Sale defined under Indian Law
According to section 54 of the Transfer of Property Act, 1882, sale of transfer refers to “the ownership in exchange for a price paid or promised or part-paid and part-promised. Basically, in a sale there exists an absolute transfer of all rights in the property sold”.
Sale can be made in Two Ways
Where the value of Tangible Immovable Property is Rs.100 or more than that or in the case of a reversion or other intangible thing, sale can only be made through Registered Instrument.
Where the value of Tangible Immovable Property is less than Rs.100, sales can be made through the Delivery of Possession
Delivery of Tangible Immovable Property is said to be completed when the Seller handovers the possession of a property to the buyer or such person as he directs.
A contract for the sale of immovable property is a contract that a sale of such property shall take place on terms settled between the parties. It does not, of itself, create any interest in or charge on such property.
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Elements of Sale Transfer
The Parties: There are two parties to sale
the Transferor and
The transferor is known as the seller who sells his property and the transferee is known as the buyer, to whom the property is being sold. A contract of sale must be based on a mutual agreement between the seller and the buyer.
The transferor or the seller must be a person who is competent to enter into a contract i.e., he must be a major and of sound mind and should not be legally disqualified to transfer the property. A minor or a person of unsound mind is incompetent to transfer his own property despite being its owner.
The Subject Matter: The subject matter of sale must only be IMMOVABLE PROPERTY as governed by Sec.54 of the act. Immovable property can be tangible or intangible. Tangible property is one that can be touched while intangible property refers to property that cannot be touched, such as a right of fishery, a right of way, etc.
The Price or Consideration: The consideration must only be in MONEY to constitute a Sale. If it is for an exchange of some other item it is not a sale.
Modes of Sale Transfer
There are two modes of sale transfer namely:
By registered instrument; and
Delivery of possession.
Must Read: Sale Deed in India
Rights and Duties of Seller
The rights and duties of a seller are subject to the contract. In the absence of any contract to the contrary, the rights and duties of seller and buyer are governed by section 55, Transfer of Property Act. The rights and duties of seller and buyer under the provisions of section 55 of the Transfer of Property Act are as under:
Duties of Seller Before Sale
The seller is bound to disclose all the material defects to the buyer of the property which the buyer is not aware of and cannot find in the ordinary course of action.
The seller is bound to produce all documents relating to the property to the buyer if he asks for those documents which are in the possession or power of seller.
The seller is bound to give an answer to all the questions to the best of his knowledge which is put before him by the buyer with respect to the property.
The seller is bound between the date of the contract of sale and the delivery of the property, to take as much care of the property and all documents of title relating thereto, which are in his possession as an owner of ordinary prudence would take of such property and documents.
The seller is bound to pay all the charges and rent, dues or government fees up to the date of sale.
Duties of seller after sale
After completion of the sale, it is the seller’s duty to give possession to the buyer. The seller is bound to give, on being so required, the buyer or such person as he directs, such possession of the property
The seller shall be deemed to contract with the buyer that the interest which the seller professes to transfer to the buyer subsists and that he has the power to transfer the same.
Where the whole of the purchase money has been paid by the buyer, Seller is bound to deliver to the buyer all documents of title relating to the property which are in the seller’s possession or power;
Seller’s Rights before Sale
Section 55 (4) (a) – Seller has the right to receive all the rents and profits out of the property.
Seller’s right after sale
Seller has the right to Lien or charges on the property if any amount is unpaid by the seller. According to Section 55(4) (b) if the price remains unpaid, the seller cannot refuse delivery of possession for or can claim back the possession if already given to the buyer, but he (seller) is given a right to recover unpaid purchase money from and out of the property.
Rights and Duties of Buyer
The rights and duties of a buyer are subject to the contract. In the absence of any contract to the contrary, the rights and duties of seller and buyer are governed by section 55, Transfer of Property Act. The rights and duties of the buyer under the provisions of section 55 of the Transfer of Property Act are as under:
Duties of Buyer before Sale
The buyer is bound to disclose facts which materially increases the value of property, Section 55(5)(a) of the Act provides that, “the buyer is bound to disclose to the seller any fact as to the nature or extent of the seller’s interest in the property of which the buyer is aware, but of which he has reason to believe that the seller is not aware, and which materially increases the value of such interest”
Section 55(5) (b).- Buyer is bound to pay the price of a property to Seller
Duties of buyer after Sale
Section 55 (5) (c) – The buyer is bound to bear any loss arising from the destruction, injury or decrease in value of the property not caused by the seller where the ownership of the property has passed to the buyer.
Section 55(5) (d) – The buyer is liable to pay the outgoings, e.g., Government dues, rents, revenue or taxes
Buyer’s right before sale
Section 55(6) (a) – Buyer is entitled to (unless he has improperly declined to accept delivery of property):
A charge on the property for the purchase money properly paid by him in anticipation, not the delivery.
Interest on such purchase money.
The earnest, and cost awarded to him in a suit to compel specific performance of the contract or to obtain a decree for its recession in case he properly declines to accept delivery.
Buyer’s right after Sale
Section 55 (6) (a) – Buyer is entitled to receive any benefit of any appreciation of the property or increase in its value and to the rents and profits thereof.
Related Read: Purchase and Registration of Immovable Property in India
Types of Ownership and the Allied Transfer
Under 'Freehold ' ownership, the property and possession are with the owner of the property.
In the case of leasehold property, the owner of the property transfers the right over the property and its possession for a specified period of time and the Owner is called the Lessor and the other party, the Lessee. The ownership and possession are automatically transferred to the Lessor on expiry of the lease period.
Under Power of Attorney, the owner of the property appoints another party to deal with the property, normally for sale of the property, while the ownership and possession is retained by the owner.
Steps involved in the Sale of a Property
Deciding to sell and choosing an agent. Agent will be in charge of advertising, showing and completing the legal requirements of selling the property. Make a plan for listing, showing and selling your property.
Determining the selling price and property inclusions come next. Property’s location, size, age, and features will be assessed, According to the current market and area trends.
Agreement with your agent. This legally binding contract will detail any commissions, the estimated sale price, duration of the agreement, advertising costs, process.
Prepare the Vendor’s Statement for your property and the Contract of Sale through your solicitor or conveyancer. These will include all of the details prospective purchasers need.
Advertising and showing your property. This generally involves photographing your property, drawing up floor plans and writing your online ads.
Sale and negotiation. Agent will auction your property or mediate between seller and buyers to reach a mutually acceptable price. The buyer will then pay a deposit.
Under contract. Both seller and buyer’s lawyers and banks will work out the details of the sale to ensure both parties meet all legal and financial requirements followed by the settlement day.
Most Read: Document to Check before Buying Property
Documents involved in a Property Sale
Letter of allotment
The letter that confers allotment of the property to seller from the relevant society or authority is a primary document seller you need to have in order.
An attornment occurs when the title to immovable property is transferred from the hands of one lessor to another. In such cases, the existing lessor will usually send a letter of attornment to the lessee notifying him of such sale and request him to make all further lease payments directly to the new lessor. In some cases, a deed of attornment is entered into between the lessee, the new lessor, and the existing lessor.
The original conveyance or sale deed from the previous owners of the property is required when the seller is selling a property. In case seller have lodged the original deed for registration with the Registrar, seller needs to provide a copy of the conveyance deed or sale deed along with a photocopy of the receipt from the Sub-registrar where the documents have been lodged for registration.
Sale deed is important as it traces the ownership of the property. It is necessary to prove the chain of previous agreements with past owners.
Seller also needs to have a copy of the approved building plan and occupation certificate issued by the competent authority. The sanctioned plan highlights the area covered, build-up area and the open area of the property. It is a detailed outline plan of the property sanctioned by the appropriate authority.
When seller is selling property like a house, the seller must obtain the permission to transfer the property from a competent authority – development authority or society. The buyer is entitled to ask for the original stamped receipts of payments made to the builder or developer by the previous and present sellers.
The relevance and importance of society documents cannot be ignored. Suppose seller wants to sell a flat that seller own, then seller should possess the copy of the share certificate issued by the apartment society in seller’s favour. The share certificate shows seller membership in society. Seller also needs to produce a certificate from the society certifying that seller has no outstanding payments to the society. The society’s membership transfer form for transfer of ownership needs to be filled and signed so that there will be no hurdles in transferring the property to the subsequent buyer.
The encumbrance certificate is used in property transactions to indicate free title. When buying an apartment, land or house, the buyer wants to make sure that the land or property does not have any legal dues.
Encumbrance refers to a charge created on a property. In case a property is purchased with borrowed money or if it is offered security for a loan, then a charge is created in the form of an encumbrance. The property is mortgaged as a security for any debt or obligation.
In any transaction of sale or purchase of property, a “no encumbrance certificate” is a very important document. This certificate is also issued for the purpose of mortgaging a property while seeking a plan. The Certificate certifies that the property in question is not already mortgaged. If it is already mortgaged, the liability for the outstanding loan may devolve on a new owner.
It is applied in Form 22 to the Tehsildar along with a copy of residence proof duly attested.
Once the documentation is cleared, both parties can then enter into an agreement to sell and confirm the terms and conditions. Subsequently, they can execute the sale deed based on the agreement to sell. Sale agreement is signed and executed by the seller and buyer on a non-judicial stamp paper.
Sale agreement is one of the most powerful documents in the transaction as it has legal value and can be produced as evidence. The agreement between the buyer and seller is the document in which the sale deed is drafted. Every document acting as evidence of transfer of property by sale is preceded by an agreement to sell. It spells out in clear-cut terms the conditions under which the seller intends to sell the property and the buyer intends to purchase it.
Further Read: Send Legal Notice for Termination of Lease
Title of the Property and Encumbrances
Title of Property means, “A title is a legal document that espouses an individual's right to ownership and possession of an item that can be recognised as being owned or belonging to a person or a thing. At a basic level, a title is a document that indicates recognition of ownership. In a government system that acknowledges individual property rights, an individual is capable of having ownership over an expansive amount of tangible and intangible property. Titles can be obtained by purchase, descent or grant”.
Encumbrance is a “Mortgage or other charges on a property, or the fact of a property having a mortgage, etc.”.
Other Relevant Information
Additional Duties of Seller:
To disclose any material defect: a seller is bound to inform the buyer of any material defect in the property or the title of the property.
To produce documents of title: a seller has to provide for the examination of all documents of title that are in his possession.
To answer questions about the property or title thereto: a seller is bound to give relevant information and satisfy the buyer on any questions raised by the buyer or his advocate.
To execute conveyance: The seller is bound to execute the sale deed after the sale price is paid to him
To pay outgoings: the seller is bound to pay all public charges, tax, and rent that may be due on the property before the date of sale.
Lis pendens: a seller is bound to inform the buyer of any legal proceedings that are pending on said property and that may come in the way of the sale or transfer on said property.
To deliver possession of the property: a seller is bound to hand over the possession of the property at the time of the execution of the sale. Generally, before the execution of the sale deed, the buyer and seller enter into an agreement of sale either orally or in writing. After entering into this agreement to sell, the buyer would be advised to take all the necessary information that has been listed above.