Sale of Immovable Property: Legal Aspects and Procedures

DEFINITION

The Sale has been defined under section 54 of the Transfer of Property Act as Transfer of ownership in exchange for a price paid or promised to be paid or partially paid and partially promised to be paid.

Immovable property encompasses both tangible and intangible assets. Tangible assets are those that can be physically touched, such as land, buildings, trees, and fixtures attached to the land. Intangible assets, on the other hand, are those that cannot be physically touched, such as rights of way, mortgage rights, and fishing rights.

Essentials:

A sale of immovable property requires at least two parties. The seller must possess ownership and legal title to the property, while the buyer must have the legal capacity to acquire ownership.

There shall be a Price or Consideration. The price is a fundamental component of the sale transaction. It can be paid prior to, at the time of, or subsequent to the sale, and may be remitted either as a lump sum or in instalments.

MODES OF TRANSFER

There shall be a Contract for Sale which shall take place on terms settled between the parties.

- As per section 54 para 2 contract for sale of immovable property must be in writing. It must be witnessed by two or more persons.
- As per section 17 of Registration Act, there must be Registration of Sale Deed It involves executing a registered document to effectuate the transfer of property.
- The Delivery of Possession, the seller placing the buyer or a representative designated by the seller in possession of the property.

DISTINCTION BETWEEN SALE AND CONTRACT FOR SALE

A sale denotes the transfer of ownership of property in exchange for a specified price. It confers legal title to the buyer and necessitates registration if the property's value exceeds Rs. 100. Whereas, A contract for sale refers to an agreement between parties for the future sale of property. It does not transfer any interest in the property and does not mandate registration.

PARTIES AND COMPETENCY TO SALE

There are always two parties. The individual who transfers ownership of the property is termed the seller. They must possess the legal capacity to transfer the property. The individual who acquires the property in exchange for a consideration is referred to as the buyer. They must also have the legal capacity to enter into a contract.

Competency of Seller:

- The seller must be legally capable of entering into a contract.
- The seller must have attained the age of majority, which is 18 years as per the Indian Majority Act, 1875.
- The seller must be of sound mind, capable of comprehending the terms of the contract and making rational decisions regarding its implications.
- He should be legally authorized to dispose the property.
- The seller must not be disqualified from contracting under any applicable law in India.

Competency of Buyer:

- The buyer must likewise have the legal capacity to enter into a contract.
- The buyer must have attained the age of majority, which is 18 years under the Indian Majority Act, 1875.
- The buyer must be of sound mind, capable of understanding the terms of the contract and making reasoned judgments about its consequences.
- The buyer must not be disqualified from contracting under any prevailing law in India.

RIGHTS AND LIABILITIES OF SELLER AND BUYER

Section 55 of the Act, defines the rights and liabilities of both the Seller and the Buyer in a property instrument.

Liabilities of Seller

Before Completion of Sale:

1. Disclosure of Defects in Property or Title: Before the sale is complete, the Seller must inform the Buyer of any major flaws in the property or in their own title.

2. Production of Title-Deeds for Inspection: The Seller is bound to produce all reasonable title-deeds for the Buyer's inspection or facilitate their inspection.

3. Answering Questions Regarding Title: The Seller shall answer truthfully all relevant questions raised by the Buyer about the title to the property.

4. Execution of Conveyance: It is the Seller's duty to execute the conveyance deed, thus transferring the title, either by signing or affixing their thumb impression on the sale deed.

5. Care of Title Deeds and Property: Until conveyance is executed, the Seller is bound to take reasonable care of the property and its title deeds until they are delivered to the Buyer.

6. Payment of Outgoings: Until the sale is completed, the Seller is liable to pay all government dues and other charges in respect of the property.

Liabilities After Completion of Sale:

1. Delivery of Possession to Buyer: Upon demand, the Seller shall deliver possession of the property to the Buyer or as directed by the Buyer.

2. Covenant for Title: In every sale, the Seller implicitly guarantees that the interest conveyed exists and that he is authorized to convey it. This is known as an implied covenant for title.

3. Delivery of Title-Deeds upon Receipt of Price: It logically follows that, after completion of the sale, the Seller must deliver all title-deeds relating to the property in his possession to the Buyer.

Rights of Seller

Rights Prior to Completion of Sale: Before the sale is complete, the Seller is entitled to all rents, profits, or other benefits derived from the property. Until ownership is transferred formally, these benefits belong to the seller.

Rights After Completion of Sale: At the time of completion, when the whole of the price is not paid, the Seller acquires a lien or charge on the property for the amount unpaid. This statutory charge allows him to recover the unpaid purchase-money from the property itself.These provisions under Section 55 of the Transfer of Property Act, 1882 create a framework of rights and responsibilities so that transfer of immovable property from Seller to Buyer is transparent and fair.

Rights of a Buyer:

1.Right to Ownership and Possession: The buyer is entitled to receive ownership and possession of the property upon completion of the transfer.

2. Right to Documents of Title: The buyer has the right to obtain all documents of title pertaining to the property.

3. Right to Sue for Specific Performance: If the seller breaches the contract, the buyer has the right to initiate legal action for specific performance under Section 55.

4. Right to Refund of Money Paid upon Proper Denial of Acceptance of Delivery: If the buyer properly refuses to accept delivery of the property, they have the right to receive a refund of any purchase money paid to the seller along with interest.

5. Right to Enjoyment: Buyers have the right to peacefully and undisturbedly enjoy the property they have purchased.

Liabilities of Buyers:

1. Obligation to Pay Purchase Price: The primary responsibility of the buyer is to pay the agreed-upon purchase price.

2. Responsibility for Outgoings: The buyer is responsible for outgoings associated with the property, including property taxes and maintenance costs, from the date of transfer.

3. Duty to Disclose Facts Increasing Property Value: The buyer must disclose to the seller any information that could potentially increase the value of the property, if the buyer believes the seller is unaware of such information.

4. Liability for Public Charges: The buyer is accountable for public charges, such as property taxes and maintenance costs, from the date of transfer.

MARSHALLING BY SUBSEQUENT PURCHASER

Marshalling is a legal right granted to a subsequent purchaser of immovable property under Section 56 of the Transfer of Property Act. This right enables the subsequent purchaser to prioritize the satisfaction of a mortgage debt using properties not sold to them, before the mortgaged properties they acquired are utilized for this purpose.

For Example:
- X mortgages property A, B and C to Y by way of security for a loan of 30,000 rupees.
- X afterwards mortgages B to Z to secure a further loan of 10,000 rupees.

Here, Y has a simple mortgage over A, B and C for 30,000 rupees. The property B is also mortgaged to Z to secure a loan of 10,000 rupees. Y is the senior and Z the junior, mortgagee. It is Z's rights in the capacity of subsequent mortgagee which makes it possible to provide that the 30,000 rupees shall be paid, in the first instance, out of the sale proceeds of properties A and B only, not out of property C, simply because it does not belong to Z. In case A and B sold are found inadequate to cover the amount of 30,000 rupees, then property C can be sold. Although he is a subsequent mortgagee, having a claim subordinate to that of Y, he can still exercise the right of marshalling, rearranging the order of securities in his favour.

For marshalling to apply, the owner of the properties must possess two or more properties. These properties must have been mortgaged to a single mortgagee. Subsequently, the owner sells one or more of these mortgaged properties to another person, known as the subsequent purchaser.

The subsequent purchaser has the right to request that the mortgagee first satisfies the debt using properties not sold to the purchaser, before resorting to the properties purchased by them.

However, this right of the subsequent purchaser is subject to ensuring that it does not unfairly prejudice the rights of the mortgagee or any other individual who has acquired an interest in the properties for valuable consideration.

ENCUMBERENCE

Encumbrance under the Transfer of Property Act refers to a restriction or burden on immovable property that impedes its transfer and usage until the encumbrance is removed. Encumbrances encompass both financial and non-financial constraints, including various types such as mortgages, easements, property tax liens, and more.

- Restrictive Covenant: A restrictive covenant is a non-financial encumbrance that imposes limitations on how a property can be used or developed, typically outlined in the property deed or agreement.

These types of encumbrances under the TPA affect the rights and obligations related to immovable property, requiring careful consideration and management in property transactions and legal matters.

Section 57 of the Act outlines a legal process for removing encumbrances from immovable properties.

It establishes the legal framework for the removal of encumbrances from immovable properties. This provision allows a party to petition the court to declare the property free from encumbrances upon depositing amounts determined by the court.

The property in question must be immovable. The property must be burdened with encumbrances, whether immediately payable or not. The party seeking relief must apply to the court for a declaration of freedom from encumbrances.

Procedure:

The party must deposit the amounts adjudged by the court.

The court has the authority to issue either a vesting order or an order of conveyance to formalize the removal of encumbrances and ensure the property's transfer of ownership.

CONCLUSION

The Transfer of Property Act, 1882, defines and differentiates the sale of immovable property within a comprehensive legal framework, encompassing various aspects of rights, liabilities, and procedural complexities. This legislation distinguishes sale from other forms of property transactions, emphasizing its intricate legal implications. While the Sale of Goods Act, 1930, governs transactions involving movable property, The Transfer of Property Act, 1882, establishes the foundational principles for transactions involving immovable property.

The Act safeguards the interests of both buyers and sellers, ensuring transparency and fairness while upholding equitable principles. As property transactions evolve, a thorough understanding of the Act's detailed provisions remains crucial for facilitating lawful, fair, and transparent sales of immovable property.