Legal Opinion: Option to buy land agreement in Indian law

By Yasser Latif Hamdani

This is a legal opinion I wrote. Be warned that an Indian lawyer did not agree with the contents of this opinion. Nonetheless I share it for what it is worth.

The Legal status of an option to buy agreement:

An option to buy land agreement in India will be covered under Section 54 of the Transfer of Property Act, 1882.  The proviso of Section 54 of the Transfer of Property Act, 1882, states:

“Contract of Sale: A contract for the sale of immovable property is a contract that a sale of such property shall take place on the terms settled between the parties.

It does not, of itself create any interest in or charge on such property”

Therefore it is important to clarify that an option to buy land agreement is in the nature of an agreement to sell or a contract of sale. No interest or right is created by such an agreement in view of the aforesaid. However limited rights under Section 53-A of the aforesaid which pertain to part performance. Section 53-A can come into play only after a certain condition has been fulfilled and that would lend credence to legal rights under this section.

 

VAT chargeable:

 In a landmark judgment Suraj Lamp & Industries Pvt. Ltd. vs. State of Haryana, which was decided in 2011, the Supreme Court of India has laid down – in clear terms- the status of an agreement to sell is not equal to conveyance.

In this regard it is important to state the legal position clearly: without a registered sale deed, no government record or land record can be mutated – altered/changed- in the Union of India.

Registration:

An agreement to sell therefore is not conveyance and is not compulsorily registrable under Section 17 of the Registration Act, 1908 though registering it is a good idea since a registered document will create part performance rights. Section 18 of the aforesaid provides for the optional registration of all documents that are not compulsorily registrable under Section 17 aforesaid.

Stamp Duty payable:

For every such agreement, ₹ 100 stamp duty should suffice.