Buying A House? 5 Must-Have Clauses In Sale Agreement

As a large number of people buy and sell properties, legal disputes are inevitable. There may be cases when either the legal heirs of the seller claim their right on the property or the property is believed to be transferred under influence or duress.

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Buying a house? 5 must-have clauses in sale agreement

A trader based in Chandi Chowk, Delhi, Raj Kashyap’s only son Vivek, did his software engineering and was working in Navi Mumbai. Senior Kashyap decided to sell his house in Chandni Chowk to help his son buy a duplex near his workplace. Since his son was in a rush to make the new purchase because the property was available at a dirt-cheap price, Raj was forced to sell his property in distress. When the D-Day to register the new flat arrived, the seller backed out. Since the agreement to sell did not mention any penalty for the seller if he reneges the contract, the Kashyaps couldn’t enforce any fine on the seller.

A majority of us have come across numerous such cases in the secondary market where sellers have backtracked from the contract. So, it’s advised that the contract made should have all the relevant clauses to protect the interest of the buyer.

Magicbricks lists five must-have clauses in the sale agreement:

Right to abort the deal:

The buyer should get a clause incorporated that the deal will be called off without him being punished monetarily, if:

1. The documents provided by the seller are not legally valid

2. Legal defect in the property before the sale deed is effected. “A clause should be inserted regarding the clear title of the property,” says Akshat Pande of Alpha Partners, a Noida-based law firm

3. “These days most of the buyers take a home loan to make a house purchase. It may so happen that the home loan application of the purchaser gets rejected due to some reason. It’s important to get the clause added that if the loan gets rejected, the buyer would not be held liable,” says Partner Sudip Mullick of Khaitan and Co. That’s why experts suggest signing an agreement after the bank pre-approves a loan

4. If at the time of the execution of the sales deed, the seller fails to vacate the property the buyer should be able to cancel the deal

Penalty clause:

When an agreement to sell is signed, the buyer pays earnest money to the seller. “We generally add a line stating that if the buyer backs out from the deal, the earnest money, a token amount, is generally forfeited by the seller. The agreement must state that in case the seller defaults then monetory damages would not be adequate relief to the buyer,” says Mullick. In most cases when a seller goes back on his word it’s usually because he finds a buyer who can pay him more. “A penalty clause in the agreement would be a big deterrent. The buyer can move court if the seller annuls the contract and seek specific performance on the contract from the legal system,” adds Pande.

Elaborating further, he adds that it may happen that the owner sells the property to a third party after signing a contract. The affected party can get an injunction preventing the other party from selling the house. “In legal parlance, this is called specific performance of the agreement,” says Mullick.

Outstanding dues:

The agreement should clearly mention that the seller should clear all outstanding dues on the property, including power and water charges, property tax, RWA charges etc. “It may happen that at the time of the execution of the deed, the seller may demand extra money against all the deposits paid by him,” says Pande.

Indemnity clause:

A crucial clause, it is inserted as a precaution against any damage or loss. As a large number of people buy and sell properties, legal disputes are inevitable. There may be cases when either the legal heirs of the seller claim their right on the property or the property is believed to be transferred under influence or duress.

“The indemnity clause is usually inserted in the belly of the sale agreement wherein the seller takes the onus upon himself that if he fails to honour the contract, he would compensate the buyer and vice-versa,” says Pande. “The indemnity clause protects the parties against any loss or costs which may be suffered by a party arising from breach of the other party or any third party. The trickiest part is the drafting of the indemnity clause. It should be drafted carefully and should include all the possible scenarios,” says Mullick.

Force majeure:

“In case the property gets damaged due to a natural calamity such as an earthquake, tsunami or flooding, a line should be incorporated that the parties cannot compel the other party to complete the transaction,” says Mullick. “In addition, a buyer has to be mindful that even after the property is finalized, till the time the property is not sold or an agreement to sell is not entered into, the seller has the right to sell and hence an agreement to sell should be entered into at the earliest,” says Mullick.

Economic Times, Magicbricks Bureau/Delhi/NCR

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