Significance Of Some Clauses In A Sale Deed Executed In A Real Estate Transaction

Real estate property is an immovable asset of great value that is transferable from person to person by agreement or by the operation of law. The question is, “How is an immovable asset transferable?” 

The answer is that immovable property is transferable by transfer of title and ownership rights. Documents like sale deeds, gift deeds, wills etc allow you to transfer real estate properties when living or after death by voluntary acts. Examples like sale deed allow for the transfer of an asset by an agreement between the transferor and transferee, whereas, a will allows for a transfer of an asset from one person to another after the death of the previous owner.

A document executed by the Executant in favor of the claimant allows them to receive the real estate property from the transferor. One such document is the sale deed. A sale deed is executed by the seller in favor of the real estate purchaser for consideration. However, a sale deed may contain clauses that allow for the termination of the agreement or dispute resolution in case a dispute arises between seller and buyer over the other terms of the agreement or subject matter of the agreement. This article seeks to explain some of these clauses of the sale deed and address some questions on the topic.

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What is the termination clause in a sale agreement?

Sale deed is a document containing the terms and conditions of an agreement for sale between the property seller and property buyer. Usually, a well-drafted sale deed will have a cancellation or termination clause incorporated in the deed to effect a termination of the contract between the seller and buyer in case or scene of default or breach of contract on part of the seller or buyer.

• A termination clause may come into effect at the time of breach of contract on part of the seller or buyer or even in the event of anticipatory breach of contract. It gives the aggrieved party (wronged party in a contract) the right to terminate the contract in the event of default or breach.
• It is incorporated in the contract to protect the interests of the aggrieved parties and give them the means to protect themselves from loss or injury.
• A termination clause may also contain a stipulation of damages to be paid to the aggrieved party by the one who has committed a breach.
• This clause must be specifically worded in clear unambiguous terms to cover all cases and circumstances of actual or anticipatory or both kinds of breaches.
• Such a clause must be incorporated in the agreement with the freely obtained mutual consent of both the parties. 

What is a dispute resolution clause in a sale agreement?

There are times when a dispute may arise between property seller and buyer over the price to be paid for the house or the conditions regarding the inspection or evaluation of the house etc. It could apply to resolve both contractual based disputes like a dispute over the pricing or on the termination clause and non-contractual disputes like flaws in the performance of the contract.

• To resolve these issues and disputes, a dispute resolution clause is provided in the agreement which stipulates that the matter can be resolved by means of litigation in a court of law.
• A dispute resolution clause may also provide for resolving disputes via alternative dispute resolution processes like arbitration, conciliation, negotiation etc.
• This clause needs to be a precisely worded clause that states the stipulation in clear, unambiguous terms. The result of the dispute resolution is binding in case of litigation and arbitration. The result is non-binding if it is a process like mediation or conciliation.  
• The parties to a property sale may also consult a neutral third party who may be an expert to adjudicate or arbitrate on the matter of their dispute.
• This clause can be invoked by one party and accepted by another and this clause must be incorporated in the agreement with the freely obtained mutual consent of both the parties. 

Why do home loan availing home buyers consider the loan an investment even though it is not?

Purchasing a home is no small feat. A piece of real estate is an immovable asset that requires a substantial investment or amount of money to purchase. If you use cash to purchase this asset, your cash reserves may be drastically reduced or the balance may fall considerably low. Real estate prices keep rising year after year and a house is a secure asset that can be placed as collateral in a financial transaction.

• Thus, purchasing a residential property is not only the purchase of housing but also an investment in a secure asset.
• However, if you were to use up your cash reserves for the purchase of this asset, you may fail to meet your short term financial goals that can be done so only using cash.
• Hence, when you avail a home loan for the purchase of a house, despite the outflows in the form of EMIs, if the rate of value appreciation of the house is greater than all these expenses associated with the home loan, you have effectively reserved your cash for your short term financial objectives while correspondingly purchasing a long term immovable asset.  
• Thus, homebuyers availing home loans consider the loan a form of investment for it saves them their own money and finances their decision of purchasing a long term immovable asset.

Sale deed vs exchange deed

Conclusion

A sale deed or agreement is a document that is executed as an agreement between a property seller/dealer and a homebuyer. This document contains all the terms and clauses with respect to the agreement and serves as documentary evidence of the sale between the parties. The clauses of the agreement need to be precisely worded with the document well-drafted to reasonably provide for contingencies and resolve the differences between the parties to the agreement. 

 It may also mention the source of funds by which the homebuyer is making payment such as by home loan or by cash. Homebuyers who consider availing a home loan as “an investment” must make sure that the rate of interest and other miscellaneous expenses do not come at the cost of the homebuyer’s future. The frequency of EMIs extended over a decade or two can cause serious strain on your resources. So weigh all your options, potential benefits against potential detriment and take action accordingly.