Mastering the Art of Sale/Purchase Agreements: Essential Elements and Expert Drafting Tips

 

GUIDELINES REGARDING AGREEMENT TO SELL/PURCHASE

In an agreement to sell/purchase, the following details must be incorporated:

- Names and descriptions of the contracting parties;

- Consideration and earnest money if paid;

- Subject-matter of the agreement;

- Time within which the agreement is to be performed; and

- Special terms agreed upon between the parties.

CONTRACTING PARTIES

The vendor and the purchaser must be sufficiently described, irrespective of the fact that the parties know each other. There must be reciprocity of interest between the person who wants to enforce the agreement and the person against whom it is sought to be enforced. A stranger to the agreement has no enforceable claim, and as such, no court shall entertain his claim for specific performance. However, specific performance may be enforced not only against a party to the contract, but also against a person claiming title under it. If one of the parties to the agreement is acting in his representative capacity, such capacity must be clearly and precisely disclosed and his authority to act in that capacity must form part of the agreement.

Legal representatives of parties have a right to require specific performance of a contract or are bound by the promise to perform the contract in the absence of a contrary intention. This rule does not apply where the obligation is personal in nature. As a rule, obligation under a contract cannot be assigned except with the consent of the promisee. On the other hand, rights under a contract are assignable unless the contract is personal in nature or the rights are incapable of assignment either under the law or under the agreement between the parties. If one of the parties to the agreement is acting in his representative capacity, such capacity must be clearly and precisely disclosed and his authority to act in that capacity must form part of the agreement. It is, however, usual to have a clause in a deed specifically stating that the parties shall include their executors, administrations, heirs, legal representatives and assigns.

CONSIDERATION

Price is the essence of an agreement of sale/purchase and unless the price is clearly and precisely disclosed in the agreement, there is no enforceable contract between the parties because if no price is named in the agreement, the law does not imply, as in the case of sale of goods, that a contract to buy/sell at a reasonable price is implied. Therefore, in all sales, the price is an essential ingredient and where it is neither ascertained nor rendered, the contract is void for incompleteness and is incapable of enforcement. Price may not necessarily be in the form of money, it may be any other consideration. The word “price” is comprehensive enough to include any other lawful consideration. If any earnest money is paid, the same should be stated and the consequences arising in breach of the agreement may be stipulated for, namely, by forfeiture of the deposit, payment of a fixed sum by the vendor, if the breach is committed by the purchaser or the vendor, respectively.

SUBJECT MATTER

Property of any kind subject to the provisions of the Transfer of Property Act, 1882, and those of any other applicable law or custom may be sold/purchased. Transferability is the general rule and the right to property includes the right to transfer the property to another person. The property, i.e., the subject-matter of the agreement, must be described in detail giving its precise situation and the extent of interest agreed to be conveyed therein should be clearly stated. If the property is subject to certain charges, easements, encumbrances, restrictions, covenants etc., the same should be clearly stated so that the purchaser knows the real nature of the property he is purchasing. The vendor should not conceal any material particular with regard to the property he is selling, which the purchaser has a right to know.

 

TIME FOR PERFORMANCE

If the time for performance is the essence of the agreement, the same should be clearly stipulated and the consequences of non-performance within the stipulated time should also be clearly and precisely declared.

 

DRAFTING OF AN AGREEMENT

When drafting an agreement, it is important to ensure that the intention of the parties is clearly set forth to avoid any ambiguity or future disputes. The language used should be simple, and the words should be definite and precise, avoiding loose expressions like "proper" or "reasonable" whenever possible.

It is also crucial to adhere to the provisions of the Indian Contract Act, 1872, particularly regarding the essential elements and legality of agreements (Sections 2 to 30). Nothing should be included or omitted that would render the agreement void. However, if the material terms of the agreement are clear and specific, the omission of certain details that can be worked out by consent of the parties or settled by a court in their absence will not invalidate the agreement (Ramchandra v. Chinnubhai, AIR 1945 Mad. 10).

An agreement can be structured into various parts, such as the Title, Date, Parties, Recitals, Testatum, Operating Clause, Schedule (if necessary), Exceptions and Reservations (if any), Habendum, Covenants (if any), and Testimonium.

However, some model forms of general/usual clauses in an agreement may take the following forms:

1. Operation of Agreement:

"THIS AGREEMENT shall come into force w.e.f. (date) and shall remain in force for a period of (period) until determined earlier by notice as hereinafter provided."

2. Termination by Notice:

"THIS AGREEMENT shall be liable to be terminated by either party by giving (period) notice to the other party (without assigning any reason or cause)."

3. Arbitration Clause:

"Every difference or dispute which may hereafter arise between the parties hereto or their respective representatives in relation to this agreement or arising thereout, whether as to the constructions or operations thereof, or the respective rights and liabilities thereunder or anything done hereunder or otherwise, shall be referred to a sole arbitrator in accordance with, and subject to, the provisions of the Arbitration and Conciliation Act, 1996. His award shall be final, accepted, and binding on both parties."

4. Clause for Services of Communication:

"Any notice may be sent through the post to the last known place of abode or business of the party to whom it is given, and if so sent under a certificate of posting shall be taken to be sufficient service thereof."

If it is desired that each party should have a copy of the agreement, it should be executed in duplicate. Each party signs one of the duplicates, and the duplicates are exchanged. Ideally, both duplicates should be signed by both parties. The duplicates must be exact reproductions of the original and require signatures and attestation in the same manner as the original.

ATTESTATION, REGISTRATION AND STAMP DUTY

Attestation: It is not necessary for an agreement to be attested by any witness. But agreements are usually attested by one witness. Where registration is desired, the agreement should be attested by two witnesses.

Registration: Agreements not relating to immovable property and agreements not creating an interest in immovable property are not compulsorily registrable. Only agreements creating an interest in immovable property worth more than Rs. 100 are required by law to be registered.

Stamp Duty: For the purpose of stamp duty, agreements are covered by Article 5 of Schedule I to the Indian Stamp Act, 1899. The stamp duty for different kinds of agreements varies from State to State. While drafting an agreement, the draftsman should ascertain the proper stamp duty having regard to the changes made in the Stamp Act in the State where the agreement is executed.

TERMS AND CONDITIONS IN THE AGREEMENT TO SELL/PURCHASE

In an agreement to sell/purchase, several usual conditions should be included to ensure clarity and avoid any future disputes. These conditions may include:

(i) Marketable Title: The vendor should have a marketable title to the property and must provide the necessary title deeds for inspection by the purchaser. This condition should be explicitly stipulated in the agreement.

(ii) Retention of Title Deeds: If the property being sold is part of a larger property, an agreement should be reached regarding the retention of specific or all title deeds by either party. This agreement should be incorporated into the agreement to sell/purchase.

(iii) Prior Charges or Encumbrances: If the property is subject to any prior charges or encumbrances, the parties must agree that the sale is subject to those encumbrances. The price payable under the agreement should include the sum due under the encumbrance, which is to be paid to the charge holder at the time of registration or thereafter.

(iv) Payment Terms: The mode of payment for the price or balance thereof, including any earnest money or deposit, should be clearly stipulated in the agreement. It should also specify whether the vendor or purchaser is responsible for paying rates, rents, taxes, or other imposts from the date of the agreement until the execution of the conveyance deed. Additionally, the agreement should outline the applicable interest rate payable by the vendor on earnest money in case of delay in executing the conveyance deed or by the purchaser to the vendor if they fail to pay the balance amount of consideration on the agreed date, leading to a delay in the execution of the conveyance deed.

(v) Possession: The agreement should establish the agreed-upon point in time for the vendor to hand over possession of the property to the purchaser, if the vendor is in possession. If there are tenants occupying the property, the agreement should address how attornment by the tenant(s) will take place.

(vi) Cost and Expense Allocation: The parties should agree on who will bear the costs and expenses related to the execution and registration of the sale deed. If both parties are responsible, the agreement should specify the precise proportions in which they will bear these costs.

(vii) Brokerage: If a broker is involved in the transaction, the agreement should clearly state whether any brokerage is payable, by whom, at what rate, and at what point in time.

In addition to the above conditions, any other specific conditions attached to the sale/purchase transaction should be incorporated into the agreement. This ensures that the document is comprehensive and self-contained, leaving no room for interpretation or presumptions regarding the intentions of the parties.

 

A SPECIMEN AGREEMENT OF SALE OF HOUSE PROPERTY

 

THIS AGREEMENT OF SALE executed on the _______ day of ________________ 2023, between

AB, son of ___________________________________________________ residing at _____________________, hereinafter called the vendor of the one part, and

CD, son of ___________________________________________________ residing at _____________________, hereinafter called the purchaser of the other part,

(The expressions "vendor" and "purchaser" wherever they occur in these presents, shall unless the context otherwise admits, also mean and include their respective heirs, executors, administrators, legal representatives, and assigns).

WHEREAS the vendor is the sole and absolute owner of the property more fully set out in the Schedule hereunder:

AND WHEREAS it is agreed that the vendor shall sell and the purchaser shall purchase the said property for a sum of Rs..................... (Rupees.....................) free of all encumbrances.

NOW THIS AGREEMENT OF SALE WITNESSETH AS UNDER:

1. The price of the property more fully set out in the Schedule hereunder is fixed at Rs..................... (Rupees.....................) free of all encumbrances.
2. The purchaser has paid to the vendor this day, a sum of Rs..................... (Rupees.....................) by way of earnest money for the due performance of the agreement, the receipt whereof the vendor doth hereby admit and acknowledge.
3. The time for performance of the agreement shall be _______ months from the date hereof, and it is agreed that the time fixed herein for performance shall be of the essence of this agreement.
4. The purchaser shall pay to the vendor the balance sale price of Rs..................... (Rupees.....................) before registration of the conveyance deed.
5. The vendor agrees that he will deliver vacant possession of the property to the purchaser before registration of the conveyance deed. Alternatively, the vendor agrees that he will put the purchaser in constructive possession of the property by causing the tenants in occupation of the property to attorn their tenancy to the purchaser.
6. The vendor shall execute the conveyance deed in favor of the purchaser or his nominee as the purchaser may require.
7. The vendor shall hand over all the title deeds of the property to the purchaser or an advocate nominated by him within _______ days from the date of this agreement for scrutiny of title, and the opinion of the vendor's advocate regarding title to the property shall be final and conclusive. The purchaser shall duly intimate the vendor about the approval of title within _______ days after delivering the title deeds to him or to his advocate.
8. If the vendor's title to the property is not approved by the purchaser, the vendor shall refund the purchaser the earnest money received by him under the agreement, and on failure of the vendor to refund the same within _______ days, he shall be liable to repay the same with interest thereon at the rate of _______ per cent per annum.
9. If the purchaser commits a breach of the agreement, he shall forfeit the earnest amount of Rs..................... (Rupees.....................) paid by him to the vendor.
10. If the vendor commits a breach of the agreement, the vendor shall not only refund to the purchaser the sum of Rs..................... (Rupees.....................) received by him as earnest money but shall also pay to the purchaser an equal sum by way of liquidated damages.
11. Nothing contained in paras 9 and 10 above shall prejudice the rights of the parties hereto specific performance of this agreement of sale/purchase.

Schedule of Property

House No. _____________________ situated in _____________________

On its North is _____________________

South is _____________________

East is _____________________

West is _____________________

IN WITNESS WHEREOF the vendor and the purchaser have set their respective hands to the agreement of sale/purchase on the day, month, and the year above written, in the presence of the following witnesses:

Witnesses:

(1) Name:

Father's Name:

Address:

Signature: Vendor

(2) Name:

Father's Name:

Address:

Signature: Purchaser

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Article Compiled by:-

Mayank Garg

(LegalMantra.net Team)

+91 9582627751

Disclaimer: Every effort has been made to avoid errors or omissions in this material in spite of this, errors may creep in. Any mistake, error or discrepancy noted may be brought to our notice which shall be taken care of in the next edition In no event the author shall be liable for any direct indirect, special or incidental damage resulting from or arising out of or in connection with the use of this information Many sources have been considered including newspapers, Journals, Bare Acts, Case Materials , Charted Secretary, RBI etc.

 

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