It is essential to understand that no law prohibits the cancellation of a sale agreement. From issues such as developer debts to problems with loan sanctions, buyers and sellers may face unforeseen circumstances that compel them to back out. However, the cancellation must be based on legal and valid grounds. But what if either party abandons the deal without proper reason? This article explores the valid grounds for dishonouring a sale agreement and outlines the specific rights that both buyers and sellers hold in such situations.

What is a dishonoured sale agreement?

A property sale agreement is a legal contract that binds the buyer and the seller in an agreement. This agreement states the terms, conditions, payment guidelines, and penalties involved when a sale transaction falls through. For instance, if either party involved in the transaction suddenly becomes unresponsive, the other party can take legal aid to contest this decision and preserve his/her best interest. Thus, dishonouring a sale agreement can be defined as a situation when a buyer or seller breaks an agreement or a promise without notifying the other party.

What are the grounds on which a sale agreement can be dishonoured?

Here are some instances when either the buyer or seller can cancel or dishonour a sale agreement

  • Payment problems

One of the primary reasons why a sale agreement goes bad is the failure to resolve issues regarding compensation. The buyer may fail to secure a loan sufficient to fund the new purchase. Similarly, a seller may hike the final sale price at the last moment, leading to a sudden transaction halt.

  • Handover delays

The buyer can dishonour a sale agreement if the seller delays possession or fails to complete the project by the agreed date. Under the Real Estate Regulatory Act or RERA Act 2016, buyers are protected in such cases, and the developer may have to compensate by paying additional interest.

  • Misrepresentation of specific facts

Although rare, the misrepresentation of a person's true intention can hamper the sale agreement significantly. For instance, a buyer can be duped in terms of the construction quality of the property. A seller can be led to believe that the buyer will pay the agreed-upon price within the specific timeline as pre-decided in the property payment plan.

  • Breach of agreement terms

Breaching key terms stated in the sale agreement may force the other party to dishonour the contract. For instance, a seller may alter possession timelines, or the buyer may modify the payment terms without each other's consent.

  • Documentation dilemmas

A developer or a property without a proper encumbrance certificate or occupancy and completion certificate can be grounds for a buyer backing out of the deal. The same applies to buyers with faulty or forged documentation that may prompt a seller to reconsider the deal.

  • Force Majeure

Unforeseen circumstances like force majeure events (natural disasters, governmental actions) could prevent either party from fulfilling the terms of the sale agreement, leading to cancellation.

  • Non-compliance with local laws

In some cases, either party may fail to comply with the local or State laws. These may include issues with regulatory approvals or zoning laws, or the buyer refuses to pay additional charges like Transfer charges, property taxes, etc.

Each of these grounds must be handled according to the sale agreement terms and relevant legal frameworks.

Indian law offers several legal protections and remedies for buyers in such situations. Some of these are-

  • Legal Notices

The first step to address the issue of a sale agreement breach is to issue a legal notice to the seller/ developer. This notice formally communicates the buyer’s concerns regarding the violation and demands the fulfilment of obligations and penalties within a stipulated timeframe. The legal notice is just a preliminary step that establishes the buyer’s intent to enforce the agreement.

  • Specific Performance

Under the Specific Relief Act 1963, the buyer can file a civil suit for specific performance, asking the court to enforce the fulfilment of contractual obligations onto the seller. However, it is important to note that the right to Specific Performance is not limited to buyers. Sellers wronged in the course of the sale agreement can also file for this legal remedy.

  • Grounds for issuance of a refund with interest

If the buyer no longer wishes to proceed with the property transaction due to the seller’s breach of the sale agreement, they are entitled to claim a refund of any amount already paid. In addition, the buyer can also claim interest on the amount paid, especially if the delay or dishonour caused any financial hardship.

For buyers seeking more case-specific legal assistance, Section 18 of the RERA Act 2016 further explains the rights of a buyer in case a sale agreement is dishonoured. 

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Much like the buyer, the seller too possesses specific legal rights to preserve his/her best interest. Some of these rights are-

  • Right to forfeit the token amount

The concept of paying an initial earnest money deposit (or token amount) to secure the deal is quite prevalent in India. If the buyer dishonours the agreement, the seller can forfeit this advance booking amount as compensation for the agreement breach.

  • Sale agreement cancellation

A buyer has certain obligations, such as making part payments or completing documentation within the stipulated time. If the buyer fails to do so, the seller has the right to cancel the sale agreement or resell the property to other potential buyers. However, this must be done after exploring all legal avenues for resolution.

  • Damage compensation

Apart from withholding the token amount, the seller can also claim additional compensation for damages caused. For instance, a fall in property value, loss of other potential buyers, or legal costs involved in defending the agreement can be cited as grounds for damage compensation.

Additionally, much like the buyer, the seller can also claim interest for the damage caused by payment delays or exercise his/her right to Specific Performance if the situation calls for it.  

To conclude, a crucial document like a sale agreement contains specific legal obligations. Failure to maintain the agreed-upon terms can cause long-drawn legal battles that can disrupt ongoing plans for both the buyer and the seller. Hence, legal experts mostly recommend opting for out-of-court settlements to resolve a dishonoured sale agreement amicably. 

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