Which are the Most Important Clauses in a Purchase Agreement?

Thoroughly checking the clauses in the purchase agreement is important to ensure that the agreement is right and lawful. 

Rayna got a promotion. Along with it came a transfer to a new city away from home. In a few months, after careful deliberation, she decided to invest in a property very close to her work place. The apartment was spacious, the project had good amenities and the price was perfect in her budget. She enthusiastically booked the apartment of her choice and signed the purchase agreement, albeit without reading between the lines. Unfortunately, her joy was short lived. She got a call from the builder, saying that he will not be able to go ahead with the deal owing to some personal reasons. Rayna ran from pillar to post to get her money back, but the builder kept avoiding her. Finally, after months of running around, he returned the amount paid, but got away without a penalty.

Just like Rayna’s, there are several stories of vexed homebuyers across the real estate industry. In all scenarios, it is extremely essential to understand what a sale or purchase agreement is, what it includes, and what the critical clauses are. As a homebuyer, thoroughly understanding this legally binding document can help you safeguard yourself, your money and your peace of mind.


A Purchase or Sale Agreement is an agreement that is legally binding and signed between two parties; the seller who wants to sell a piece of property and the buyer who wants to buy the property. The agreement states the terms and conditions of the sale, agreed upon by both the parties. It ensures that the parties involved abide to their commitment in regards to the sale.


A Purchase Agreement includes the contents listed below. It is important to read the agreement carefully to see that they all have been documented and contain the terms and conditions discussed, in detail. In case of any concerns, do speak to the seller before signing the document.

  • Property description in detail
  • Proposal to purchase and an agreement to sell the property in future
  • Disclaimer stating that the property is free from legal encumbrances
  • The value of the property along with the payment details
  • Method of the delivery of property
  • Execution of the sale deed and registration of the property, if the titles are in place
  • Refund of payment in case of improper titles
  • Promise of delivery of the original documents, post final payment
  • Course of action in the situation of non-completion of sale on the seller’s part
  • Loss of advance payment in the situation that the buyer fails to complete the transaction
  • Transfer of Tax related documents


The Right to Abort the Deal

As a homebuyer, this clause is very important as it gives you the right to abort the deal under certain circumstances, without being punished monetarily. Some situations are:

  • When the documents shared by the seller are not legally valid.
  • A legal defect is noticed in the property before the signing of the sale deed.
  • The loan you are seeking has been rejected by the bank due to some legal/statutory issue in property/property documents.
  • The seller is unable to provide the original documents at the time of execution of the sale deed.
Penalty Clause

A Purchase Agreement usually has a clause that states that if a buyer changes his/her mind about the deal, the token money will be forfeited by the seller. In order to protect your interests, it is important to mention another point which clearly says that in the scenario that the seller does not go ahead with the deal, he/she will return the token amount paid by the buyer along with an equivalent amount as penalty. Including this clause in the purchase agreement will ensure that the builder does not get greedy and sell the property to someone who offers a higher price for it.

Indemnity Clause

This clause is drafted to protect the homebuyer as there may be different circumstances that may arise, for e.g., the property is transferred under coercion/influence or force or the legal heirs of the seller state a claim on the property. The indemnity clause should clearly mention that the homebuyer is indemnified if there is any legal dispute or defect in the property and that the seller will compensate the buyer for any loss incurred at the prevailing market rate.

Outstanding Dues

This clause should clearly state that the seller will clear all outstanding dues on the property which includes power and water charges, property tax, RWA charges etc., and will not demand money against these costs, from the buyer, during the execution of the deed.

Force Majeure

According to this clause, in the event of a natural calamity owing to an earthquake, tsunami or flood, both the seller and buyer cannot compel each other to complete the transaction.

Since the Purchase Agreement is a very important document, it is recommended to enrol the services of a good lawyer to draft and ratify the clauses, and of course read the contents carefully before signing on the dotted lines.