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In day-to-day life we hear phrases like renting of the apartment to a tenant, mortgaging land for purposes of loan, leasing out shops, buying real estate, etc. These instances demonstrate the various ways in which transactions revolve around the land. Land or ‘real estate’ can be used for residential purposes like building a house or for agriculture or for constructing a business park etc.
For doing so individuals/ companies/ government authorities may engage in transactions of buying or selling land. In this process, the parties to such a transaction come across a sale deed. This document is just one of the numerous documents that come into play when one is engaging in buying or selling of property. It holds substantial value to buyers as well as sellers.
Hence, having a brief idea of what such an instrument entails can keep you informed of your business.
Before we move on to understand the contents of the sale deed, let us discuss what sale deed is.
A Sale deed is a document which records the transfer of ownership from the seller to the buyer.
A sale agreement differs from sale deed which needs to be executed on a non-legal stamp paper as per the applicable rates prescribed by the state.
While preparing a Sale Deed, all the clauses should be carefully examined and drafted to lessen the risks involved.
The clauses should be drafted after understanding your requirements and liabilities.
Consult: Top Property Law Lawyers in India
A sale deed is one of the most important legal documents that is executed between the seller and the buyer. These parties are also referred to as the ‘grantor' and ‘grantee' in legal parlance. A sale deed indicates that the title or ownership has been transferred from the seller in favor of the buyer or in simple words the ownership has been changed from the seller to the buyer.
This document is proof of such a transfer. Not only does it describe the property in detail but also outlines the rights and obligations of each party.
Many times people face confusion between a sale agreement and a sale deed. We can break it down in a tabular form to understand it better.
It lays down the proposed terms and conditions of the sale or purchase of land.
It concretizes the terms of buying or selling of land which can’t be changed any further.
This agreement is made before a sale deed.
A sale deed is executed after a sale agreement.
It is not a compulsory requirement.
A sale deed is compulsory under the law for transferring ownership.
It is also to be noted that a sale agreement is extremely important since the contents of the sale deed are decided by a sale agreement. Once a sale deed is made, the sale agreement ceases to exist. This means that neither party can go back to the sale agreement to enforce any terms therein.
The sale deed is made on a non-legal stamp paper of a value prescribed by the state government.
As persons who are going to deal in property and will come across a sale deed, a precaution must be taken to not use a model or draft sale deed which is available at the first instance. This is because you may want certain clauses to be added, modified or deleted depending on the situation.
It is best to not only inform oneself about the contents of the sale deed but also hire a professional to help understand the document completely before signing it.
Now that the purpose and function of the sale deed are clear we can move on to understand what clauses will be generally encountered in a sale deed and have a brief understanding of the same.
For more queries or confusion regarding the legal nitty gritties of a sale deed and its components, ask for expert legal advice from us now!
Suggested Read: Rights and Duties of Landlord and the Tenant
Clauses in a Sale Deed
Parties to the Sale Deed -
This clause contains the description of the parties to the sale deed. It mentions the details of the buyer and seller like their name, address, age, contact details, occupation and the date of execution of the deed. If one of the parties wishes to execute the deal in his absence by conferring a Power of Attorney, then those details will be recorded too.
Even though there is no requirement of an ‘affidavit’ for the information provided by the parties, the details must be bonafide i.e. the information provided in sale deed must be true and accurate. When the parties make their signatures to the document they undertake the responsibility of stating the correct information in the sale deed.
Vendor and vendee are another set of terms used to refer to a seller and a buyer. As mentioned above - any individual, a company or any other form of organization can transfer land to someone else. Under the law, an individual is referred to as a natural person. It means that individuals are separate legal entities recognized by law.
On the other hand organizations like companies are referred to as a juristic person. This is because a company is not a real person with any physical form. It is artificial in nature and the creation of law.
Even then, it enjoys some privileges that a natural person enjoys, for example, buying a property in its own name.
When one is intending to engage in a transaction for buying or selling a piece of land they must verify whether the parties fulfill certain conditions. If you are buying a property from an individual, make sure that the person is legally competent to transfer a property i.e. an adult of over 18 years and of sound mind.
If you are buying it from a company/partnership/trust, ensure that the person you are transacting with has received required authorization to conduct such a deal.
The vendee or buyer being a natural person does not have to be a major of sound mind. Another caution to be kept in mind as a buyer is to ensure that the name of the seller in the sale deed is precisely the same as it occurred in the documents through which he acquired the property in the first place.
Description of the Property -
In the sale deed, there is a clause which informs the parties specifically the dimensions of the property being transferred.
The details of property like the measures of the plot in yards or metres, the length of the property extending in which directions, the carpet area in case of apartments, registration number of the land if one wants to verify details in official records, construction details of the building including the year in which it was built, exact location, and the surroundings of the property like an adjacent bus depot or garden are mentioned in the sale deed.
In addition to this clause, a schedule is attached to the deed which describes these precise details. A graphical representation of the same may be added for the convenience of the parties.
Must Read: Send Legal Notice for Termination of Lease
The Sale Consideration -
As a buyer or seller of a property, one of the most important and primary factors is the price at which the property is bought or sold. Invariably the clause which mentions the price at which the deal is closed is of utmost importance.
In legal jargon, price is also known as consideration. The clause reads out the price at which the land is being transferred and that it is agreed upon by the parties to the deed. The price is mentioned in both numbers and figures to avoid any sort of confusion.
People buy property directly with the seller or engage the services of an agent to seek deals and negotiate the best price. Nowadays there are websites and mobile apps which allow you as a seller to advertise the property to prospective buyers and contact them directly.
The clause regarding Payment method -
We may be familiar with the frequent occurrence of litigation in property matters. Hence, it is best that we draft the sale deed in very clear terms and mention all the aspects which can be written down to avoid any future disputes. One such aspect is the payment method used by the buyer to pay the seller.
As agreed between the two parties the payment can be made in cash, cheque, demand draft or transfer of funds using internet banking. Whatever payment method the parties are comfortable with and decide upon finally, is mentioned in the sale deed in this clause along with the amount of payment.
In India, the use of cash for any kind of buying and selling is rampant. At the same time, it is hard to trace and keep and produce records of cash transactions. Hence, it is advisable for both the parties to select the payment method wisely, keeping in mind these problems.
Advance payment and Instalments -
While buying land or a motor vehicle, the seller or vendor often asks the buyer to pay a certain part of the total amount before the sale deed is made, while the rest of the amount can be paid later. This practice is usually followed by sellers to ensure that the buyer party does not back out of the deal later on.
The buyer is compelled to close the deal since he has already invested certain money in the form of an advance payment.
In case one has made such an advance payment to the seller while buying a piece of land, then that must be mentioned in the sale deed. The sale deed would mention the amount received previously as an advance or part payment. This also serves as an acknowledgment from the seller of the receipt of the same and helps calculate the balance amount.
Sometimes the price is paid by the buyer over a period in small parts. This method of payment is called payment in installments. A fixed sum is paid monthly or any other period agreed on by both the parties instead of a one-time complete payment. Interest is charged on the amount in the lieu of the extended time period of payment. If this arrangement is made, the sale deed has to mention its details.
Must Read: Important Clauses of a Rent Agreement
Transfer of Title clause -
The main goal of buying property is to become a property owner. In a sale deed, the phrase transfer of title is used in this connection. It simply means the transfer of ownership. Every sale deed has a clause which specifies when the title in the property is transferred to the buyer from the vendor. This is also known as words of conveyance.
It expresses the intention of the seller to transfer the ownership in favor of the buyer. It can either happen immediately or after a specified time period. It intends to transfer all the rights of ownership from the seller to the buyer and make him the absolute owner.
Similar to this is the concept of a freehold property. Though it is not very popularly used in India, it means the holder of the property holds it free of any liabilities i.e. the person is an absolute owner of the land and the buildings that may be built upon it. The owner may use it for whatever purpose.
She holds it forever until she decides to transfer it to anyone else. This is distinguished from leasehold property. This concept is frequently used by homeowners of apartments in buildings or bungalows. What happens in this type of transfer is that the transferee owns a certain building like an apartment or a shop but not the land upon which it is built.
These property holders pay the owner rent annually to use the place. Once the lease period expires the land reverts to the transferor. Hence, this kind of ownership is limited by time period agreed beforehand between the parties.
Delivery of the deed and Possession of property -
The deed also specifically mentions on what date the property will come into the possession of the buyer. The sale deed must also be delivered to the buyer.
The sale deed and sale agreement are only two of the numerous documents that are transferred by the seller to the buyer.
Other documents include - a letter of allotment and sanction from the housing society or any other relevant authority in charge of that property, if it’s a flat or building then the occupation certificate issued once the construction of that property is complete and the building plans, an encumbrance certificate which will indicate that there are no existing dues remaining to be paid by the previous owner, a no-objection certificate from the housing society and in case the builder has obtained a mortgage on the building the same certificate from the bank .
Indemnity Clause and the Encumbrance clause -
This clause is added in a sale deed to make sure that when the property is sold to the buyer, it is free from any encumbrances i.e. the seller has paid any kind of existing charges on the property prior to the sale. This includes taxes, charges, dues, demands, arrears, electricity charges, water charges, outstanding bills, house tax, development charges, and prior assignments of sale or leasehold. If any such charges are left, then the buyer who pays them off can rightfully ask the seller to indemnify him.
The seller will have to compensate the buyer for it. Once the property is sold to the buyer, the future charges will be respectively paid by him. This clause may also contain that the seller must ensure that the property is free from any nature of litigation.
The clause may be worded as follows-
“That the property is not subjected to any encumbrances, mortgages, charges, lien, attachments, claim, demand, acquisition proceedings by Government or any kind whatsoever and should thereby and to the date of execution of this sale deed and the VENDEE shall bear and pay the same hereafter. The VENDOR shall discharge the same from and out of his own funds and keep the VENDEE indemnified. If any arrears are found due to the earlier period, the same shall be discharged by the VENDOR.”
On the other hand, if it is agreeable to the buyer, the property could be sold subject to certain liabilities. For example, if the buyer is ready to take over the mortgage of the seller, rather than taking another to purchase the property then the lien on the property due to the mortgage loan will continue. This is called an encumbrance clause.
Liability in case of a default -
If either of the parties of the sale deed is at fault, then that party is responsible to make good for the loss caused to no-at fault party so that the execution of sale deed is not affected. This could be in the form of a penalty fee.
The requirement of Witnesses and Registration –
Once the sale deed is prepared, along with the signatures of the vendor and the vendee giving their assent, at least two witnesses must attest to that document. One witness from either side is required along with their details such as name, age, address. It is also known as the testimonium clause.
The registration of the property in the name of the new owner i.e. buyer is compulsory along with registration of the sale deed. The Registration Act, 1908 is the governing statute which specifies the stamp duty to be paid. It must be done within four months from the date of execution of the sale deed.
These were the general clauses found in almost any sale deed. Apart from these, there are other clauses that parties may wish to add in their sale deed according to their agreement.
Right to quiet enjoyment of property –
This covenant of right to quiet enjoyment is used frequently in dealings of real estate related to sale or tenancy. Here the party in possession of the property is assured by the seller or landlord that the use of the land may be done by the former peacefully and enjoyment without any interference by the later parties. This covenant may be added to a sale deed by the buyer to be enforced against the seller. It can be framed as follows-
“The Vendor hereby covenants with the Vendee as follows:
The said property shall be quietly entered into and upon by the Vendee who shall hold and enjoy the same as absolute owner without any interruption from the Vendor or any persons claiming through the Vendor.”
Reddendum clause -
A reddendum clause or a reservation clause may be added by a seller. The function of this clause is to reserve some rights of the seller in the property, even though the title is transferred to the buyer. It could also be added to add restrictions on how the property may be used by the buyer. It usually stipulates what kind of structures may be erected on that land or restrict the size of such structures.
Tenendum clause -
Property for sale may be an empty land or a land wherein structures like a house, warehouse, and offices may be built on. This clause is inculcated in the sale deed to indicate that the improvements are being sold together with the land.
Further Read: Legally Evict a Tenant in India
Warranty clause (Ownership) -
Some of the sale deeds include a session clause which means ‘to seize’ or to own. By this clause, the vendor warrants or assures to the buyer that he is the rightful owner of the property and has the legal right to convey the property to the vendee.
Time is of Essence clause -
Several times negotiating a purchase or sale of the property can become a tedious and lengthy process. All the processes including several documents to be exchanged records to be checked, physically going to the land and examining the plot of land or flat, negotiating the price and payment method, hiring an agent or a lawyer to assist in the process, etc.
Hence, some people may want to ensure that all aspects of the property transfer deal happen on time and delay is avoided. This is where the time is of essence clause comes in.
The sale deed has a provision for making the parties abide by time constraints for performing their respective obligations. It lays down an agreement between the parties that they promise to perform their obligations like payment or handing over possession on the pre-decided time. If they fail to abide by this promise the other party may take some kind of action.
This provision essentially reinforces the idea that parties to a transaction can face losses due to a delay in completing the transaction. In the future, if the property gets involved in litigation, the Courts will give importance to this provision while deciding the party at fault.
Right to call off the deal –
In a sale deed, one can include a clause which will allow them to ‘back out’ of the business transaction if certain situations arise. It gives them the right to not continue and perform any future obligations towards completing the deal in specified circumstances. This type of provision is called the right to call off clause.
People involved in dealings of land don’t easily or frequently discontinue the transaction because both the parties invest a significant amount of time and money in it. It is only in very pressing circumstances that they may exercise this right.
Usually, parties decide calling off the deal if the other party refuses to hand over any kind of documents or withhold them, or there is a delay in payment or giving possession to the property, etc. You can add such a condition which affects yourself to an extent that you are ready to stop the transaction.
Dispute Resolution -
We all are aware of how long it takes for cases to be resolved in Court and the majority of us dread engaging in litigation in. Even then, there is a possibility that when one engages in a transaction to buy or sell land, some form of disagreement may arise and either of the individuals approach the Court of law for its resolution.
To avoid this situation and seek alternative measures, people seek to add a dispute resolution clause in their sale deed. What this clause essentially does is lay down a procedure agreed upon by the parties of how to go about in case a dispute arises. It may consist of several steps.
First is the mediation of the dispute mutually by discussion i.e. parties agree to try and resolve the issue amongst themselves. The second step involves parties agreeing for arbitration. If any of the parties is still unhappy with the decision they can move to the Court for deciding the dispute.
This is the general trend which is followed, however, the order may not be the same for every deed and can be modified as per one’s wishes.
Written By: Hemali Sawant
NALSAR University of Law, Hyderabad (4th Year)