Whether or not the agreement to sell should be registered or not answers this post. Though the RERA Act mentions the registration of agreement to sell but still there is void in Registration & Stamp Act which doesn’t spell out agreement to sell should be registered or not? So unless the central act is amended or state amends it only court can tell and interpret the intent of RERA Provisions.
What is Agreement to Sell?
An agreement to sell, also known as contract for sale, is an agreement to sell a property in future, on fulfilment of certain terms and conditions specified in the agreement. Section 54 of The Transfer of Property Act, 1882, defines it as:“A contract for the sale of immovable property, is a contract that a sale of such property shall take place on the terms settled between the parties”
It is different from a sale deed, which is a legal document proving the absolute transfer of ownership of a property from the seller to the purchaser, as an agreement to sell does not create any right or interest in the property, for the proposed buyer. Title of an immovable property can only be transferred through a duly stamped and registered sale deed.
Earlier Provisions Regarding Registration of an Agreement to Sell
Before the notification of the Real Estate (Regulation & Development) Act, 2016, registration of contracts for the sale of immovable property was mainly governed by provisions of The Transfer of Property Act, 1882 and The Registration Act, 1908. The erstwhile law regarding registration of contracts under the aforementioned acts has been explained below:
[I] The Transfer of Property Act, 1882
Under Section 54 of The Transfer of Property Act, 1882, transfer of ownership of tangible immoveable property, of the value of one hundred rupees and upwards, can be made only by a registered instrument. This implies that registration of the sales deed is mandatory. However, since there is no ‘transfer of ownership’ by an agreement to sell, it need not be registered under The Transfer of Property Act, 1882.
[II] The Registration Act, 1908
An Agreement to sell does not require mandatory registration under The Registration Act, 1908, as can inferred from:
- Exclusion of Agreement to sell from the list of instruments requiring mandatory registration as provided by Section 17(1).
- Explicit mention of Agreement to sell in Section 17(2)(v), as an instrument not requiring registration under Section 17(1).
- Explanation to Section 17,which provides that a document operating to effect a contract for the sale of immovable property shall not require registration.
New Provisions Under The Real Estate (Regulation & Development) Act, 2016
The notification of The Real Estate (Regulation & Development) Act, 2016 has implicitly amended Section 17 of The Registration Act, 1908 and Section 54 of The Transfer of Property Act, 1882. Any developer intending to advertise, market, book or sell any property in a real estate project has to mandatorily register the project according to Section 3 of the act. This provision applies not only to future projects, but also to ongoing projects, where the construction began prior to 1st May 2017.
Furthermore, Section 13 provides for compulsory registration of the agreement to sell, by prohibiting developers from accepting more that 10% of the cost of the property, without executing and registering the agreement to sell. It however, does not specify under which law- The Registration Act, 1908, The Transfer of Property Act, 1882 or The Real Estate (Regulation & Development) Act, 2016- registration has to be done.
Advantages of New Provisions
Registration of the agreement to sell has been made mandatory in the interest of the buyer. Since the agreement is signed in front of the registrar, it ensures that the buyer is not being coerced to sign a particular clause. Furthermore, registration of the document enables it to be presented before a court as evidence of a contract, thus preventing the developer from denying its existence and thus holding him accountable. Registration also brings in revenue for the government in the form of stamp duties.
Disadvantages of New Provisions
The compulsory registration of the sales agreement also has some disadvantages for the buyer. It amounts to additional cash outflow on the part of the buyer, who will now have to pay stamp duties twice, once for the registration of the agreement to sell and next for the registration of the sales deed. Furthermore, it puts additional pressure on the buyer to make lumpsum payment of 10% of the cost of the property, on the day he executes and registers the agreement with the builder, as opposed to making more comfortable payments in smaller instalments.
Law
Section 54, The Transfer of Property Act, 1882
“Sale” defined. – ‘‘Sale” is a transfer of ownership in exchange for a price paid or promised or part-paid and part-promised.
Sale how made. – Such transfer, in the case of tangible immoveable property of the value of one hundred rupees and upwards, or in the case of a reversion or other intangible thing, can be made only by a registered instrument. In the case of tangible immoveable property of a value less than one hundred rupees, such transfer may be made either by a registered instrument or by delivery of the property. Delivery of tangible immoveable property takes place when the seller places the buyer, or such person as he directs, in possession of the property.
Contract for sale. – A contract for the sale of immoveable property is a contract that a sale of such property shall take place on terms settled between the parties. It does not, of itself, create any interest in or charge on such property.
Section 17, The Registration Act, 1908
- The following documents shall be registered, if the properties to which they relate is situate in a district in which, and if they have been executed on or after the date on which, Act No. XVI of 1864, of the Indian Registration Act 1866, or the Indian Registration Act 1871, or the Indian Registration Act 1877, or the this Act came or comes into force, namely:-
- instruments of gift of immoveable property;
- other non-testamentary instruments which purport or operate to create, declare, assign, limit or extinguish, whether in present or in future, any right, title or interest, whether vested or contingent, of the value of one hundred rupees, and upwards, to or in immoveable property;
- non-testamentary instruments which acknowledge the receipt or payment of any consideration on account of the creation, declaration, assignment, limitation or extinction of any such right, title or interest; and
- leases of immoveable property from year to year, or for any term exceeding one year, or reserving a yearly rent;
- non-testamentary instruments transferring or assigning any decree or order of a court or any award when such decree or order or award purports or operates to create, declare, assign, limit or extinguish, whether in present or in future, any right, title or interest, whether vested or contingent, of the value of one hundred rupees and upwards, to or in immoveable property;
- Nothing in clauses (b) and (c) of sub-section (1) applies to –
- any composition-deed; or
- any instrument relating to shares in a joint stock company, notwithstanding that the assets of such company consists in whole or in part of immoveable property; or
- any debenture issued by any such company and not creating, declaring, assigning, limiting or extinguishing any right, title or interest, to or in immoveable property except insofar as it entitles the holder to the security afforded by a registered instrument whereby the company has mortgaged, conveyed or otherwise transferred the whole or part of its immoveable property or any interest therein to trustees upon trust for the benefit of the holders of such debentures; or
- any endorsement upon or transfer of any debenture issued by any such company; or
- any document not itself creating, declaring, assigning, limiting or extinguishing any right or title or interest of the value of one hundred rupees and upwards to or in immoveable 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; or
- any decree or order of a court except a decree or order expressed to be made on a compromise and comprising immoveable property other than that which is the subject-matter of the suit or proceedings;
- any grant of immoveable property by government; or
- any instrument of partition made by a revenue officer; or
- any order granting a loan or instrument of collateral security granted under the Land Improvement Act 1871, or the Land Improvement Loans Act 1883; or
- any order granting a loan under the Agriculturists Loans Act 1884, or instrument for securing the repayment of a loan made under that Act; or
(x-a) any order made under the Charitable Endowments Act 1890 (6 of 1890) vesting any property in a treasurer of Charitable Endowments or divesting any such treasurer of any property; or
- any endorsement on a mortgage-deed acknowledging the payment of the whole or any part of the mortgage-money, and any other receipt for payment of money due under a mortgage when the receipt does not purport to extinguish the mortgage; or
- any certificate of sale granted to the purchaser of any property sold by public auction by a civil or revenue officer.
Explanation: A document purporting or operating to effect a contract for the sale of immoveable property shall not be deemed to require or ever to have required registration by reason only of the fact that such document contains a recital of the payment of any earnest money or of the whole or any part of the purchase money.
Section 3, The Real Estate (Regulation & Development) Act, 2016
- No promoter shall advertise, market, book, sell or offer for sale, or invite persons to purchase in any manner any plot, apartment or building, as the case may be, in any real estate project or part of it, in any planning area, without registering the real estate project with the Real Estate Regulatory Authority established under this Act:
Provided that projects that are ongoing on the date of commencement of this Act and for which the completion certificate has not been issued, the promoter shall make an application to the Authority for registration of the said project within a period of three months from the date of commencement of this Act:
Provided further that if the Authority thinks necessary, in the interest of allottees, for projects which are developed beyond the planning area but with the requisite permission of the local authority, it may, by order, direct the promoter of such project to register with the Authority, and the provisions of this Act or the rules and regulations made thereunder, shall apply to such projects from that stage of registration.
- Notwithstanding anything contained in sub-section (1), no registration of the real estate project shall be required-
- where the area of land proposed to be developed does not exceed five hundred square meters or the number of apartments proposed to be developed does not exceed eight inclusive of all phases:
Provided that, if the appropriate Government considers it necessary, it may, reduce the threshold below five hundred square meters or eight apartments, as the case may be, inclusive of all phases, for exemption from registration under this Act;
- where the promoter has received completion certificate for a real estate project prior to commencement of this Act;
- for the purpose of renovation or repair or re-development which does not involve marketing, advertising selling or new allotment of any apartment, plot or building, as the case may be, under the real estate project.
Explanation. -For the purpose of this section, where the real estate project is to be developed in phases, every such phase shall be considered a standalone real estate project, and the promoter shall obtain registration under this Act for each phase separately.
Section 13, The Real Estate (Regulation & Development) Act, 2016
- A promoter shall not accept a sum more than ten per cent 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 a written agreement for sale with such person and register the said agreement for sale, under any law for the time being in force.
- The agreement for sale referred to in sub-section (1) shall be in such form as may be prescribed and shall specify the particulars of development of the project including the construction of building and apartments, along with specifications and internal development works and external development works, the dates and the manner by which payments towards the cost of the apartment, plot or building, as the case may be, are to be made by the allottees and the date on which the possession of the apartment, plot or building is to be handed over, the rates of interest payable by the promoter to the allottee and the allottee to the promoter in case of default, and such other particulars, as may be prescribed.
Should Agreement to Sell be Registered?
The promoter of any project is legally bound to register the agreement to sell by Section 13 of The Real Estate (Regulation & Development) Act, 2016. If he fails to do so, he shall be liable to a penalty of up to5% of the estimated cost of the real estate project as determined by the Authority as per the provisions of Section 61 of the act. However, in case the advance payment paid at the time of executing the agreement of sale is less than 10% of the cost of the apartment, the promoter is not bound to register the agreement of sale as per the provisions of Section 13 of the act.
However, even in this case, the purchaser should persuade the promoter to register the Agreement of Sale. This is to ensure that promoters, if proceeded against based on an unregistered agreement of sale, are not able to take up the defence that unregistered agreements of sale cannot be relied upon for the purpose of evidence under Section 49 of The Registration Act, 1908. While this section only deals with non-registration of documents which require mandatory registration under Section 17(1) of the same act, it may be argued that purpose behind making registration of any instrument mandatory is to prescribe a punishment for non-registration, which in this case would be that prescribed under Section 49 of the act. Thus, to prevent the developers from taking this stand and prevent enforcement of any rights conferred by the unregistered agreement of sale, the purchaser should register the document of sale.
In consideration of the foregoing, it is also pertinent to note that the Maharashtra Real Estate Appellate Tribunal in Naim Kamruddin Shaikh vs JVPD properties Pvt Ltd ruled that a registered agreement is not mandatory for obtaining remedy under The Real Estate (Regulation & Development) Act, 2016. The authority rejected the argument that the phrase ‘in accordance with the terms of the agreement for sale’ in Section 18 and Section 19 of the act makes the presence of a formally registered agreement for sale a precondition for claiming remedies under the said Sections. Observing that (1) an allotment letter has all the trappings of an agreement for sale, (2) the phrase “as the case may be” in section 18(1) of the Act is wide enough even to cover the allotment letter and (3)RERA is a welfare legislation, the court held that unregistered allotment letters can be relied upon for obtaining remedy under The Real Estate (Regulation & Development) Act, 2016.
All things considered, while the law may lean towards protecting the interests of purchasers, it only has so much power to rule in favour of the purchaser in case of ambiguities resulting out of unregistered agreements of sale. With an increase in cases of fraud in the real estate market, it is advisable for all purchasers to pay slightly higher fees and get the agreement of sale registered, rather than save up on the registration fees, only to lose the entire advance deposit due to Fraud.
For case specific advice, please contact best/top/expert RERA Lawyer Advocate in Chandigarh Panchkula Mohali Zirakpur Kharar Derabassi
This post is written by Soumya Nayyar.
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