All You Need To Know About Sales Agreements

Contents

● Introduction
● What is a Sales Agreement?
● Why do we need a Sales Agreement?
● When do we need a Sales Agreement?
● What are the essential elements of a Sales Agreement?
● Rights and Duties of Buyer and Seller.
● What is the validity of a Sales Agreement?
● What are the Legal Provisions for a Sales Agreement?
● Content Terms of a Sales Agreement
● Need of an Advocate for a Sales Agreement
● Registration of a Sales Agreement
● Documentation required for a Sales Agreement
● TDS on Sales Agreement
● Alternatives to a Sales Agreement
● Conclusion

Introduction What is a Sales Agreement?

A sales agreement is a contract that is used for sales transactions. Mostly it involves two parties

1. Seller - Who makes the offer to sell the goods or services, and
2. Buyer - Who accepts the offer to purchase the same goods or services.

These agreements are usually made to carry out transactions relating to sale of real estate properties,
business assets, properties, machineries, and installation and maintenance services. In simple terms a Sales
Agreement is the proof of sale and the transfer of ownership from the buyer to the seller.

What is a Sales Agreement?

A Sales Agreement is a legally binding contractual instrument which is done between a buyer and a seller
for the purpose of sale of goods and services. Both buyer and seller can be an individual or an organisation
having a legal identity. The agreement is done to carry out the sales transaction.
Goods and services for the sale of which a sales agreement is done include mostly real estate properties and
business assets. Besides, it also includes machineries, tangible goods, installation and maintenance services.

Why do we need a Sales Agreement

The following reasons why we need a Sales Agreement are:

1) To have the proof of the sale being done

2) To have the proof that the money has been paid and the transaction has been done.
3) To establish a clear title of ownership over the property.
4) To have a proof of investment protection and liability transfer.
5) To have proof of the terms and conditions made between the parties.
6) To ensure that the transaction takes place legally without any fraud.
7) To have a recourse, if any part violates the transaction.

When do we need a Sales Agreement?

An individual or organisation may not be able to protect its investment and accept liability for something
which stays out of its control. That is the time when an organisation or an individual faces such adverse
condition, it should definitely go for making of a sales agreement. So, when an organisation wants to solve
these issues it shall go for a Sales Agreement. Provided, the Sales Agreement allows time period for the sale
to take place, part payment of the consideration, etc.

What are the essential elements of a Sales Agreement?

The essential elements that are to be included in a sales agreement are as follows-

(1) Basic information such as Name, Address, Contact details of both the parties.
(2) Basic information of the Witnesses.
(3) Type of Sale taking place.
(4) Date on which the agreement was initiated.
(5) Specification of the property, product or service that is to be sold.
(6) Mode of payment
(7) Specific mention of any consideration amount if paid, for the sale to take place.
(8) Dates on which the other terms and conditions of the contract to be fulfilled.
 (9) Date of completion of contract and the date of actual transfer of ownership.
(10) Any other terms and conditions agreed upon by the parties.
(11) In case of Sale of a property, any defect to be mentioned, permission to utilize the property to
be mentioned and language in which inspection is allowed to be mentioned.
(12) In case of Business Sales Agreement, financial terms, rate of interest, amount financed, sales
commission, sales tax, GST, and time limit to return the funds, etc. are to be mentioned.

Rights and Duties of Buyer and Seller

Before entering into kind of contract, the parties need to know their rights and duties. The Rights and Duties
of the Buyer and Seller for entering into a Sales Agreement are as follows:

Rights and Duties of Buyer-

(1) Duty to make the payment within the given time for the property tendered by the seller.
(2) Duty to follow the terms and conditions of the agreement.
(3) Right to applicable warranties and guarantee.
(4) Right to the goods identified in the sales agreement.
(5) Right to timely tender of property

Rights and Duties of Seller-

(1) Duty to tender actual property mentioned in the contract.

(2) Duty to tender the product at good condition and in stipulated time period.
(3) Right to timely and proper payment of consideration amount.

What is the validity of a Sales Agreement?

The validity of a Sales Agreement is three years. Provided, if there is a presence of a negative clause in the
agreement, the time period can be extended.

If the consideration amount is fully paid then, there's no expiry to the validity of a Sales Agreement.
Otherwise, the validity is three years.

Legal Provisions for a Sales Agreement

The Registration Act, 1908

S. 17(2) (v) of The Registration Act, 1908 states that “any document other than the documents specified in
sub-section (1A)] not itself creating, declaring, assigning, limiting or extinguishing any right, title or interest
of the value of one hundred rupees and upwards to or in immovable property, but merely creating a right to
obtain another document which will, when executed, create, declare, assign, limit or extinguish any such
right, title or interest.”

The statute denotes that a Sales Agreement is not a compulsorily registrable document. A Sales Agreement
does not create any difference in rights, title or interests over immovable property even after registration.

The Real Estate Regulatory Authority (RERA) Act, 2016

S. 13(1) of The RERA Act, 2016 state, “A promoter shall not accept a sum more than ten percent of the cost
of the apartment, plot or building as, the case may be, as an advance payment or an application fee from a
person without first entering into written agreement for sale with such person and register the said agreement
for sale, under any law for the time being in force.”

This denotes the fundamental duties of promoter that are-

(1) The promoter has to execute the Sales Agreement, after taking the advance amount from the
respective buyer.
(2) It is the duty of the promoter that the Sales Agreement should be registered before the appropriate
authorities.

However, the provisions of The RERA Act, 2016 shall prevail over The Registration Act, 1908 with respect
to Sales Agreement.

Along with these there are certain enactments which fulfill the purpose of the Sales Agreement. They are as
follows:

● Transfer of Property Act, 1882

● Indian Contract Act, 1872
● Indian Stamp Act, 1899, and
● Indian Easements Act, 1882

Content Terms of a Sales Agreement

According to law A Sales Agreement shall have the following terms:

● Buyer: The party who agrees to purchase the goods/property/service. Buyer's name, basic details and
contact information must be included in the agreement.
● Seller: The party who makes an offer to sell the goods/service/property. The Seller's name, basic
details and contact information must also be included in the sales agreement.
● Goods/Service/Property: The Sales Agreement shall clearly mention the type and kind of
goods/services/ property for which the parties agree to enter into a sales contract.
● Delivery Details: Details regarding the delivery of the goods/services such as Date of Delivery,
Address of Despatch shall be included in the agreement.
● Amendment: This clause shall mention the provision and procedure which the parties may follow if
they wish to make any alteration in the terms and conditions of the Contract.
● Contingency: Every Contractual agreement shall contain a contingency clause which the parties
may follow in case of any contingency or mishap. This clause basically mentions probable solutions
which the parties may opt for in case any mishandling occurs.
● Assignment: The assignment clause basically includes the terms and conditions the parties need to
fulfil before transferring the ownership.
● Details of Deposit: This clause mentions the amount that is to be deposited by the buyer before the
delivery of the product. This clause also includes the compensation amount to be paid in case of any
breach of contract.
● Mode of Communication: This clause decides the method which the parties shall opt for business
communication purpose.
● Payment: The payment clause mentions the amount to be paid for the performance of the contract
and along with the mode of payment that the parties would opt for.
● Date of payment: This clause mentions the details of the dates on which the specific amounts to be
paid by the buyer.
● Severability: The Severability clause mentions that the agreement shall prevail in case any part of
the agreement becomes unenforceable.
● Non-Disclosure Agreement (NDA): The NDA is a separate agreement attached to the sales
agreement mentioning that the buyer shall not be able to use the intellectual property of the seller.
The Right of Intellectual Property shall remain with the seller.
● Warranty: This clause mentions that the goods/services shall be delivered in good quality to the
buyer. The seller may include certain time period as warranty period within which the damage to the
goods shall be reimbursed by the seller himself.
● Examination: This clause states that the buyer can make an inspection of the product/service that is
being sold to him before completion of the transaction.
Need of an Advocate for a Sales Agreement
The parties can make a sales agreement to enter into a contract. But they may not include all the necessary
clauses and their respective rights and liabilities. The need of an Advocate to draft a Sales Agreement makes
it easier for the parties to enter into the contract.

The Advocate shall include all the necessary clauses including the legal provisions under certain statues
favouring the terms and conditions of the contract.

The Advocate shall also include the proper Rights and Liabilities of the respective parties which they can
exercise at the time of need. The Advocate can ensure that all the Liabilities are eliminated before the
commencement of the transaction.

The Advocate shall ensure that the Sales Agreement shall protect the Rights of the parties and the interests
of the parties are well protected.

Registration of a Sales Agreement

The registration of a Sales Agreement shall follow certain steps which are as follows:

(1) Drafting of Sales Agreement by the advocate.

(2) Approval of the draft by the parties.
(3) After approval by the parties the Sales Agreement draft along with the requisite documents are sent
to the office of Sub- Registrar for registration.
(4) In case any queries arise, the registration lawyer shall comply with those queries.
(5) The parties need to visit the Office of Sub- Registrar for the approval of the Sales Agreement draft.
(6) Once the Draft gets approved by the Office of Sub- Registrar, Stamp duty shall be paid via online
mode and attach the challan document along with the stamp duty.
(7) Final registration and execution of the sales agreement.
(8) The parties need to visit the Office of Sub- Registrar on the date of appointment and collect the
agreement.

Documentation required for the registration of the Sales Agreement

(1) Index II or the Old Sale Deed

(2) Old Sale deed/ Index-II
(3) In the case of the land sale agreement, a 7/12 Extract copy is required.
(4) Certificate of the agreement for sale registration of flat agreement or sale deed of the flat.
(5) Maintenance receipt in case of flat registration.
(6) PAN and AADHAR of buyer and seller
(7) PAN and AADHAR copy of two witnesses.
 (8) 2 passport size photographs of buyer and seller, etc according to the requirements depending on the
kind of sale being executed.

TDS on Sales Agreement

TDS refers to Tax Deducted at Source. That is the tax that is deducted from the source of income. Sales
agreement being a source of income for buyer becomes a reason to pay TDS to the government.

● The buyer shall pay the TDS.

● TDS shall be deducted at the rate of 1%.
● In case of instalment payment of consideration, the TDS amount is deducted in every instalment.
● If the sale is made of less than 5000000 INR, then, no TDS shall be deducted.

Alternatives to a Sales Agreement

Along with Sales agreement the parties can opt for other alternatives such as:

● Real Estate Purchase agreement

In case of sale of real estate property such as land, house, or similar immovable property a real estate
purchase agreement along with a sign shall be more useful than a sales agreement.

● Business Purchase Agreement

In case of sale of business assets such as machinery and others a Business Purchase Agreement can be an
option other than a sales agreement for better clarification of respective rights and liabilities of the parties.

● Service Agreement

For the purpose of sale of service between two or more parties, a Service Agreement can be an alternative to
sales agreement.

● Promissory Note

A promissory note is nothing but a kind of Bills of Exchange that is used stating a promise to make the
payment within given period of time. It is mostly used in finance sector and can also be used as an
alternative to sales agreement.

Conclusion

For business groups to collaborate an earn revenue, sales agreement is a good option for the parties to enter
into a contract to buy and sell and can earn profits together. With the help of sales agreement, both the
parties along with the advocate who is drafting the agreement will be profitable and they will be able to
exercise all their rights and accordingly earn money.
References-

● https://economictimes.indiatimes.com/definition/agreement-of-sale
● https://www.mondaq.com/india/securities/984762/agreement-of-sale-in-rera-and-registration-act-a-
conflict-yet-
unresolved#:~:text=An%20agreement%20to%20sell%20is%20an%20agreement%20where%20the%
20seller,the%20property%20to%20the%20buyer.
● https://blog.ipleaders.in/all-you-need-to-know-about-sales-agreement/
● https://legaltemplates.net/form/sales-agreement/
● https://www.shreeyanshlegal.com/practice/sale-agreement-registration/
● https://www.tealindia.in/insights/what-is-the-legal-standing-of-a-sale-agreement-can-you-register-it-
online-in-delhi-ncr/
● https://blog.ksandk.com/real-estate/validity-of-sale-agreement-under-
rera/?utm_source=Mondaq&utm_medium=syndication&utm_campaign=LinkedIn-integration
● https://www.upcounsel.com/what-is-a-sales-agreement
● https://www.contractscounsel.com/t/us/sales-agreement