Difference Between Agreement of Sale and Sale Deed

There are various terms that are used in real estate and main confuse the homebuyer. We understand that when purchasing or selling immovable property, persons enter into a contract with the seller. It must be noted, however, that the form and format of the agreement can vary. In general, there are two kinds of contracts, an agreement of sale and a Sale Deed. The names of both contracts may sound very similar, so one tends to believe that they mean one thing or the same thing. Let us understand the concept of both.

What is an agreement of sale?

The Transfer of Property Act, 1882, which governs matters relating to the sale and transfer of property, describes the sale contract or an agreement for sale as follows:

According to the Section 54 “A contract for the sale of immovable property, is a contract that a sale of such property shall take place on the terms settled between the parties” Furthermore, the Section 54 specifies that “it doesn’t, of itself, create any interest in or charge on such properties.”

In simple words, an agreement of sale is a deal to sell a property in the future. The terms and conditions on which the property in question will be transferred are set down in this agreement.

An agreement for sale consists of the following terms:

• Proposal to purchase and agreement to sell in future
• Detailed property description
• Disclaimer that the property is free from legal obligations
• Value of the property including payment details
• Delivery of the original documents on the final payment
• Execution of sale deed and registration of the same if the titles are found good
• Method of property delivery
• Payment reimbursement in the event of improper titles
• Action course for non-completion of sale on the part of the seller
• Loss of payment in advance if the buyer fails to complete the transaction
• Remedy if legal issues besiege the property
• Transfer of tax-related certificates
• All other matters related to the proposed sale

Importance of agreement for sale:

In view of several factors, signing an agreement of sale becomes essential. Firstly, this is legal documentation of the consumer and seller entering into an agreement on the basis of which, in the event of a disagreement, the potential course of action will be determined. In addition, if you apply for a home loan, the bank will not approve your application until you sign an agreement of sale.

What is a sale deed?

A sale deed is a legal document proving that the seller has transferred the buyer absolute ownership of the property. The rights and interests in real estate are obtained by the new owner via this document. The deed should, however, be drawn only after the clear resolution of all the contractual terms of the sale agreement. In addition, it is compulsory under the Registration Act, 1908, to register a sale deed at the registrar’s office.

A sale deed usually includes the following details:

• Details of the buyers and sellers (name, age, and addresses)
• Property description (total area, details of construction, the exact address and surroundings)
• Transfer of titles
• The clause of sale consideration
• References to the agreement of sale and the price details
• Transfer of rights, interests, and claim of the property to the new buyer
• The time frame when the property title will be actually passed to the buyer.
• The actual date of delivery of possession.
• A clause that the previous owner does not hold any authority on the facilities, privileges, and easements of the property
• Compensation to the purchaser for losses arising out of the negligence of the seller or heirs of the asset
• The authority of the vendor to sell the property.

Key Differences

• Transfer

Agreement for sale: It implies the future transfer of property

Sale deed: It signifies an immediate transfer of the property titles

• Risk involved

Agreement for sale: Unless the property is sold in the future, risk/liabilities remain with the seller

Sale deed: Risk is shifted immediately to the new buyer

• Contract

Agreement for sale: It is an executory contract. An executory agreement is one which has not been fully implemented

Sale deed: It is an executed contract

• Violation

Agreement for sale: Breach of sale may result in a suit for damages

Sale deed: Sale breach results in a legal complaint as well as monetary compensation for damages

• Registration

Agreement for sale: It is not mandatory to register the agreement of sale. Nevertheless, requirements can vary across states.

Sale deed: Registration of a sales deed is mandatory.

From a legal perspective, to arrive at a hassle-free closure, it is important to understand the terminologies listed above. A lack of knowledge can not only lead you to legal issues but may also put your investment at risk.

For example, if you purchased a house under the agreement of sale and failed to execute a sale deed, then the right to property will stay with the developer even though you get hold of the property possession. Therefore, it is imperative to create a sales deed and have it registered to prevent certain circumstances. Only a stamped and licensed deed ensures the buyer's possession of the legitimate property.