Buying & selling in the secondary market can
be tricky. The owner always fears the buyer might be evaluating other
properties & could change the decision at a crucial juncture.
The buyer is always worried the seller might get
a higher value from someone else and scrap the deal.
To get around this, both parties can go for an
agreement to sell. In this contract, the buyer and the seller include mutually
agreeable terms that ensure the deal goes through smoothly.
It is a road map that mentions how and by when
the transaction will be completed. The document is legally binding on both
parties and the person not sticking to the conditions can be taken to court.
Mr. Pravin Mahurkar, Associate Director, JLL
India said, "This agreement is different from a sale deed, which is signed
in front of a registrar while concluding the deal. Sometimes, an agreement to
sell is converted into a sale deed"
Experts said most disputes happen when the
property price rises and the seller changes his mind or when an owner's
relative stakes a claim in the house or when the buyer gets into a financial
difficulty.
Making it watertight..!
Property buying can be divided in two stages.
First, when buyer and seller show interest in transacting with each other, the
earnest money is exchanged, the buyer starts the due-diligence and arranging
funds. In the second stage, both sign papers for transfer and possession of the
property at the registrar's office and the final payment is made.
There are times when the parties decide to go for
a Memorandum of Understanding or Expression of Interest, rather than agreement
of sale. In these, they usually include a clause that it will be non-binding.
 |
| Pravin Mahurkar, Associate Director, JLL India |
Such a clause can give exit options and can not be
forced in a court.
To ensure the buyer fulfils his promises, the
property owner should first look at timelines. The agreement for sale should
spell out deadlines for the buyer to finish due-diligence and arrange the
money.
If these are not done in the stipulated time, the
contract should mention that the advance paid will be forfeited. The seller
should provide a copy of the bylaws of the housing society in question in
states like Maharashtra. And, mention in the agreement that the person buying
the house should adhere to these.
In some societies, there are restrictions on
members from selling a house to certain communities or non-vegetarians or
people in certain professions.
Mr. Ramesh Vaidyanathan, Managing Partner, Advaya
Legal said, "If the buyer finds out later that such information was not
shared or kept hidden, and the society does not accept him despite the deal
going through, he can initiate a criminal case against the seller"
Property Transaction : CHECKLIST..!
Include these 5 key clauses..
TIME FRAMES..!
Both parties (Buyer and Seller)
need to mention deadlines for arranging documents & funds
INDEMNITY..!
Buyer needs to include this clause
to protect against relatives staking a claim after the transaction
EARNEST MONEY..!
Seller needs to specify conditions under which
advance will be forfeited.
Buyer needs to include terms on
return of the token amount
WATCH OUT..!
Do not let the other party include
exit clauses that insures them against dishonouring the agreement
DUE DILIGENCE..
While buyer should look for a clear
title & disputes on the property; seller needs to ask for a bank statement
or / pre-approved loan to check eligibility.
The buyer, too, needs to focus on deadlines &
refund of the token money. Buyers also need to check if the house has a clear
title, there are no existing loans on it, and the owner can arrange all the
required no-objection certificates (NOCs).
He should, therefore, give the seller a timeline
to produce these documents. The agreement should say that failing any of these,
the buyer will cancel the deal & should be refunded the earnest money
within a timeframe. And, in case of a delay reasonable interest will be levied.
 |
| Ramesh Vaidyanathan, Managing Partner, Advaya Legal |
To protect against a relative staking a claim,
the seller needs to spell out an indemnity clause, whereby the owner of the
property protects the seller in case of a lawsuit.
In high-value transactions, many prefer to make a
separate indemnity agreement.
Experts said it's also necessary in a big city
such as Mumbai that the agreement spell out transfer of parking, any club
membership & other amenities. In many cases, sellers later ask for extra
money to transfer these at the time of registration.
When doing due-diligence, the buyer also needs to
check if there's any litigation or dispute pending on the property, by going
through the records.
Every sub-registrar records this information on a
court's order and it helps to alert prospective buyers.
When no one is at fault..!
In case of a scenario such as the property
getting damaged due to rain or storm or one of the parties dies, the seller or
the buyer cannot enforce the agreement.
Another common scenario is when the buyer does
not get a loan from a bank, in which case no one can be held responsible.
That is why experts suggest signing an agreement
after the bank pre-approves a loan.
Registering..!
The agreement should be executed on stamped
paper, to hold legal sanctity. A court would not entertain such a contract if
carried out on a blank paper.
Though it's optional to register the document,
experts say it's always better to do so.
"Though the registered document holds the
same value in a court as an unregistered one, it gives the paper a greater
sanctity," said a lawyer.
Dishonoured..!
If the owner sells the flat to a third party
after signing a contract, the affected person can go to a court and get an
injunction preventing the other party from selling the house. This is called
specific performance of the agreement, in legal terms.
If the property is already sold to a third party
and the new buyer has moved in, the court first examines whether the
transaction took place without informing the first potential buyer. If not, a
court has the power to set aside the sale.
In a typical situation, a court orders refund of
the token money with interest and damages like legal fee and other financial
loss suffered due to dishonour of the agreement. If the buyer says he's now not
interested to buy, the court usually orders damages.
Lawyers say the best option is to settle disputes
amicably, as such cases go on for up to 15 years in lower courts and for a
similar period in upper courts.
"A person can spend a lifetime in fighting
such a case," said Mr. Vaidyanathan.
Src: BS , Tinesh Bhasin
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