Buying a property: Read the sales agreement carefully
Oct 08, 2013
Source : The Economic Times


DELHI: It can take months, even years, to find a dream home. After extensive bargaining, when you manage to seal the deal, remember to go through the sale deed in detail before signing on the dotted line.

In their hurry to get the paperwork done,property buyers often miss the important clauses that sellers and builders slip into a sale agreement. “The sale agreement is not a standard document. There may be specific points included in it and you could land in a soup if you miss them,” warns Ravi Goenka, advocate, Goenka Law Associates.

ET Wealth looks at a few clauses in a sale deed that you should examine closely before signing it.

Resale property

1. Earnest money

When a deal is struck, the buyer pays a token amount to the seller and agrees to pay the balance within a specified period. If he fails to make the balance payment within the time frame agreed upon, he foregoes the earnest money given to the seller.

Sometimes, sellers insist that this be mentioned in the sale agreement. In such a case, make sure everything is explicitly stated, along with the date by which the payment has to be made. The amount received as token money must also be clearly mentioned.

Ideally, the agreement should also state that if the seller backs out of the deal, he will not only return the earnest money but also pay an equal amount as compensation to the buyer.

What can you do?

Assess your capacity to pay the balance amount within the deadline before you commit to it. It is better to err on the side of caution while doing so. Also, try not to pay more than 2 per cent of the value of the property as token money. “Even if you need to back out of the deal, you won’t lose a large amount,” says advocate Geetanjali Dutta.

It’s a good idea to mention the circumstances under which you can exit without losing the token amount. For instance, you may find that the carpet area is smaller than claimed or there are problems with the structure.

2. No access to property

Generally, a buyer is allowed to inspect the property before the deal is closed. However, you may not be satisfied with a single visit and may want an expert to accompany you. This won’t be possible if there is a no-access clause in the agreement.

“Till the final payment has not been made, you cannot force the seller to allow you into the house whenever you want. However, you would be entitled to inspect the property before the purchase,” says Goenka.

What can you do?

If the property is vacant, the seller may not have a problem if the buyer wants to visit it again. However, if it is occupied by him or a tenant, going there too often can be inconvenient. So make sure the agreement mentions a mutually suitable time for you to visit the property.

3. ‘As is, where is’ basis

Sometimes, the property being sold is in a bad shape, but the owner is unwilling to spend on repairs. In such cases, the sale is on an ‘as is, where is’ basis, which means the property is being offered in its existing condition. The buyer is free to inspect the property, but once the deal is inked, the seller is not responsible for any damage that may be discovered after the purchase.

What can you do?

Experts say that it is best to avoid such properties unless you are willing to take a risk. You can ask the seller to repair the damage you discover while inspecting the property. If he agrees, have it incorporated in the document. Mention the damage clearly, as also the repairs the seller is willing to undertake.

4. Right of way

Some properties have a location which necessitates access to other people. For example, if the property is on the ground floor, its owner will have to offer access to people living on the floors above. This right of way is known as an easement on the property.

Even a drainage pipe below your house can be an easement. Keep an eye on such clauses in the sale deed. “The agreement must mention the type of encumbrance and the exact way in which the property can be used by others,” says Dutta.

What can you do?

Properties with easements should be avoided because they can lead to lot of problems. To find out if there are any encumbrances on the property, check with the sub-registrar of assurances. You can also check the title of the property, as well as any pending litigation.

5. Leases

If the property is leased out, the agreement must mention the lease details so that the change in ownership does not create problems either for the buyer or the lessee. It is also important that you mention who gets the rent. Sometimes, there may be an arrangement that the seller would get the rent till the lease expires. Any such arrangement must be explicitly mentioned in the contract.

What can you do?

Make sure there is no ambiguity regarding the person who gets to keep the rent. If you plan to get a new tenant, send a notice to the existing one to vacate the property. Also, the agreement should clearly specify the date by which the lessee must vacate the property.

6. Mortgage clause

Buying a mortgaged property is tricky because it involves a third party. The agreement must make a detailed note of how the loan is to be settled. There are two ways of doing so. The seller can use the sale proceeds to prepay the loan and the bank can release the property’s original papers. The buyer can also take over the loan. A home loan is not transferable, so the buyer will have to submit his income and KYC documents.

What can you do?

Whichever option you choose, do not forget to state it in the agreement. Mention the complete loan details. “If you have paid the entire loan, you should mention it under the no-dues clause too,” says Vinod Sampat, real estate lawyer and president of the Cooperative Housing Societies Residents and Users Association.

7. No dues

This indicates that the property has no pending dues against it, including society maintenance charges, utility bills, taxes or other loans. If it has been agreed that the buyer will bear the pending dues, it should be clearly stated in the agreement.

What can you do?

Check the last electricity and water bills paid by the owner. Find out from the housing society if there are any pending charges before you ink the deal. The society may refuse to give a no-objection certificate for the sale if there are pending dues on the flat, which may obstruct the smooth transfer of the property.

New projects

1. Right to alter specifications

Builders often slip in a clause stating that they can alter the layout plan of the house that was shown to you. Hence, the final apartment may be quite different from the sample that you fell for. The sample flat can appear to be much larger than the real one. These are mainly marketing tools and are demolished immediately after the flats are sold out. You will not be able to drag the builder to court if the agreement contains a clause stating that the builder can change the specifications.

What can you do?

Since sample flats are only indicative, you should not judge a house by it. Instead, consider the actual drawings. Once the architectural plans are approved by the municipal corporation, the builder cannot change them without their consent. “If a builder promises to use a certain brand of fixtures in the flat, you should insist that he clearly state this in the agreement,” says Sampat.

Read the sale agreement carefully before signing

2. Area of the house

There are three basic ways in which the area of a house can be measured: super area, built-up area and carpet area. The super area includes the proportionate share of common facilities, such as the lobby, corridors and staircases. The built-up area is the size of the apartment, including the walls. The carpet area is the actual size of the apartment.

Builders should ideally mention the carpet area in the agreement, but they almost always state the super built-up area that is 20-30 per cent more than the carpet area.

What can you do?

Insist on finding out the carpet area of the house. Take a look at the building plans, so that you know the real size of the living space that you will get in the apartment.

3. Additional charges

This is a major bugbear for buyers. The property prices stated in advertisements are only the base prices. The actual amount that the buyer may have to shell out is 25-40 per cent higher. Gym membership, car parking, common utilities and maintenance charges add up to a significant sum.

What can you do?

Do not assume that any facility will be offered free. Make a list of the charges you will have to pay and get the builder to sign it. “Most of the developers would be cautious about giving anything in writing if they have something to hide,” says Sampat.

4. Payment plan clause

If you buy property on a construction-linked plan, make sure the agreement mentions details of the instalments: date of payment, amount to be paid and the penalty, in case of delay. If some advance has been paid to the builder, the amount and mode of payment should be mentioned in the agreement.

What can you do?

Do not buy in a hurry simply because the flat looks beautiful. Make a realistic estimate of your payment capacity and buy only if you are sure that you can afford it. In case of an instalment plan, ask the builder to incorporate a grace period as a safety measure. If the builder plans to charge a penalty for delays in payment, ensure that he states this in the agreement.

Read the sale agreement carefully before signing

5. Tax payment

Apart from the charges levied by the builder, there may be additional costs, such as municipal tax, sales tax and registration charges. Some builders pay the taxes and recover the money through the sale price. Others may ask you to pay them directly. It is the builder’s responsibility to pay property tax before handing over the possession to you. However, if you have already got possession, you will have to pay the property tax.

What can you do?

Sort out this issue before the agreement is signed. Make it clear with the builder about who will pay the taxes and have it incorporated in the agreement.

6. Delivery date

Developers tend to give a rough time frame within which they will hand over the possession of the property to the buyer. For instance, the agreement may give a time frame of two years. Instead, you should ask the builder to mention the exact date when you will be given possession.

What can you do?

Just as the builder may levy a penalty for delay in payment on your part, you can incorporate the penalty the builder must pay if he delays handing over the possession on schedule.

7. Assignment or transfer

Builders usually slip in a clause that restricts your ability to transfer or assign your property to a third person without their prior permission till the housing society is formed. Therefore, it may be difficult for you to lease or sell your property before the housing society is formed. Even after the society is formed, you may require a no-objection certificate from the society to sell your property.

What can you do?

Ideally, you should avoid transferring th property before the society is formed. “It is easier to deal with a property once the society has been created and share certificates are issued to members,” says Dutta. However, legally speaking, a builder cannot ask you to pay a penalty for transferring the property to a third person, adds Sampat.

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