- Date : 11/02/2021
- Read: 6 mins
A detailed explanation of the differences between property sale agreement, sale deed, and property mutation.
India’s real estate sector is estimated to be worth $180 billion. According to a property index maintained by a leading online real estate platform, residential real estate demand in India has increased by 30% compared to pre-COVID levels. Indian consumers tend to be discerning, so it doesn’t come as a surprise that they are choosing to purchase affordable and mid-segment residential units.
As consumers continue to evaluate real estate for investment or self-occupation, they must educate themselves about the documentation required to complete a successful real estate transaction. Those who have already purchased a residential property might be aware of the requirements, but those who are investing for the first time would require clarity.
Before anything, you need to ensure that you are purchasing a ‘clean’ property. There are certain documents that you have to check and obtain from the seller, in order to establish your legal ownership. If you fail to collect and review such documents thoroughly, it is very likely that you will face a difficult time when selling the property in the future.
Three documents that are extremely important in this regard are property sale agreement, sale deed, and property mutation. Let’s look at all three in greater detail:
Property sale agreement
This is a legal agreement between the buyer and seller of a property. It acts as a ‘promise’ to transfer the ownership of the property at a future date. It lists the terms and conditions of the sale, and requires the signatures of the buyer, the seller, and at least two witnesses.
A property sale agreement (or bayana) is prepared on stamp paper and should ideally be notarised. It is signed after the seller and buyer have agreed upon the terms and conditions of the proposed sale, and a token amount is paid as advance by the buyer to the seller
Related: 5 Affordable cities to buy or rent a house in India
Important points to keep in mind
- A promise, not an actual sale: A property sale agreement only implies that the seller has promised to sell the property to the buyer if all the terms and conditions listed therein are satisfied. It does not indicate that the actual sale has occurred.
- Legal ownership isn’t transferred: Since it is a promise, legal ownership isn’t transferred and remains with the seller.
- A future date is fixed for the sale: Buying property is a highly involved process. It is likely that the buyer will need time to arrange for funds and to evaluate the property further. The property sale agreement enables a future date to be set, as per the convenience of both parties, for the actual sale to occur.
- It is legally enforceable: A property sale agreement is a binding contract and it can be legally enforced in court.
- Approval of home loan: The lender will not accept your home loan application unless you submit a signed property sale agreement.
Note: In some cases, if the payment is done in one shot, the property agreement can become the absolute sale deed.
Sale deed
The sale deed is also known as ‘registry’ or or bikri vilekh. This document is an instrument that legally transfers the ownership rights of the property from the seller to the buyer in exchange of a price paid by the buyer to the seller. It is created on a non-judicial stamp paper of a value prescribed by the government.
A sale deed will contain details of the buyer and the seller, the final price that has been agreed upon by both parties, the mode of payment accepted by them, and the date of handing over possession of the property with the original documents.
The person transferring rights of the property is known as transferor and the individual to whom the rights have been transferred is known as transferee. The buyer has to pay a certain amount as stamp duty and registration fee for the process to be complete.
Important points to keep in mind
- It's a critical document: This is the most important document while buying or selling property. Unless this document has been signed in the presence of at least two witnesses, the transaction isn’t legally valid.
- Registration of sales deed is necessary: The sales deed has to be registered within four months of execution under the Registration Act, 1908. This will be done by the sub-registrar of assurances of the jurisdiction where the property is located.
- Legal rights and liabilities are transferred: This document signifies that the rights and liabilities of the property have been transferred from the seller to the buyer.
- Property must be free of all encumbrance: Before executing the sales deed, the buyer should ensure that the title of the property is free of all encumbrance. They must get the encumbrance status verification done by the registrar’s office. They must also ascertain that all pending dues such as maintenance, property tax, water/electricity bills etc. are cleared and no further dues are pending.
Related: 5 Popular ways to transfer your immovable property
Property mutation
The municipal body of a city maintains the records of property ownership transfers. This is important to keep track of tax payment liabilities. Property mutation (or dakhil kharij) applies to all immovable assets – shops, flats, land etc. Based on the sale deed, the buyer can get the mutation done. Without a sale deed, property mutation is invalid and illegal.
The following documents will need to be submitted:
- Application affixed with Rs 3 court fee stamp
- Copy of the original sales deed
- Indemnity bond on a Rs 100 stamp paper
- Affidavit on a Rs 10 stamp paper
- Most recent papers showcasing property tax clearance
- The requirements could vary for those inheriting property or purchasing via power of attorney. Mutation records can be checked by means of a Khata extract.
Important points to keep in mind
It isn’t legally binding: Although mutation of property isn’t legally binding, it is vital as it shows the proof of ownership and could also be considered as a tax record. Not getting it done would invite a small penalty.
Charges differ across states: The charges incurred for property mutation could differ depending on the state.
It is a recurring activity: Mutation of property isn’t a one-time activity; the document must be updated regularly.
There are two types of mutation: There are two types of mutation: one for agricultural land and the other for non-agricultural land (including flats, shops, etc.)
Related: Buying a home in your hometown or in a big city: What makes financial sense? [Premium]
Last words
Before purchasing property for own use or investment, it is imperative to thoroughly vet all these documents. Involving a civil lawyer who specialises in property matters is highly recommended to ensure that the documentation is handled properly. Preserving these documents is of vital importance as they can protect your interests in case of any property-related disputes. Look at these 9 Important documents you will need while buying a house.
India’s real estate sector is estimated to be worth $180 billion. According to a property index maintained by a leading online real estate platform, residential real estate demand in India has increased by 30% compared to pre-COVID levels. Indian consumers tend to be discerning, so it doesn’t come as a surprise that they are choosing to purchase affordable and mid-segment residential units.
As consumers continue to evaluate real estate for investment or self-occupation, they must educate themselves about the documentation required to complete a successful real estate transaction. Those who have already purchased a residential property might be aware of the requirements, but those who are investing for the first time would require clarity.
Before anything, you need to ensure that you are purchasing a ‘clean’ property. There are certain documents that you have to check and obtain from the seller, in order to establish your legal ownership. If you fail to collect and review such documents thoroughly, it is very likely that you will face a difficult time when selling the property in the future.
Three documents that are extremely important in this regard are property sale agreement, sale deed, and property mutation. Let’s look at all three in greater detail:
Property sale agreement
This is a legal agreement between the buyer and seller of a property. It acts as a ‘promise’ to transfer the ownership of the property at a future date. It lists the terms and conditions of the sale, and requires the signatures of the buyer, the seller, and at least two witnesses.
A property sale agreement (or bayana) is prepared on stamp paper and should ideally be notarised. It is signed after the seller and buyer have agreed upon the terms and conditions of the proposed sale, and a token amount is paid as advance by the buyer to the seller
Related: 5 Affordable cities to buy or rent a house in India
Important points to keep in mind
- A promise, not an actual sale: A property sale agreement only implies that the seller has promised to sell the property to the buyer if all the terms and conditions listed therein are satisfied. It does not indicate that the actual sale has occurred.
- Legal ownership isn’t transferred: Since it is a promise, legal ownership isn’t transferred and remains with the seller.
- A future date is fixed for the sale: Buying property is a highly involved process. It is likely that the buyer will need time to arrange for funds and to evaluate the property further. The property sale agreement enables a future date to be set, as per the convenience of both parties, for the actual sale to occur.
- It is legally enforceable: A property sale agreement is a binding contract and it can be legally enforced in court.
- Approval of home loan: The lender will not accept your home loan application unless you submit a signed property sale agreement.
Note: In some cases, if the payment is done in one shot, the property agreement can become the absolute sale deed.
Sale deed
The sale deed is also known as ‘registry’ or or bikri vilekh. This document is an instrument that legally transfers the ownership rights of the property from the seller to the buyer in exchange of a price paid by the buyer to the seller. It is created on a non-judicial stamp paper of a value prescribed by the government.
A sale deed will contain details of the buyer and the seller, the final price that has been agreed upon by both parties, the mode of payment accepted by them, and the date of handing over possession of the property with the original documents.
The person transferring rights of the property is known as transferor and the individual to whom the rights have been transferred is known as transferee. The buyer has to pay a certain amount as stamp duty and registration fee for the process to be complete.
Important points to keep in mind
- It's a critical document: This is the most important document while buying or selling property. Unless this document has been signed in the presence of at least two witnesses, the transaction isn’t legally valid.
- Registration of sales deed is necessary: The sales deed has to be registered within four months of execution under the Registration Act, 1908. This will be done by the sub-registrar of assurances of the jurisdiction where the property is located.
- Legal rights and liabilities are transferred: This document signifies that the rights and liabilities of the property have been transferred from the seller to the buyer.
- Property must be free of all encumbrance: Before executing the sales deed, the buyer should ensure that the title of the property is free of all encumbrance. They must get the encumbrance status verification done by the registrar’s office. They must also ascertain that all pending dues such as maintenance, property tax, water/electricity bills etc. are cleared and no further dues are pending.
Related: 5 Popular ways to transfer your immovable property
Property mutation
The municipal body of a city maintains the records of property ownership transfers. This is important to keep track of tax payment liabilities. Property mutation (or dakhil kharij) applies to all immovable assets – shops, flats, land etc. Based on the sale deed, the buyer can get the mutation done. Without a sale deed, property mutation is invalid and illegal.
The following documents will need to be submitted:
- Application affixed with Rs 3 court fee stamp
- Copy of the original sales deed
- Indemnity bond on a Rs 100 stamp paper
- Affidavit on a Rs 10 stamp paper
- Most recent papers showcasing property tax clearance
- The requirements could vary for those inheriting property or purchasing via power of attorney. Mutation records can be checked by means of a Khata extract.
Important points to keep in mind
It isn’t legally binding: Although mutation of property isn’t legally binding, it is vital as it shows the proof of ownership and could also be considered as a tax record. Not getting it done would invite a small penalty.
Charges differ across states: The charges incurred for property mutation could differ depending on the state.
It is a recurring activity: Mutation of property isn’t a one-time activity; the document must be updated regularly.
There are two types of mutation: There are two types of mutation: one for agricultural land and the other for non-agricultural land (including flats, shops, etc.)
Related: Buying a home in your hometown or in a big city: What makes financial sense? [Premium]
Last words
Before purchasing property for own use or investment, it is imperative to thoroughly vet all these documents. Involving a civil lawyer who specialises in property matters is highly recommended to ensure that the documentation is handled properly. Preserving these documents is of vital importance as they can protect your interests in case of any property-related disputes. Look at these 9 Important documents you will need while buying a house.
