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A contract for sale or an agreement to sell is a contract wherein the owner of a property agrees to sell the property to the buyer on a future date at a predetermined price and upon fulfillment of certain conditions. A contract for the sale of immovable property is a contract that a sale of such property shall take place on terms settled between the parties; it does not of itself create any interest in or charge on such immovable property. For e.g. a contract for sale is commonly used by builders to sell apartments or buildings before constructing it, under the promise to sell the property once it is constructed in accordance with the agreed specifications.
1. What is the difference between a contract for sale and a sale deed?
Contract of Sale
Creation of interest or charge
Does not create any interest in the property being transferred
Creates interest in the property
Time of transfer of ownership
Take place at a future date
Takes place at the execution itself
Possession may or may not be handed over at its execution
Possession is required to be handed over at execution
Such a contract is based upon the fulfilment of conditions precedent or the occurrence of an event
Such an agreement involves the absolute transfer of title.
2. Is every joint owner of the property required to execute the contract for the sale of an individual share in the property?
Where a property is owned by 2 or more people however holding different interests or shares in the single property, either one of them may pursuant to section 44 of the Transfer of Property Act 1882 sell their share in the property to another person.
3. Does a contract of sale require registration?
Under section 17(1)(b) every document which creates, whether in present or in future, any right, title or interest, is required to be registered under the Registration Act 1908. Hence a contract for sale does not create any right or interest in the property, it is not required to be registered, however, every sale deed needs to be mandatorily registered.
4. Why would one execute a contract for sale instead of a sale deed?
Although a contract for sale does not grant any interest in the property, however, it provides security against any undue transfer of property or non-fulfillment of an obligation. Section 53A of the Transfer of Property Act 1882, states that by the execution of the agreement to sell, the seller is barred from transferring the property to another person where a buyer has fulfilled (even if in part) his obligations for the transfer of the property.