What Are The Standard Clauses In A Property Sale Agreement?

The prospect of buying a residential property, a place you can call home, brings in a lot of exuberance and joy. However, the process may require careful navigation of the various legal aspects involved in the sale of immovable property. The property sale agreement, which outlines the seller’s intention to sell the property and the buyer’s ability, is an important legal document that requires perusal by both parties.

Why do we need a property sale agreement? 

Drafting and signing the property sale agreement is an important part of the sale process. The Transfer of Property Act 1882 makes it imperative for a conveyance deed to precede the transfer of the immovable asset or the real estate property. This is done by the sale agreement, essentially a legally binding contract covered by the Indian Contract Act 1872.

The sale agreement is also very important for protecting the interests of both the buyer and the seller. As a contract, it clearly defines the parameters or the terms of the sale. It includes all relevant details of the property and clarifies the payment terms as well. This ensures that the buyer, particularly a homeowner investing in an under-construction property, remains protected in terms of the quality and dimensions of the property. Understanding the clauses clearly before you sign makes it all the more important.

What are some standard clauses in the property sale agreement?

Here are seven clauses that are an integral part of the property sale agreement –

• Timeframe – The timeline for the delivery of the project is an important term for the sale of the property. This should be included in the agreement between the seller and the buyer. Similarly, the agreement should also outline the timeline for payments (downpayment and subsequent part payments). One clause regularly included in the agreement is forfeiture of the downpayment (usually between 10-20 per cent) if the buyer fails to complete the sale process.
• Due diligence – The seller needs to provide the buyer access to the original title documents and permits and should facilitate the title verification of the property. The seller should answer all queries of the buyer or prospective homeowner. The responsibility of undertaking due diligence, however, rests with the seller.
• Right to abort the deal – The agreement should clearly outline the conditions under which the buyer or the seller can pull out of the deal without fear of penalty or legal action. Depending on the agreement, this could include conditionals like natural disasters or personal financial crises.
• Indemnity clause – To avoid any legal disputes regarding the property arising after the sale, most property agreements include a clause that indemnifies the buyer against any legal claims to the land or property arising after the sale. The seller takes responsibility for the ownership transfer to the buyer without any legal hassles.
• Penalty clause – Most property sale agreements include a penalty clause. This is usually imposed on the seller in case of delay in delivery of the project. It may also mean a penalty imposed on the buyer in case of delay in payment, as mentioned in the agreement.
• No encumbrance clause – The seller agrees to clear all dues, taxes, payments, and penalties related to the property till the date of transfer. Following this, all dues and payments are the responsibility of the buyer. The seller offers the property to the new homebuyer without any encumbrances.
• Exclusivity clause – In this clause, the seller offers exclusive ownership and usage right of the property as defined in the contract to the new buyer. Following the sale and registration, the new owner may live in, rent, lease, sell, or mortgage the property. In major projects, some areas are meant for common use for all the apartment owners and this, too, is clearly defined in the agreement.

Getting help

The property sale agreement requires detailed scrutiny and a thorough understanding. Each clause needs to be examined with several possible scenarios to protect the buyer’s interest. As an individual buyer, if you are not sure that you have a clear understanding of the terms, you must consult a lawyer or a legal expert who specialises in real estate. As mentioned above, it is a legal contract, and once you sign it, any breach is legally actionable.

Conclusion 

Buying a property is one of your life's most important financial decisions. It has far-reaching financial consequences that span decades. This makes it very important to ensure complete legal compliance and documentation. The property sale agreement is the start of the process that culminates with the registration of the sale deed and payment of the stamp duty, which completes the ownership process.