What is a Sales Agreement?
An agreement of sale, from a seller to a buyer, is the main document that proves ownership and gives proper title to the property. When a property is to be sold there are generally two types of promises: An agreement of sale and a sale deed. The agreement of sale must be stamped and registered according to the Registration Act.
A sales agreement can be used to buy or sell any of the following:
- Goods: Material items like machines or automobiles.
- Goods and services: A tangible object and services like installation or maintenance that are related to it.
Section 54 – Transfer of Property Act 1882 clearly defines a specific sale as a transfer of title to the immovable property for consideration. To constitute a valid agreement of sale, all of the essential elements of an agreement of sale must be fulfilled as listed below:
- The property is the subject matter of the sale/transaction.
- The seller being the former owner transfers ownership/property.
- The buyer is the natural person who acquires the property from the seller of the property.
- Consideration is the amount paid or payable by the buyer to the seller, and that amount may be paid in full or promised to be paid in due course or partly paid and partly to be paid eventually.
- The act of transfer of ownership of the property from the seller to the buyer.
The contract act terms apply to all contracts, they also require that both the seller and buyer are responsible for the conclusion of the contract. Sellers and Buyers must:
- Seller and buyer having attained the mature age.
- Seller and buyer should be in Sound mind.
- No court judgment or law prohibits the seller and buyer from entering into the contract.
Required details in a sale agreement
Although required by law, the buyer needs to be aware of and take all necessary precautions before entering into any contract to sell the property. Section 55 of the transfer of Title Act also requires the seller to provide the buyer with representations and disclosures in the deed that the buyer is entitled to enforce. The mandatory information and declarations to be obtained from the seller are:
- The seller, who has absolute ownership of the property in question, has the right to transfer the agreement of sale in favour of the buyer.
- The absence of material defects, disputes and claims of third parties or, where applicable the character of full disclosure of the same.
- Authority of the seller of the property to transfer ownership to the buyer of the property.
- No lien/seizure of property.
- Transfer and delivery of title deeds in the custody of the seller to the buyer of the goods, upon receipt of full consideration and delivery of full possession of the goods.
- The payment and settlement of all government fees by the seller of the property.
- Seller’s consent to sign other documents to fully secure buyer’s rights such as the transfer of utility and community/municipal records to the buyer’s name.
In addition to obtaining representations and covenants, the buyer is also recommended to indemnify the seller in the contract of sale for any possible defect in the relevant title or breach of any representation, term, or condition of the contract of sale.
The contract of indemnity would survive the performance of the agreement of sale and the buyer would be entitled to recover costs and remedies from the seller of the property at any future time in the event that said title is found to be defective. The buyer of the property should read the indemnity agreement carefully to ensure that the indemnity is not limited or restricted for any period of time and is not subject to any conditions.
Need of an Attorney for a Sales Agreement
Although you can download a standard agreement of sale and use it as a contract, it’s always a good idea to consult an attorney/lawyer. Because a standard comparison may not offer you sufficient protection or exempt you from liability. When you work with an experienced attorney/lawyer, you benefit from several advantages:
When the lawyer is appointed for the sales agreement he will ensure that the agreement has included all the correct information, optional clauses, and disclosures. A lawyer will include standard clauses as well as personalized clauses and can make sure that they are legally binding.
When the lawyer is appointed for the sales agreement he will ensure that the liability shall be limited before and after the transaction. It is important to limit liabilities.
When the lawyer is appointed for the sales agreement he will ensure that no matter if the party is the buyer or the seller, an agreement should offer sufficient protection, and will also ensure that both parties receive the stated goods, services, or compensation.
Difference between a Sales Agreement and a Bill of Sales
A Sale Agreement is similar to a bill of sales, but the two documents have important differences.
- In a bill of sales, the transfer of ownership occurs from the seller to the buyer, while the sales agreement contains the terms of the goods and services to be delivered.
- The Sale Agreement will state a detailed payment schedule or guarantee, while a bill of sale does not state these details.
- The parties have complete flexibility in the Sales Agreement since all relevant components are described in great detail as a part of the contract, whereas the parties have only limited flexibility in the Bill of Sales because very few details are specified.
Documents required for Sales Agreement Registration
- Old Deed of Sale / Index – II
- A copy of excerpt 7/12 is required for the property purchase agreement.
- Certificate of the agreement for sale registration of the flat agreement.
- Maintenance receipt in case of flat registration.
- PAN Card and AADHAR Card of Buyer and Seller.
- PAN Card and AADHAR Card copy of Two Witnesses.
- Two passport-size photos of buyer and seller etc. as required depending on the type of sale made.
Substitutes for sales agreements
It is not necessary that an agreement of sale can satisfy all the demands of the parties. The parties may find other similar agreements useful or necessary depending on their needs. As follows:
- Real Estate Purchase Agreement
A real estate purchase agreement can further clarify the transaction when the buyer intends to purchase a home, commercial building, or other property from the seller.
- Business Purchase Agreement
If the seller intends to transfer ownership of a business to the buyer, a business purchase agreement can clarify the rights and obligations of each party.
- Service agreement
A Services Agreement or Professional Services Agreement (PSA) would be a better choice to outline the rights and obligations of both parties in the case of service or consulting-related transactions.
- Promissory note
The lender has the right to sign a promissory note in the case of a loan for a sum of money with the right to demand repayment by one particular date within a range of dates.
A Sale agreement is agreement that is a helpful document for parties engaged in transactions dealing with goods or services. A sale agreement is advantageous for both parties because it covers all parts of transactions that would safeguard both parties’ rights, restrict their obligations, and assist them in protecting against all potential losses that might occur during and after the transaction if the sales agreement is not formed. These transactions are typically completed for real estate and business assets. It consists of clauses about the period of a sale, the indication of the amount and details of payments, etc., necessary for the conclusion of the agreement of sale.
Author(s) Name: Anjali Fad (Department of Law, Mumbai University, Fort)
Registration Act 1908, s 15
Transfer of Property Act 1882, s 54
Himanshu Arora, ‘What is Sale Agreement? Definition and Details’ (Magic Bricks, 01 December 2021) <www.magicbricks.com/blog/what-is-sale-agreement/125581.html> accessed 07 December 2022.
Transfer of Property Act 1882, s 55
‘What is Legal Standing of a Sale Agreement?’ (Teal India, 01 December 2020) <https://tealindia.in/insights/what-is-the-legal-standing-of-a-sale-agreement-can-you-register-it-online-in-delhi-ncr/> accessed 07 December 2022
 Shreya Pandey, ‘All you need to know about Sales Agreement’ (IPeaders, 24 January 2022) <https://blog.ipleaders.in/all-you-need-to-know-about-sales-agreement/> assessed 07 December 2022