December 7, 2021

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Difference between sales agreement and sales deed

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This article is written by Viraj Vinod Arewar pursuing Diploma in Advanced Contract Drafting, Negotiation, and Dispute Resolution from LawSikho.

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We often use the terms, sale agreement, and sale deed when dealing with property transaction-related matters. Due to the similarities in the name, many of us consider both these terms as the same and one thing.

When it comes to real estate or purchasing an immovable property like a house, flat, or plot we have to enter into an agreement with the seller. It can be through a sale deed and sale agreement.  And this is where many of us think that sale agreement and sale deed mean the same thing. It is often used as synonyms of each other. 

However, from a legal standpoint, they are not the same. Most people are not aware of the difference between these two instruments. It becomes important to understand the difference between them to arrive at the successful completion of a deal. Misinformation about it might lead to complex legal problems and may put your investment at risk.

To understand the difference between these two, let’s first understand their basic concept through this article. 

Agreement of sale is also known through many names such as the memorandum of sale, contract of purchase, and contract for sale or sale agreement. An agreement for sale is an agreement to sell immovable property in the future that specifies the terms and conditions, proposed consideration, and details of payment, under which the property in question will be transferred to the buyer. 

Property deals generally go through stepwise manners. The sale agreement is the first document that provides a proper legal status. 

The Transfer of Property Act, 1882 regulates the matters dealing with the sale and transfer of immovable property. According to Section 54 of TPA, the agreement of sale of immovable property is a contract that a sale of such property shall take place on terms settled between the parties. It further provides that it does not by itself, create any kind of interest or charge on such property.

The language of Section 54 of TPA makes it clear that an agreement of sale contains a promise to transfer a property in question in the future on the satisfaction of certain terms and conditions. Hence it can be said that the agreement of sale alone cannot create any interest in property for the buyer willing to purchase. It is a legal document on the basis on which the sale deed is created and executed. 

It doesn’t mean that after signing the agreement of sale by the parties the property gets transferred in the name of the buyer. A sale agreement creates a right for the purchaser to purchase the property but it is only when the buyer satisfies the term and conditions and pays the entire consideration as per the sale agreement, he will become the legal owner of the property after executing the sale deed. However, the buyer can still take possession of the property even before paying the full amount if the seller permits to do so. In this case, the seller retains the ownership of the property till the full amount or consideration is fully paid by the buyer by signing the sale deed. Generally, in practice, agreement of sale is also taken as a precautionary step by the purchaser even knowing that it does not create any title over any immovable property. 

For example, Mr. X wants to sell his House for INR 50 lakh. Mr. Y is interested in buying the house. However, Mr. Y doesn’t have the entire amount for now. In this case, Mr. X and Mr. Y can execute an agreement of sale on the condition that the full payment is to be made within 90 days. When Mr. Y paid off the entire amount as per the agreement of sale Mr. X will transfer the ownership of the property by a sale deed. 

There are several other factors that make entering into a sale agreement by the parties while purchasing or selling property quite important. it acts as legal proof between the parties entering into an agreement in a court of law. On this basis, in case of dispute between the parties, a future course of action can be taken.  In the event of failure by the seller or owner of property in question to sell it to the buyer after executing the sale agreement, on a specified or decided date, the buyer has a right of specific performance under the sale agreement and provisions of Specific Relief Act, 1963. Seller also gets the same right under the sale agreement for seeking specific performance from the buyer.  Hence sale agreement becomes an important step in the process even though its execution by the parties cannot be considered as concluding the sale process.    

Simply put agreement for sale lays the foundation for the sale deed to be executed, opening the way for the actual sale of immovable property to happen in near future or on a proposed date as per the agreement for sale. It is always executed before the execution of a sale deed.  

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The sale deed is the main legal document by which the seller transfers his absolute ownership over the property to the buyer or purchaser in exchange for a price paid or consideration. A sale deed becomes a mandatory legal document, accompanied by a proper registration process and stamp duty, for obtaining absolute rights in a property. 

A sale deed is also known as a title deed, final deed, or conveyance deed. It is a valid proof of ownership of immovable property and provides legal recognition of the transaction of property between the parties. The rights and obligations of the parties are clearly stated in the sale deed. In case of any future disputes over the property, the sale deed can be used as evidence.  

The sale deed includes the following details

  • Details of parties i.e. buyer and sellers like name, age, and address,
  • Consideration or sale amount (may also include advance payment paid),
  • Description of property like a construction area, plot area, details of construction, etc,
  • Mode of payment,
  • Reference of the sale agreement,
  • Date of delivery of possession,
  • Transfer of rights, interests, and claims over the property of the purchaser, etc. 

Following is the table showing the main difference between the sale agreement and the sale deed. 

Points 

Agreement of sale

Sale deed

Meaning. 

It is a promise to transfer the property in the future.

It is an immediate or actual transfer of the ownership of property.

Content

It includes terms and conditions under which the property will be transferred. 

It includes details or information about parties, a description of the property, payment details, and several other details. 

Risk involved

Risk or liabilities over the property remain with the seller until the property gets transferred in the future.

The risk gets immediately transferred to the new buyer after its execution.

Type of contract

It is an executory contract. An executory agreement is one that has not been fully implemented.

It is an executed contract.

Consequence of 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 an agreement of sale. However, the norms may vary from state to state. 

It is mandatory to register a sale deed. The buyer also has to pay an appropriate stamp fee.  

Objective 

It gives a right to a prospective purchaser to purchase the property.

It gives rights, interests, and claims over the property to the new owner. 

The most important difference between a sale agreement and a sale deed for anyone to note is that it is only the sale deed (which should be duly stamped and registered as per the law) that can transfer ownership of immovable property from the owner to the purchaser, and not the sale agreement. 

Without the execution of the sale deed followed by its proper stamping and registration, no buyer can acquire any interest in the property purported to be transferred under the sale agreement entered into by him with the seller. However, Section 53A of the Transfer of Property Act, 1882 provides the exception to this rule. According to it, the seller is not entitled to disturb the possession of the buyer in case the buyer has obtained the possession of the property, which is the subject matter of the transfer. However, it is to be noted that Section 53A does not in any way cure the title of the buyer to such property. The ownership of such property still vests with the seller. Section 53A only protects a proposed transferee from the seller or transferor and debars him from disturbing the possession of the transferor. 

The same is provided in Rambhau Namdeo Gajre v. Narayan Bapuji Dhotrawhere the Supreme Court held that the protection which is provided by Section 53A of the Act to the proposed buyer or transferee is a shield only against the transferor. It does not entitle the transferor from disturbing the possession of the proposed transferee who is put in possession in pursuance to such an agreement. It has nothing to do with the ownership of the proposed transferor who remains the full owner of the property till it is legally conveyed by executing a registered sale deed in favour of the transferee. This right to protect possession against the proposed transferor cannot be applicable against a third party.

In the case of Suraj Lamp and Industries Limited v. State of Haryana, the Supreme Court of India in 2012 observed that the transfer of ownership of the immovable property through General Power of Attorney (GPA), will, and sale agreement has become a common practice mainly to evade from payment of duties, taxes and other such fees as applicable by law which has a disastrous effect on society as a whole. Supreme Court taking reference to Narandas Karsondas v. S.A. Kamtam and Another and Rambaran Prosad v. Ram Mohit Hazra further observed that Section 54 of Transfer of Property Act, 1882 a sale agreement does not create any interest or charge on immovable property by itself. The Supreme Court, overruling the observations of the High Court of Delhi in Asha M Jain v Canara Bank, held that such transfer (by sale agreement, will, and GPA) cannot be considered as a valid mode of transfer of immovable property and it can be transferred or conveyed only by a sale deed (which is required to be duly stamped and registered as per the requirement of law).

From the above-mentioned provisions and case laws, it is evident that it is well-settled law that the transfer of ownership of immovable property can only be done by way of sale deed only. Also, the buyer of immovable property should always keep in mind that it is only the properly stamped and registered sale deed under the Indian Registration Act, 1908, that can transfer the ownership of property. No right, title, or interest in an immovable property can be transferred without the stamping and registration of the sale deed.  


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