What are property agreements?
Property agreements are legally binding contracts that set out the terms and conditions under which property, either real or personal, is transferred from one party to another. These agreements are crucial as they both provide clear evidence of the intentions of the involved parties and offer a method of dispute resolution in case the contractual agreement is not adhered to. When it comes to property , there are several types of agreements in addition to the commonly known lease agreements. Sale agreements for the purpose of selling real estate are just as common. So too co-ownership agreements which address the ownership of property by more than one party.
Key components of property agreements
The essential components of any property agreement are the parties, the property, the terms and conditions and the legal obligations. On the Indian side, the agreement should be ‘stamped’. Further, if property is situate in an Indian city, it should be registered. Further, in case of a property in a foreign country, the foreign country will require that the property be stamped and registered. Further the buyer should then register the fact that a transfer of property has been effected, with the Indian Tax Authorities by filing an application in the prescribed format.
Most agreements begin with the identifications of the parties, the vendor, and the purchaser. In the case of a company, it is not enough to say the purchaser is XYZ Limited but the purchaser should also be described as "a company registered in India having its registered Office at the address mentioned". Further, in the case of a partnership or proprietorship firm, the agreement should describe the partners or proprietor and the limited liability partnership in the name of the LLP. Similarly in the case of Trusts, HUFs, functionally similar entities, it is important that the persons who have the power to sign the agreement are identified.
Thereafter, generally a description of the saleable property is provided. If the property is a flat or unit then there is a reference to the flat number, building number, survey number, taluka, district, the stamp duty ward etc. which would be required to identify the property. Further, the agreement should also take care of a description of the property which is around the flat as a garden, open land, passages etc. If the property is a bungalow, then the survey number and holding number are required to be specified too. In both cases, it is also recommended that a rough sketch of the property be attached to the agreement. The agreement then goes on to describe the ‘terms’ under which the property is sold, such as payment of the purchase consideration as well as the date/s and occasions for such payments. It is very important that the seller insists on all payments being made through Banking Channels. From the tax perspective it is very important to allow the buyer to check the tax liability of the seller because if the seller has any pending tax liabilities, the tax authorities are entitled under the law to attach the property and sell it to recover the taxes from the proceeds of the sale.
Further the agreement sets out a list of documents which are handed over to the purchaser along with the property. This list of documents should be exhaustive as it is to be relied on by the purchaser for getting the ownership transferred in his name and to get possession of the same.
The purchaser will have to call the local Collector for effecting a transfer of property in the records as well and if there is a Collector’s rate payable, the same will have to be paid to the Collector’s Office and a receipt is obtained to that effect. If the property is an agricultural property, then there is a further step of obtaining the District Collector’s approval to complete the purchase transaction. The sale deed will have to provide for the rights and obligations of both the seller vis-a-vis the buyer and the buyer vis-a-vis the seller.
Types of property agreements
Property agreements between buyers and sellers can take the form of leases, rental agreements, purchase and sale agreements, and several others. Leases are the most common way for landlords to convey a right of possession over real property before a sale or purchase occurs. Unlike a rental, where neither party has an expectation that ownership of the property will end up in the hands of the lessee or tenant, a lease contemplates a transfer of rights of ownership due to the terms and conditions of the agreement. A purchase and sale agreement is just as its name implies: an offer to buy property based on certain contingencies, such as whether a sale even goes through, and how that sale will be completed once the offer is accepted. Rental agreements, and variation of lease agreements, are the third most common type of property agreement used. Again, its basic premise is the same, allowing the transfer of the property but keeping the ownership with the lessor or seller so that possession may be transferred for a specific time period.
Relevant legal requirements and formalities
Property agreements, depending on the form and jurisdiction, could require additional legal formalities, including witnessing, attestation, maybe notary, and registration requirements.
Under the Interpretation Act of the Virgin Islands (the BVIS Interpretation Act), a document shall be deemed to have been duly executed if its execution is attested to by a requiring party to a transaction, or his agent, and authenticated under the hand of a witness other than a party to, or any person interested in the transaction. Documents requiring notarization must be witnessed by the appropriate notary public.
The Registration and Regulation of Titles to Land Act, 1981 (the Act) of British Virgin Islands requires the registration of any property agreement for the sale of land, and provides for the public recording of several documents in the Register of Title. Such documents include registered claims and charges, Court orders, or assignments to land. Prior to registration, an application (accompanied by supporting documentation) for registration and a statutory declaration by the parties who are selling the property must be submitted. The land registry will, when satisfied, send a notification of the date of registration of the property to the parties who are in receipt of the notice.
Some property agreements may be exempt from stamp duty, depending upon the terms agreed or the circumstances of the transaction.
Common legal issues to consider in property agreements
When entering into a property agreement, parties may encounter a variety of legal issues. One such issue is a breach of contract. A breach occurs when one party fails to fulfill their obligations as outlined in the agreement. For example, if a buyer fails to make the necessary deposit payment or if a seller fails to disclose relevant information about the property, they may be in breach of the contract. Another common issue is a dispute over the terms of the agreement. This can arise when there is ambiguity in the contract or when there are differing interpretations of specific provisions. In these instances, it is essential to seek legal counsel to resolve any confusion and avoid potential litigation . A third common issue is the occurrence of misrepresentations. A misrepresentation occurs when one party makes a false statement about the property or the terms of the contract. For instance, if a seller knowingly conceals defects in the property, the buyer may have grounds to void the agreement or seek damages. In order to avoid potential legal issues with your property agreement, it is crucial to engage the services of a qualified real estate lawyer. They can draft a comprehensive contract and review it thoroughly with you to ensure you fully understand all terms and conditions before signing. Additionally, if issues do arise post-signing, your lawyer can provide valuable assistance in resolving them in a timely and efficient manner.
Tips and tricks for negotiating property agreements
When negotiating the terms of a property agreement, it is important that all of your rights and obligations are fully addressed. For example, if you have joint debts that could affect your ongoing child support and spousal support obligations, make sure that you are protected by having the other party to the agreement make equal contributions towards these debts. If the debt is in your name alone, request an undertaking that the other party will contribute X to that debt on a monthly or yearly basis until it is paid off.
Further, if you would like to keep certain property, or want to prevent the sale of the matrimonial home, then ensure that this is contained in the agreement, with a clause setting out what will happen if your ex ever attempts to do otherwise.
Make sure that you can afford to maintain your current standard of living once you have divided the property. For example, if you will be living with your children, do you have space in the home to provide them with their own bedrooms? Have you reviewed your financials to account for your new expenses? Are you able to make the support payments as set out? Addressing these questions at the outset of the proposed agreement will allow you to draft a more suitable agreement for your situation.
Technology’s impact on property agreements
The emergence of innovative technologies is reshaping how parties can draft and execute a property agreement. Once almost exclusively reserved to in-person meetings, contracted parties now have the ability to sign electronically and have the agreements and instruments automatically registered and authenticated.
In terms of drafting, ensured accuracy and compliance with the applicable agreements is critical before any agreement is signed, particularly when it involves temporary legal interests in real property. Drafting parties have the option of using solicitors to prepare measures to avoid the risks of any ambiguities and other drafting pitfalls.
Execution of a property instrument is the only time when a party’s intention is crystallized in the context of a lease for a declared term. The law requires parties to execute an instrument in order to implement it. While parties have traditionally been required to attend a real property office in order to have the instrument signed, advancements in information and communications technology have now enabled individuals to provide their written signature remotely or electronically.
Facilitating remote identification and signature verification through digital identities is now possible. In some jurisdictions, like Australia, the legal framework and regulatory guidance prescribe how the electronic landscape applies and sets out the minimal requirements for proper identification of a signatory. For example, electronic signatures must be captured, stored and protected using appropriate encryption technologies and methods. The Maryland Electronic Notary Public law prescribes additional requirements for remote online notarization. In some other jurisdictions, such as Canada, the law has not been able to keep up with the pace of development and evolution of electronic signature and remote execution technologies.
With the evolution of a paperless era, modern legislators are expanding their respective electronic frameworks to encourage the use of electronic means while strengthening the integrity of electronic transactions. Regulators are beginning to rethink the applicability and scope of remote identification and signature verification technologies and artificial intelligence in the context of property agreements.
In many modern systems, a well-constructed and written property agreement and instrument lacks signification without the physical signature of the parties. Parties are becoming increasingly accustomed to the use of electronic signatures. The use of technology continues to impact ALL aspects of a property agreement, from drafting to execution.
Future trends relating to property agreements
As we progress into 2021, one can only marvel at the fast pace of change and reform within the property sector in Singapore. On 17 February 2021, the Chief Justice gave his speech at the Annual Law Review 2021, and announced reforms as to proprietary rights in line with the recommendations from the Law Reform Committee’s Report on ‘Land Law: Priority of Interest in Land’ in 2018. Governmental reforms include the setting up of a Property and Infrastructure Committee, and introducing pre-wedding (pre-marriage) agreements. Other possible areas of reform include increased compensation on compulsory sale of land, development charge and lease values, and exemptions for stamp duty and GST for compulsory acquisitions .
In other parts of the globe, the UK has launched a 6-week consultation to seek views as to reforms that would deliver their vision of the six themes outlined in its 2050 Roadmap for the Built Environment. It will be interesting to note how these proposed reforms differ or coincide with those put forth in Singapore. In the US, some major cities are reviewing their property laws in light of the COVID-19 pandemic in a bid to facilitate building safety and sustainability in the next 10 years.
As these trends develop, the interplay between case law developments and governmental measures will continue to impact the drafting of any property agreement.