The Contracts Act lays the foundation, establishing the basics of valid contracts, lawful consideration, and party capacities. Simultaneously, the Transfer of Property Act oversees property transfers, stipulating statutory rights and obligations for both purchasers and sellers. The Registration Act ensures enforceability by outlining document registration procedures, and the Indian Stamp Act governs stamp duty. In addition, the Real Estate (Regulation and Development) Act (RERA) seeks to enhance transparency, accountability, and efficiency in the real estate sector, safeguarding the interests of both buyers and developers. Other laws, such as development regulations, land revenue code, and tenancy laws, may apply based on the nature of the agreement.

Defining Rights and Obligations of Parties: The Transfer of Property Act delineates statutory rights and obligations, recognizing that transactions often involve additional complexities.

Sale: To address potential biases towards sellers, clauses can be added to ensure fairness in earnest money handling and sale timelines. Sellers must maintain transparency, verifying the property’s title, disclosing necessary information, and addressing issues like disputes or easements.

Purchasers should have the right to terminate the deal under specific circumstances without losing earnest money. The sale agreement should explicitly state that the property is free from third-party rights/claims and disputes, with the seller responsible for taxes and charges until the sale date. To protect purchasers from title defects or breaches, a provision should indemnify the purchaser against losses and damages resulting from the seller’s actions. Specific obligations should be placed on the seller to assist in updating records at no additional cost to the purchaser.

Similarly, the agreement to sell should safeguard the seller in case the purchaser delays in completing the transaction due to its inability to provide the balance purchase price and/or other amounts. In such instances, the seller should be entitled to forfeit the earnest money after providing reasonable notice to the purchaser.

Lease: In lease agreements, a common problem arises when the language used is unclear or specific terms are not defined. This can result in disputes between lessors, who provide the premises, and lessees, obligated to pay monthly rent and other amounts on a regular basis, usually on the due date. A recurring point of contention between the involved parties is the responsibility for paying any new taxes introduced by the government or an increase in current tax rates during the lease period.

This issue frequently emerges when the lease contract lacks provisions specifying which party is responsible for covering the costs of new taxes or increased taxes/levies. Both parties may insist that the other party should be liable for the payment of these new or increased taxes. Such a situation can arise when the government raises existing property taxes or introduces new taxes, leading to a scenario where the lessor expects the lessee to bear the cost, while the lessee refuses, asserting that it’s not their obligation under the contract.

It is, therefore, important for lease contracts to clearly outline the responsibilities of each party regarding current taxes, any increases to these taxes, and/or new taxes that may be introduced. The contract should also specify the consequences of a breach. This clarity can help prevent disputes and ensure a fair resolution in case of disagreements.

Ensuring Precise Timelines and Conditions for Possession: The agreement to sell should clearly outline the timeline for concluding the sale, with cancellation rights to either party in case of delays. Failure to hand over possession on the due date and/or extended due date may lead to legal action by the purchaser, seeking remedies through RERA, Consumer Forum, NCLT, or criminal proceedings. Defining clear timelines and consequences for a delay in handing over possession of the property in the agreement is crucial.

Importance of Regular Reviewing and Ensuring Compliance: Parties in real estate agreements often enter into long-term transactions, necessitating periodic reviews. Regular reviews are necessary to prevent defaults, ensure timely renewals of approvals/permits, maintenance agreements, and monitor key compliances.

Real estate contracts are crucial for successful transactions, but understanding and tackling potential issues are equally important. Defining clear rights and obligations, setting precise timelines, and regularly reviewing agreements are effective solutions to navigate the challenges inherent in real estate contracts. This approach ensures a fair and secure process for both purchasers and sellers/lessor and lessee in the dynamic real estate landscape.

This article was originally published in Realty+ on 31 January 2024 Written by: Ashoo Gupta, Partner. Click here for original article

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