Conditional Sale Deed in India : Meaning, Validity, Format & Legal Process

In property matters, property does not change ownership either immediately or is not an absolute conveyance. In some instances, parties will agree not to finalize the sale of property until certain conditions have been met. This agreement is called a Conditional Sale Deed. Before proceeding with a Conditional Sale Deed, it is important to know the elements that exist within. This will be of particular importance to any person buying or selling property in which there are conditions to be met before full ownership is conveyed.

In this article, you will get to know about

• Conditional Sale Deed.
• Procedure to Draft a Conditional Sale Deed.
• Relevant FAQs.

What Is A Conditional Sale Deed?

​In simple terms, a Conditional Sale Deed is a legally binding agreement between a seller and buyer in which the seller transfers their ownership in property to the buyer, but only after certain conditions are met by the buyer. In other words, the seller and buyer have entered into a sort of "wait and see" agreement regarding ownership of the property. The buyer receives possession and the right to use the property while the seller retains legal title until such time as all agreed-upon conditions are satisfied.

Legal Interpretation of Conditional Sale Deed under the Transfer of Property Act, 1882

This idea is based on the framework of the Transfer of Property Act, 1882. The Act does not specifically describe "Conditional Sale Deed" as a general category, but Section 54 gives a definition of "Sale" as a transfer of ownership for a price paid, promised, part-paid, or part-promised. A Conditional Sale Deed would effectively be a document that describes a sale that allows for the transfer of ownership to occur, contingent on future events or conduct.

In addition, Section 25 of the Transfer of Property Act, 1882, sets out some principles with which we should be generally acquainted regarding "Conditional transfer" and states that an interest created on a transfer of property and conditional upon a condition fails where the condition can't be fulfilled, or is forbidden by law, or is of such a nature that if fulfilled, would defeat the provisions of any law, or is fraudulent, or operates or implies injury to the person or property of another, or by the test of the Court is immoral or contrary to public policy.

Legal Nature of Conditions

The provisions stated in a Conditional Sale Deed are binding and legally enforceable obligations that must be satisfied before the sale becomes absolute. The nature or form of conditions set forth within a Conditional Sale Deed is flexible and will depend on the agreement between the purchaser and vendor.

• Payment of the full sale price: This is a standard condition in most cases.
• Obtaining necessary approvals or clearances: For example, if the property necessitates obtaining certain regulatory approvals before completing the sale.
• Completion of construction or repairs: If the property is being developed, or there are works that must be done.
• The occurrence of a specific event: Such as the buyer getting a loan or selling another property.

Is Conditional Sale Deed Valid?

Yes, Conditional Sale Deeds are legally valid as per Indian Law, as long as it meets all the necessary criteria of a valid contract contained in the Indian Contract Act, 1872 and the principles regulating transfer of property in the Transfer of Property Act, 1882, such as free consent of both parties, legality of object and consideration and capacity to contract. The conditional aspect of the transfer of ownership is accepted in property transactions.

Example Of Conditional Sale Deed

Mr. Sharma agreed to sell his apartment to Mr. Verma for ₹50 lakh. They executed a Conditional Sale Deed, which stated that Mr. Verma would be given immediate possession of the apartment, but he would obtain full legal ownership only after he paid the remaining ₹40 lakh within 6 months. Mr. Verma has already paid the first ₹10 lakh as earnest money. If Mr. Verma does not pay the remaining amount within the time limitation, the sale may not proceed; the Conditional Sale Deed will determine what happens (e.g., loss of earnest money).

Key Features Of A Conditional Sale Deed

A Conditional Sale Deed possesses several distinguishing features:

Conditional Transfer of Ownership

This is the key feature. The transfer of absolute ownership is deferred and is dependent on the completion of conditions agreed to between the buyer and seller. As long as those conditions have not been discharged, the seller retains regulatory title to the property.

Legal Binding Nature

Although the transfer of ownership is conditional, the Conditional Sale Deed is enforceable as a contract on both the buyer and the seller. Both the buyer and the seller are subject to the same duties and obligations set out in the deed. If they fail to do so, they can be liable for their duties as stipulated in the Indian Contract Act, 1872.

Security for Both Parties

A Conditional Sale Deed can offer a degree of security to both the buyer and the seller:

• For the Seller: It guarantees that the seller has legal title until the consideration is completed or other defined obligations are met. This protects their financial interests and avoids turning over property without the buyer meeting their obligations.
• For the Buyer: It permits a buyer to occupy and possibly use the property while arranging for payment or meeting the other conditions. It also protects the buyer's right to acquire full ownership of the property on satisfaction of the fulfillment of the terms agreed upon, thus preventing the seller from unilaterally terminating the agreement (unless the buyer defaults on the conditions).

Purpose Of Conditional Sale Deed

A Conditional Sale Deed is mainly used to provide flexibility and protection in transactions where immediate and perfect transfer of ownership is not feasible or not desirable.

Flexibility

• Phased payments provide a structured payment schedule, with the ownership of the item transferred only after the buyer completes some or most of their payment, depending on the terms of the agreement.
• Time-bound clauses set specific deadlines for the buyer to meet certain conditions, including arranging financing or obtaining any necessary approvals, and can be applied to transactions that are contingent on the occurrence of specific future events prior to the sale being finalized.

Protection

• As the seller, you are protected by keeping title to the property until you are completely satisfied, following all of the components of the agreement, particularly full payment, are adhered to.
• The buyer's interests are also protected, for as long as the buyer satisfies all of his obligations, you cannot sell the property without running the risk of violating your agreement with the buyer.
• Furthermore, a deed will set out the conditions, consequences for non-compliance, and even allow the buyer to take possession of the property early in some cases.

Components Of A Conditional Sale Deed

• Identification of Parties: Clearly state the names, addresses, and other relevant details of the buyer and the seller.
• Description of the Property: Provide a detailed description of the property being sold, including its address, boundaries, survey number, and other identifying details.
• Sale Price: Clearly mention the total sale price agreed upon by both parties and the payment schedule, including any advance payments made.
• Conditions for Transfer of Ownership: Explicitly state the specific conditions that the buyer must fulfill for the absolute transfer of ownership to take place. These conditions should be clearly worded and unambiguous.
• Timeline for Fulfilling Conditions: Specify the timeframe within which the buyer must meet the stipulated conditions.
• Possession Clause: Clearly state when the possession of the property will be handed over to the buyer (it's often before the final transfer of ownership in a conditional sale).
• Consequences of Non-Fulfillment of Conditions: Outline the legal repercussions if the buyer fails to meet the conditions within the agreed timeframe. This may include forfeiture of earnest money, cancellation of the deed, or other agreed-upon remedies.
• Rights and Obligations of Both Parties: Clearly define the rights and responsibilities of both the buyer and the seller during the conditional period.
• Governing Law and Jurisdiction: Specify which laws will govern the interpretation and enforcement of the deed and the jurisdiction of the courts in case of disputes.
• Witnesses: Include the names, addresses, and signatures of at least two credible witnesses who were present during the execution of the deed.
• Signatures of Buyer and Seller: The deed must be signed by both the buyer and the seller (or their authorized representatives).
• Date and Place of Execution: Clearly mention the date and place where the deed was signed.

Conditional Sale Deed Registration Process In India

The registration process of a conditional sale deed is as follows:

Engage a Lawyer

It is recommended that you retain an experienced property lawyer to draft the Conditional Sale Deed and to ensure that all legal requirements are met, that the conditions are written in clear and unambiguous words, and that both parties' interests are sufficiently protected.

Provide Necessary Information

Give the legal professional all the pertinent information, including a description of the parties, a description of the property, a sale price, the method of payment, specific back to ownership condition, a history of the transaction, and any other matters relating to the transaction or negotiations that were agreed to and caned about.

Review the Draft

Examine the lawyer's draft deed closely, checking each term and condition to ensure that they truly express your understanding and consent.

Finalize and Execute

Once both parties are satisfied with the draft, the deed should be printed on stamp paper of the applicable value and signed by both the buyer and the seller, in the presence of at least two witnesses. The witnesses would then sign the deed.

Stamp Duty Charges On Conditional Sale Deed

In India, stamp duty is applicable on a Conditional Sale Deed in accordance with the rates specified by the relevant state government under the Indian Stamp Act, 1899 (as modified by state legislation). Where applicable, the stamp duty is usually calculated on the market value of the property or the value of the sale consideration, whichever is higher.

It is important to recognize that some States may have specific rules or interpretations as to the stamp duty applicable on conditional sale agreements relative to the absolute deed of sale. You should seek local advice or check with your lawyer or at the local Sub-Registrar's office for the specific stamp duty on a Conditional Sale Deed in your state. The payment of proper stamp duty is important for the document to be legally valid and permissible in court.

After the deed is executed and stamped, it must be lodged for registration at the office of the Sub-Registrar of Assurances in the jurisdiction in which the property lies. The buyer and seller, witnesses, and identification must attend. A nominal fee for registration is also payable.

Benefits Of A Conditional Sale Deed

• Facilitates Transactions: It allows transactions to continue even though certain preconditions need to be satisfied later.
• Provides Security: It provides some security to the buyer and the seller as well as establishing a clear framework regarding the terms and conditions that will exist prior to the finalization of the ownership transfer.
• Structured Payments: It permits an organization of installment payments, which may be useful for buyers who need time to secure full financing.
• Clarity and Transparency: It grants a clear and transparent framework for the transaction, potentially reducing the risk of misunderstandings and disputes.
• Legally Enforceable: It can be a document with legally binding terms that can be taken to court should either party default on their obligations.
• Possession Before Ownership: It can potentially allow the buyer to take possession and start utilizing the property before the ownership is fully established. This can be advantageous in certain situations.

Deed of Conditional Sale vs Deed of Absolute Sale

Legal Implications Of A Conditional Sale Deed

• Binding Contract: A Conditional Sale Deed creates a legally binding contract between the buyer and seller.
• Specific Performance: If the parties do not conform to the terms of the deed, the other party can seek specific performance of the contract from the court, which would compel the other party to perform their obligations under the deed.
• Risk of Loss: The deed will identify who bears the risk of loss or damage to the property during the conditional time period.
• Charge/Encumbrance: The buyer's interest in the property through a Conditional Sale Deed may be considered a charge/encumbrance on the property until the transfer of complete ownership takes place.
• Tax Implications: For tax purposes, the sale may be linked to the date of the absolute transfer and not simply when the Conditional Sale Deed is executed. This is a good area to seek tax advice.

Sample Format Of Conditional Sale Deed

A basic format of conditional sale deed is as follows:

CONDITIONAL SALE DEED

This Conditional Sale Deed is executed on this ___ day of _____, 20.

BETWEEN

Mr./Ms. [Seller's Full Name], S/o/D/o [Father's/Mother's Name], residing at [Full Address]
(hereinafter referred to as "the Seller")
AND
Mr./Ms. [Buyer’s Full Name], S/o/D/o [Father's/Mother's Name], residing at [Full Address]
(hereinafter referred to as "the Buyer")

WHEREAS:

1. The Seller is the sole and absolute owner of the property more fully described in the Schedule below.
2. The Seller has agreed to sell and the Buyer has agreed to buy the said property for a total consideration of ₹_________ (Rupees _______________________ only).
3. The Buyer has paid an advance amount of ₹_________ (Rupees _______________________ only) to the Seller.
4. The sale is conditional upon the Buyer fulfilling the following:
5. • Payment of the balance amount of ₹_________ within ___ months from the date of this deed.
   • [Insert other conditions if any, e.g., obtaining loan approval].

NOW THIS DEED WITNESSETH AS UNDER:

1. That the Seller agrees to sell the said property to the Buyer for the total sale consideration of ₹_________.
2. That possession of the property shall/will be handed over to the Buyer on execution of this deed.
3. That ownership and title shall only transfer to the Buyer after fulfillment of the conditions stated herein.
4. That in case the Buyer fails to fulfill any of the conditions, the Seller shall have the right to cancel this deed and forfeit the advance amount.
5. That upon fulfillment of all conditions, a final Deed of Sale shall be executed.

SCHEDULE OF THE PROPERTY:

[Provide full details of the property: address, area, boundaries, plot number, etc.]

IN WITNESS WHEREOF, the parties hereto have signed this deed on the date mentioned above.

WITNESSES:

1. Signature: ____________ Name: ____________ Address: ____________
2. Signature: ____________ Name: ____________ Address: ____________

SELLER:
Signature: ____________ Name: _______________

BUYER:
Signature: ____________ Name: _______________

DATE: ___________
PLACE: ___________

Conclusion

A Conditional Sale Deed is an important legal device that can provide a vehicle for property dealings when an immediate and complete transfer of ownership is not a possibility. It benefits buyers and sellers by allowing them to agree to terms and conditions which must be satisfied prior to a sale. Before entering into a Conditional Sale Deed, at a minimum, it is important to understand the key elements, purpose, legal effect, and how to register title of a Conditional Sale Deed.

FAQs

A few FAQs are:

Q1. What is a Conditional Sale Deed in simple terms?

A Conditional Sale Deed is a legal agreement to sell a property where the full ownership will only be transferred to the buyer after they fulfill certain agreed-upon conditions, usually related to payment or other specific actions.

Q2. Is a Conditional Sale Deed legally valid in India?

Yes, a Conditional Sale Deed is valid under Indian law, provided it meets the requirements of a valid contract under the Indian Contract Act, 1872, and aligns with the principles of property transfer under the Transfer of Property Act, 1882.

Q3. What are some common conditions in a Conditional Sale Deed?

Common conditions include the buyer paying the remaining sale price within a specific timeframe, obtaining necessary loan approvals, or the completion of certain construction or repair work on the property.

Q4. What is the key difference between a Conditional Sale Deed and an Absolute Sale Deed?

The main difference is that in a Conditional Sale Deed, the transfer of absolute ownership is deferred until the buyer meets the specified conditions, whereas in an Absolute Sale Deed, the ownership is transferred immediately and completely upon registration.

Q5. Does the buyer get possession of the property under a Conditional Sale Deed?

Yes, the buyer often gets possession of the property upon the execution of a Conditional Sale Deed, even though the full legal ownership is transferred later upon the fulfillment of the conditions.

Disclaimer: The information provided here is for general informational purposes only and should not be construed as legal advice. For personalized legal guidance, please consult with a qualified Civil lawyer.