agreeing to buy and the actual sale, some advance payments may transfer hands and both parties will agree to allow few days or even months to allow for the mustering of funds and perhaps arrival of certain signatories. During this period a SALE AGREEMENT is signed by both parties.

A sale agreement is executed on a Indian Government Revenue Stamp Paper. An unregistered agreement is executed on a low value paper such as a Rupees Hundred paper. Both parties sign along with witnesses. In a registered agreement, the government charges a 2% fee of the sale value which can be offset during the actual sale registration. This rule varies from state to state, so please verify in your situation what applies. The points below apply to an existing property and NOT for a property under construction.

Here are some of the important DO's and Don'ts in a Sale Agreement :

1. AVOID : If you are a seller try NOT to execute a Sale Agreement. If the transaction is going to happen in few days or weeks, try not to take an advance payment , issue any receipt or sign any agreement. If the buyer appears genuine and requires a type of agreement to apply for a bank loan, you can issue a LETTER of INTENT. Most banks are willing to accept this for loan processing.

2. VERIFY : If you MUST execute an agreement, either because the transaction period is long or you are in need of the advance money, you may execute an agreement after verifying the buyers correct identity. Please refer to the previous blog to see what would amount to an acceptable verification.

3. REGISTER : If you are the BUYER and want to execute an agreement , again, verify the identity of the seller and check if matches the actual name and address in the parent documents and Patta. While an unregistered sale agreement is of some value, a registered sale agreement through the office of the Sub Registrar holds precedent over any unregistered sale agreement. Once the sale agreement is registered, it will start appearing in the "Encumbrance  Certificate" of the land in question. The seller will NOT be able to sell the land to others , because other buyers will become aware of his agreement with you when they scrutinise the EC. Here we are assuming that any other suitor will be clever enough to check the EC documents.

4. VALUE Buyers and sellers must be aware that an agreement should state the actual sale amount and not a lower or higher amount. The agreement holder can FORCE the seller to sell the property at the value mentioned. Many buyers who want to conceal any black money transactions will not put the actual figure and will put down a notional lower figure. The seller then risks selling the property at this price should the full force of law be applied.

5. EXPIRY DATE !  Even if the sale agreement states a short duration, saw 30 days for the agreement's effective period, the buyer may move court stating various reasons and extend the period to up to 3 years !!

6. CANCEL : If any sale agreement is cancelled or modified, it must be done officially and payments returned through bank cheques to substantiate the closure of the agreement. If the agreement holder goes ahead with the purchase, but decides to buy the land in any other name than that mentioned in the agreement, example his wife's name instead of his, the old agreement should STILL be cancelled.

7. Your WORD : Remember, even if NO agreement has been written down but you have received some payment towards this by official cheque or demand draft or such instrument, the buyer can still move court stating YOUR verbal assurance to sell !! So be careful what you say and receive during land transactions.

8. MONEY SOURCE: If you are receiving any advance payments by cheque or demand draft , please insist upon proof that the payment is coming through the buyers account (and not from a relative or friend's). This is crucial to prevent other claimants for the property. It is common during disputes for third parties to claim part of the property stating that you received payments from THEM !