5 Must Have Clauses in

Property Sale Agreement

BY NITIN BHATIA

Property Sale Agreement is most important document. It is different from Sale Deed
though in some cases Sale Agreement is registered as Sale Deed. Sale agreement
contain agreed upon Terms & Conditions between Seller & Buyer for the sale of
property. It is legally binding on both the parties. It also specifies the date by which the
transaction will be completed. In laymen terms, Sale agreement is a road map how the
property transaction will be completed. On the other hand Sale deed is executed at the
time of actual transfer of property i.e. transfer of ownership from seller to buyer.
In any property transaction, maximum risk is carried by the borrower. Even experts will
agree that all property transactions carry certain degree of risk. From buyers
perspective, It is very critical to safeguard your interests before signing below the dotted
line. I am listing down 5 most critical clause, which should be incorporated in Property
Sale Agreement to safeguard the Buyers Interest.

Indemnity Clause in Sale Agreement

Due to sudden rise in property/land prices specially in metro cities, lot of properties are
under legal litigation. These legal cases go on for decades. Some of the most common
reasons for legal disputes are
(a) Property was transferred under force/influence/coercion
(b) Legal heirs of Seller claim their right on property.
Almost 40% properties in bangalore are under legal dispute. The indemnity clause in
Sale Agreement indemnifies the buyer against any legal dispute / legal defect in the
property. Also mention that in case of any legal dispute in future, the seller will

compensate the buyer for any loss incurred by the buyer at the then prevailing market
rate. This clause should be drafted carefully & should include all possible scenarios.

Penalty Clause
At the time of signing Sale Agreement, Buyer pay X amount as token money. Standard
clause is put in agreement that if buyer will back out from the deal then entire token
amount will be forfeited by seller. I would suggest to add another line in this clause that
in case seller will back out from deal then Seller will return the token amount paid by
buyer along with equivalent amount as penalty. If this clause is not put then seller will
keep searching for new buyer who can pay extra. He will call off the deal, if he gets new
buyer at higher rate before execution of Sale Deed.

Right to Call off the deal

As a buyer you should reserve the right to call off the deal under certain circumstances
without being penalized financially. Some of these circumstances are as follows
(a) If Seller fails to provide legal/statuatory property documents required by the Buyer
(b) If the Buyer find out any legal defect in property before execution of sale deed
(c) If Buyers home loan is rejected by bank due to some legal/statutory issue in
property/property documents
(d) If the seller fail to provide all original documents at the time of execution of sale
deed. You may check my post on List of Documents required for Property Purchase
(e) If the seller fail to provide vacant possession of property at the time of execution of
sale deed.

Outstanding Dues
It is critical to mention in Sale Agreement that Seller will clear all the dues accrued in
respect of the property prior to the date of registration.

Transfer of Deposits / Membership of Owners Association

The clause should clearly mention that scope of agreement also include transfer of all
deposits paid by seller for Electricity connection, Water connection, to apartment owners
association, Club house membership, Gym Membership, contribution towards sinking
fund of association etc . In the absence of this clause, the seller might demand extra
money at the time of sale deed against all the deposits paid by him.
I have listed down 5 important clause which must be included in sale agreement. These
are over and above the standard Sale Agreement clauses. It is always advisable to hire
good property lawyer to draft Sale Agreement & Absolute Sale Deed. If you need any
specific input from my end on these clauses then you may post your query through
following comments section.