Summary of this article
Agreement to Sell is a promise, not ownership
Sale Deed legally transfers property ownership
Payments before Sale Deed carry legal risk
In India, first-time homebuyers often misunderstand many complexities and terms, leading to a more stressful homebuying experience. Terms like Agreement to Sell and Sale Deed are the most commonly misunderstood terms, often mixed or considered the same. The confusion between the two can expose buyers to risking their money, especially when a large amount of money is paid up front as a deposit. Understanding the difference is necessary before getting into any sort of transactions related to real estate.
Key Differences Between The Two
An Agreement to Sell (ATS) is a document/contract that records the intention of the buyers and sellers to complete the sale of the property on a future date. It does not transfer the ownership of the property but just states the terms and conditions on which the sale will take place. The Agreement to Sell includes the sale price decided, the advance that is to be paid, the timeline for completing the transactions, and these conditions must be fulfilled before proceeding with the Sale Deed. Proposing an Agreement to Sell is not a transfer of title; it is merely a list of terms and conditions that align the seller and the buyer so that in the future no party is able to cheat the other.
On the other hand, a Sale Deed (Conveyance Deed) is the final legal document that transfers the ownership of the property from the seller to the buyer. Once the Sale Deed is formalised and registered in accordance with the law, the buyer becomes the rightful owner and acquires the rights and title that come with it. Under Section 54 of the Transfer of Property Act, ownership of immovable property can only be registered through a Sale Deed.
Hence, the Agreement to Sell reflects the intentions of the property, while the Sale Deed reflects the new ownership it has just acquired.
Legal Obligations When Signing an Agreement to Sell
When a buyer signs the Agreement to Sell, they take on the responsibility that binds them to contractual obligations, even if they are not the rightful owner of the property. The most significant obligation is the commitment to pay for the obligations set in the agreement and within the timeline that is promised in the contract. The process begins with the payment of an advance to lock in the process of buying the particular property. “From the buyer’s perspective, signing an ATS typically means promising to pay the agreed consideration strictly as per the payment schedule and remaining ready and willing to complete the transaction on the agreed date, failing which contractual consequences may follow,” adds Mayank Arora, advocate and partner, Chambers of Bharat Chugh.
In addition to the payment, the buyer is under the obligation to timely fulfil all the formalities that are necessary to finalize the transactions. Courts closely look at the buyer's conduct during these formalities, in case of any disputes that may arise in the future. If the buyer fails to comply with the terms set in the ATS, the seller can legally cancel the agreement as part of their rights; they can even forfeit the advance or claim damages. This makes the ATS document that is not to be taken lightly.
Seller’s Obligations Before the Sale Deed Is Executed
The seller is obligated between the time of the Agreement to Sell and the Sale Deed to ensure the title of the property is clear, marketable and free from legal disputes and defects. Any disputes, litigation or third-party claims that affect the claim of ownership must be disclosed before the Sale of Deed is executed.
Before selling, the seller must also ensure that the property is free from mortgages, loans, or charges prior to the registration of the Sale Deed. In cases that involve society housing, the seller is also obligated to obtain the statutory approvals and certifications that are required for a successful transaction. As the final step of his obligation, they are supposed to hand over possession and original title documents upon the entire completion of the sale. "Parties must cooperate fully in execution and registration of the Sale Deed immediately upon receipt of agreed consideration as per the schedule and the terms," adds Mayank Arora.
The difference between the two documents is not just technical; it becomes the fine line of title ownership and the obligations that lead to it. An Agreement to Sell is a legal promise that the sale will take place in the future, with all the obligations and terms met. While the Sale Deed is the legal instrument that declares the property in the name of the new owner, passing from the former one.
