How Does an Agreement for Sale Differ From a Sale Deed?

While cooling off after a great round of tennis, Siddharth Agnihotri, an architect by profession, was talking to his friend Yash about moving into a new home. During the discussion, which swept across various topics, the legal aspect of an ‘agreement for sale’ and a ‘sale deed’ came up. Knowing that the two are not the same left Siddharth dumbfounded.

Yash warned his friend that the format of an agreement entered with the seller can either be a sale deed or an agreement for sale. Therefore, Siddharth needs to know the divergence between the two. Neither Siddharth’s real estate agent, nor his developer mentioned that the sale deed and an agreement for sale are two different things!

The sale of immovable property involves complex procedures. For a hassle-free deal, all parties need to understand the entire sale process, which includes knowing the differences between an agreement for sale and a sale deed from a legal perspective.

What is an Agreement for Sale?

An agreement for sale includes the terms and conditions of a contract, scheduled to happen between the buyer of a property and its seller. The agreement for sale also mentions the offered price, the advance paid, and other payment details. An agreement for sale highlights the terms of a future contract, and it does not give the buyer ownership rights.

What is a Sale Deed? 

Parties involved in the contract, execute a property sale deed when all terms and conditions mentioned in the agreement for sale are met. The sale deed is a legal document that endorses the transfer of property ownership from the seller to the buyer.

Key Differences between an Agreement for Sale and a Sale Deed

The sale of a property allows an instant transfer of ownership. A sale deed facilitates the transfer. The deed refers to an executed contract.

An agreement for sale, on the contrary, is an executory contract. It cites the possibility of a future transfer. Risks, with an agreement for sale, remain with the seller until the execution of the sale deed.

A sale deed is an accepted ownership document, registered by the country’s civil law courts. Whereas an agreement for sale is a mutual agreement between the buyer and seller, and it can vary from contract to contract.

What are the Consequences of not Executing a Sale Deed? 

As per the Indian Registration Act, 1908, the sale of immovable property, valued over one hundred rupees, needs a registration. So, if a buyer purchases a property under an agreement for sale, but does not follow it up with the execution of a sale deed, then he/she will have no right on the property.

There is an exception to the rule under Section 53A of the ‘Transfer of Property Act, 1882’. Section 53A aims to shield prospective transferees (buyers) by granting permission to keep possession over the property, if a transferor (seller) executes an incomplete sale instrument, not respecting the terms specified in the agreement for sale. Though the transferor cannot disrupt a transferee’s possession over the property, the title, however, remains with the transferor.

The Supreme Court’s Ruling on the Agreement for Sale and the Sale Deed 

While observing a case between the State of Haryana and Suraj Lamp & Industries (P) Ltd, the Supreme Court of India, in 2012, said that legal and lawfully transfer of immovable property can take place only through a duly stamped and registered sale deed.

Other than the limited right granted to transferees under Section 53A, any sale falling short of meeting the requirements stipulated under Section 54 and Section 55 of the ‘Transfer of Property Act’, will not confer the title, or transfer the interest of the immovable property to the buyer.

To conclude, home buyers should keep in mind that only a registered sale deed can facilitate the transfer of ownership of immovable property. Those who have purchased a property under an agreement for sale, have no right to the title of the property. They should, without delay, ask the seller to prepare the sale deed, and get it registered under the Indian Registration Act.

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