Agreement for Sale vs. Sale Deed: Key Differences

By Lodha

Purchasing property is a significant chapter in anyone’s life. A step closer to living the dream - a home of your own. It's a significant milestone that symbolises your financial prowess and the realisation of long-cherished aspirations. Nonetheless, it also brings along a surge of legal processes. A major one in these is the conversation of the Sale Deed vs. Sale Agreement.

A sale agreement and a sale deed - these two documents are the pillars upon which property transactions stand. While the two terms are often used interchangeably, they refer to two distinct documents that serve varying purposes. This understanding will not only protect your interests but also ensure a seamless and legally sound transaction.

What is a Sale Agreement for Property?

It is a preliminary agreement between the buyer and the seller of a property. It outlines the terms and conditions under which the property will be sold, and it serves as a legally binding contract that safeguards the interests of both parties during the transaction's intermediate stages.

However, this agreement between a buyer and seller of property does not refer to an immediate transfer of ownership rights. So, the buyer does not develop a right or interest in the property by simply signing such a house sale contract.

To help you understand real estate sales agreements better, here are the elements they comprise:

- It occurs between two or more parties and is a buy or sell agreement for the future.

- A sale agreement format should specify the property's exact location, boundaries, and any relevant details.

- Since it is an agreement for sale of a property, it should include the value, payment details of the same, and how original documents have to be delivered upon the final payment.

- A real estate purchase and sale agreement confirms that the titles of the property are clear and facilitates the execution of the sale deed agreement and registration. It's also crucial to get refunds if the title is found to be improper as it acts as proof of non-completion of sale.

- A sale agreement delineates a proper method of property delivery and can act as a remedy if any legal issues arise.

What is a Sale Deed for Property?

A Sale Deed - also known as a Conveyance Deed or a Title Deed - points to the final and irrevocable legal document that transfers the property's ownership from the seller to the buyer. It is the conclusive evidence of the property's sale and signifies the completion of the transaction.

Do note that a transfer deed is drawn only when the contractual terms listed in the sale agreement have been fulfilled. Additionally, a deed of sale of real property must be registered at the registrar's office as per the Registration Act of 1908.

To better understand a sale deed in real estate, here are the elements it comprises:

- A sale deed format includes the details of the parties involved and a description of the property.

- It acts as a transfer of titles, rights, interests and claims of property.

- A sale deed draft contains the value of the consideration involved in the sale, along with other price details.

- Part of the sale deed information is a clause that remarks on the transfer of authority concerning privileges, easements, and facilities, from the seller to the buyer.

- It also lists out the compensation the buyer will receive in case there is any loss arising out of negligence of the property on the seller's end.

What are the key differences between the two?

• Purpose

An agreement for sale of a flat acts as an implication that the property will be transferred from the seller to the buyer. On the other hand, a sale deed of a flat is an indication that the seller will immediately transfer the property title immediately.

• Risks

With a house sale agreement, a seller is to remain liable for any risks till the property is transferred. However, once a sale deed for a house comes into effect, the risk is immediately transferred to the buyer.

• Contract

A home purchase agreement is considered an executory contract, as the terms of the agreement—such as payment, possession, or registration—are yet to be fully performed by one or more parties. In contrast, a sale deed is an executed contract, where all parties have fulfilled their obligations and the ownership of the property has been legally transferred.

• Violation

If you breach an agreement for sale, you may get involved in a suit for damages and for terminating a contract. However, breaching an apartment sale deed can result in the filing of a legal complaint along with a ask for monetary compensation as damages.

• Contents/Elements

A home purchase agreement outlines key details of the property under consideration. It reflects the buyer's intention to purchase the land at a future date and includes relevant information such as tax clearance certificates or other compliance-related documents.

On the other hand, a sale deed legally records the transfer of ownership from the seller to the buyer. It confirms the transfer of rights and title to the new owner and clearly identifies all parties involved in the transaction.

• Registration

The home purchase agreement is signed on non-judicial stamp paper by both parties and outlines the agreed-upon terms. Registration requirements for this document may vary by state. The sale deed, however, must be registered. The buyer pays the stamp duty, and the deed includes detailed information about both parties involved.

In a notable legal case, Rama Reddy (the seller) entered into an agreement on 28th May 1990 to sell his property to Munishamappa (the buyer) for a consideration of ₹23,000. The full payment was made, and physical possession of the property was handed over to the buyer. However, no registered sale deed was executed to formalise the transaction.

At the time, the transaction was not permissible under the Fragmentation Act of 1966, which prohibited certain types of land transfers. Although the law was later amended, Rama Reddy still did not complete the legal formalities required to transfer ownership.

Subsequently, Munishamappa approached the court to compel the seller to execute the necessary legal documents. After reviewing the matter, the Supreme Court ruled in favour of Munishamappa, directing Rama Reddy to complete the registration process.

This ruling, reaffirmed in November 2023, reinforces the legal distinction between an Agreement of Sale and a Sale Deed—highlighting that only a registered sale deed constitutes a legal transfer of ownership.

Is a Sale Agreement Mandatory in Property Transactions?

In India, a sale agreement is not legally mandatory for all property transactions. However, as per the Registration Act, 1908, the registration of immovable property valued above ₹100 is compulsory, making the sale deed essential for legal ownership transfer.

While not mandatory, a sale agreement holds significant value for both buyer and seller. It serves as a preliminary document outlining key details, such as property title, parties involved, agreed price, and terms, providing clarity and legal intent ahead of registration.

Without a well-defined agreement, disputes may arise regarding the terms of sale. Moreover, banks often require a clear agreement of sale to process home loan approvals, making it important in practical terms.

In conclusion, while the agreement of sale marks the beginning of a property transaction, the sale deed is the final and legally binding step that confirms ownership. Both are linked, but serve different purposes within the real estate process.

At Lodha, our commitment to clear titles, transparency and legal compliance ensures that buyers can invest with confidence. With timely handovers and a reputation for legal integrity, we ensure that property transactions are legally sound, giving buyers peace of mind and a secure investment.

Frequently Asked Questions

1. What is the difference between a Sale Deed vs. Sale Agreement?

The Sale Deed is the agreement that transfers ownership of a property, and Registration is the official confirmation of that agreement with the government.

2. What is an Apartment Deed?

An Apartment Deed is a legal document that conveys ownership rights to an individual for a specific apartment within a multi-unit building. It delineates the property boundaries and outlines the terms and conditions of ownership for the designated unit.

3. Can the Agreement for Sale be terminated?

Yes, the Agreement for Sale can be terminated by mutual consent of both parties or due to a breach of the terms outlined in the agreement, allowing for legal dissolution of the contract. Termination conditions are typically specified in the agreement itself.

4. Can a Sale Deed be terminated?

A Sale Deed is a final, legally binding document that signifies the completion of a property transaction, and it is not typically terminated once executed. Any disputes or issues will require legal resolution or mutual agreement between the parties involved.

5. What are the important elements of a Sale Deed?

A Sale Deed includes the ‘Transfer of Title’. The seller transfers rights to the buyer and denounces claims to the property. Details regarding the parties involved in the transaction are also included, along with details about the property.

6. Is a Sale Agreement mandatory?

In India, a sale agreement is not compulsory for property transactions. But, according to the Registration Act 1908, it is mandatory to register for immovable property values of more than Rs. 100.