Agreement to Sale is the initial stage of the transfer of sales. It is a legal document in which there are certain terms and conditions that both parties follow. They need to accept certain guidelines or conditions that are to be followed.
The sale deed also known as the conveyance deed is a legal document in which the ownership transaction is made from the seller to the buyer. It establishes property ownership.
Differences between the Agreement of Sale and Sale Deed
| DIFFERENT FACTORS | AGREEMENT OF SALE | SALE DEED |
Purpose | It demonstrates that the property will be transferred from the seller to the buyer. | It denotes that the seller will immediately transform the property title to the buyer. |
Elements | It includes:A detailed description of the property.A proposal was made to purchase the land in the future. Contains details regarding tax-related certificates. | It includes:Transfer of title.The seller transfers rights to the buyer and claims the property.Details regarding the parties involved in the transaction. |
Transfer | Assurance is given as the transaction is made in the future. | It involves the immediate transfer of the property title. |
Registration | The requirement of the registration varies from state to state.The agreement is signed by both the buyer and the seller on non-judicial paper.It denotes the terms and conditions. | Registration is mandatory but the style varies according to the property.In this registration, the buyer has to pay for stamp duty.It contains detailed data on both parties. |
Contract | A contract that is not fully executed. So it belongs to the executory contract. | The agreement has been signed by all the parties and the transfer is scheduled to take place immediately. So it is referred to as an executed contract. |
Risk involved | If there is an issue regarding the property, the seller is entirely responsible for it. | If once the transfer is done, then the buyer is responsible for his property. |
| Violation | Breach of the sale agreement leads to the winding up of the agreement. | Breach of the sale deed results in a monetary transaction for any damage. |
Can a Sale Deed & Agreement of Sale be Terminated?
Yes, the sale deed and sale agreement can be terminated for various reasons.
As the sale deed is a legal document, the cancellation involves legal resources, but the cancellation of the sale agreement is straightforward.
The various reasons included in the cancellation of the sale deed are
- If there is a change in situation or circumstances, both parties agree to cancel the agreement, which ends with mutual consent.
- If the seller participates in any illegal moves, such as forgery or submitting fake documents, the buyer has the right to terminate the transaction.
- If the seller produces an invalid or defective title, the buyer has the right to cancel the transaction.
- If one of the parties is not legally authorized to enter the agreement, the sale deed is revoked.
The various reasons involved in the termination of the sales agreement are
- If the buyer is facing financial issues to pay the amount for the property, the seller cancels the agreement.
- If the seller fails to fulfill per agreement, the buyer has the right to cancel the agreement.
- If the seller receives a better buyer offer than the present buyer, the seller terminates the agreement.
- Both the buyer and the seller decide to move out of the agreement and it is cancelled.
Agreement of Sale vs. Sale Deed: Update (November 2023)
Here is a recent update (Nov 2023) of the Agreement of Sale vs Sale Deed:
Rama Reddy (seller) agreed to sell the property to Munishamappa (buyer) on 28th May 1990 with a consideration of Rs. 23,000. Munishamappa paid the full amount to Rama Reddy for the property. The property was handed over by Rama Reddy to Munishamappa without any illegal documents.
However, the Fragmentation Act of 1966 did not allow these types of transactions at that time. Later, there is a change in law. Still Rama Reddy did not complete the legal transaction.
Munishamappa filed the case in court and forced Rama Reddy to complete the legal documents. After the analysis, the Supreme Court ordered that Munishamappa was right and ordered Rama Reddy to complete the legal documents.
As a result, as per the update of November 2023, the Supreme Court clarified that the Agreement of Sales differs from the Sales Deed.
Supreme Court Ruling on Sale Deed and Agreement for Sale
The Supreme Court of India is ruling on sale deeds and agreements of sale in various ways.
According to Section 17 of the Registration Act of 2008, the conveyance should take place only at the time of registration of the sale deed. However, the Supreme Court provides various benefits
For Sales Agreement:
- The unregistered agreement of sales can be utilized to carry out the sales with certain limitations. But if there is a specific threshold, registration is required.
- The Court can rule with limitations for certain performances as it can order the sales and grant permission to use the lands.
For Sale Deed:
- The registration is mandatory for the sale deed as it is a strict rule passed by the Supreme Court.
- The Court has the access to cancel the sale deed under the Specific Relief Act, 1963 as if there are any fraud activities or mistakes happen either by the buyer or the seller.
Is a Sale Agreement Mandatory for Property Transactions?
In India, a sale agreement is not compulsory for property transactions. According to the Registration Act 1908, it is mandatory to register for immovable property values of more than Rs. 100.
The sales agreement plays a vital role for both parties:
- As it provides a drafted copy of the sales deed, various details such as property name, title, and price are included clearly.
- Without a clear sale agreement, there is a risk of conflict between the two parties.
- If the agreement of sale is not clear, it is difficult to secure the home loan for the buyer.
In conclusion, you can see how the Agreement of Sales differs from the Sales Deed. Both are connected legally, where the Sales Agreement is the initial transaction which has less importance but the Sale Deed is the final and important transaction in real estate.
FAQs
Yes, the sales agreement can be done verbally. However, it is not recommended highly because various difficulties and risks such as no clear details, low assurance, and low prices may be involved in the agreement.
Yes, verbal sale agreements can be challenged in court. However, it is not as effective as the written document which has strong evidence with signature.
Yes, the oral agreement of sale is as valid as the written agreement. The contract doesn’t need to be only in written document. But the agreement should be bound with clear information such as property title, and name of the parties with property details.