• Is MoU essential in a real estate deal?

A purchaser, say XYZ LLP has agreed to buy our (family owned) residential plot. They have given us an interest letter (on their letterhead) stating that they will complete the transaction within 45 days from Public notice. We have replied to their interest letter accepting their offer price and timeline stated (on plain paper). Now, the purchaser is insisting on signing an MoU before publishing the Public notice. The purchaser has provided the MoU draft wherein the purchaser is/are one of the director(s) of the said LLP and another individual i.e. they are buying the plot in the name of two individuals (no mention of XYZ LLP in draft). Also, the draft contain terms and conditions which are pro-purchaser without mentioning any timeline and/or payment schedule. Though, the purchaser has agreed for us 'sellers' to mention terms and conditions which we want or suit us to make it balanced. Purchaser has also agreed to give us a cheque as earnest money. We have also agreed that full payment will be made prior to execution of conveyance deed. Hence, We want to know:
1. Which other terms & conditions we can mention apart from timeline and payment schedule to safeguard us 'sellers' from any claim, litigation from the purchaser in future?
2. Is an MoU legally binding after signing it? e.g. if we don't encash the cheque (earnest money) would the MoU be legally binding. So, If we want to cancel the deal we can just return the cheque as is?
3. The purchaser has also asked to get MoU notarized upon signing. Would that have any adverse implications for us (the sellers)?
4. We are insisting on issuing Public Notice and Purchaser is insisting on MoU, how can we resolve this issue?
5. Is it essential to sign an MoU in such a scenario?
Kindly advise.
Asked 8 months ago in Property Law
Religion: Hindu

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12 Answers

1) time should be essence of contract .in case full payment not made within stipulated period agreement stands cancelled and earnest money stands forfeited 

 

2) terms of MOU signed by parties is binding .you have accepted cheque even if you don’t encash it would be binding upon you 

 

3) no harm in getting agreement notarised 

 

4) you should enter into agreement for sale or MOU 

Ajay Sethi
Advocate, Mumbai
89849 Answers
6516 Consultations

5.0 on 5.0

  1. A MOU is like an agreement for sale is binding on both the parties.
  2. A notary is only addition guarantee that agreement/MOU is executed by parties signing it.
  3. A public notice is only to safeguard the interest of purchaser, it he ok without public notice seller should not any problem.
  4. MOU is nothing but an agreement to sell the property. it is in the interest of seller and purchaser to execute a MOU.

Ravi Shinde
Advocate, Hyderabad
3525 Answers
42 Consultations

5.0 on 5.0

Dear Client,

As per Indian law, MoU is only enforceable in a court of law when it fulfills the provisions of the Indian Contract Act, 1872. To make it a valid agreement, the parties in an MoU should have a legally binding relationship to enter into an agreement. seller and buyer can enter into the registered sale agreement. MOU is not a legal document. you can sign it unless it creates any problems. mention all your conditions in it before entering. 

Anik Miu
Advocate, Bangalore
5846 Answers
59 Consultations

4.9 on 5.0

Generally speaking the MoU is not legally binding unless it forms the agreement a valid contract between/among the parties fulfilling the conditions as laid down under section 10 of the Indian Contract Act.

The draft MoU has to be examined before commenting or adding any clauses that protects your interest.

Notarizing a document ensure it's genuineness and also to prevent frauds. The other party seems to be also taking precautions in effecting property transaction.

The purchaser would definitely asked you to sign MoU before public notice and there is no harm in signing MoU, if you are serious for such transaction of property. The only caution is to thoroughly go through MoU by consulting some advocate.

 

 

Rajinder Kumar
Advocate, New Delhi
88 Answers
6 Consultations

4.9 on 5.0

1. Te time line or the MOU cannot be an agreement between the buyer and the seller, you may draft a sale agreement making the general as well as any specific condition that would govern the agreement and get it registered so that it can be enforced in court of law in case of any litigation in this regard in future.

2. An unregistered MOU is not enforceable in law, you can intimate cancellation of MOU by issuing a legal notice for the reasons that you may rely upon and can send back the cheque along with the legal notice.

3. An unregistered instrument is not enforceable in law.

4. What is the necessity of a public notice or a MOU when there is a normal route called sale agreement, which covers all the conditions.

5. You can decide based on the situations prevailing at your end.

 

T Kalaiselvan
Advocate, Vellore
80015 Answers
1674 Consultations

5.0 on 5.0

Indemnity bond can  be mentioned. No need to sign mou agreement to sale and sale deed is enough

Prashant Nayak
Advocate, Mumbai
28570 Answers
101 Consultations

4.4 on 5.0

1) LLP is not the purchaser as property is being purchased by 2 individuals in their personal capacity 

 

2) you cannot hold  LLP responsible in event of default of payment 

Ajay Sethi
Advocate, Mumbai
89849 Answers
6516 Consultations

5.0 on 5.0

Dear Client,

since interest letter is given on XYZ LLP letterhead, ask them to mention XYZLLP in the MoU. and try to know why it is not mentioned in the MoU. sign the MoU, when you have no doubts in it.

Anik Miu
Advocate, Bangalore
5846 Answers
59 Consultations

4.9 on 5.0

You have been offered some price by one of the Director of the company (intending purchaser) on his company's letter head and you accepted the same and also the time line of completion of payment plan i.e. within 45 days from the date of publication of public notice.

Now, according to you, the draft MoU is containing conditions different then that of the offer made by the purchaser to the seller. You may now draft MoU as per the offer given to you through interest letter and any changes, if required pertaining to the conditions/clauses of MoU, the same has to be mutually agreed upon between/among the parties. 

 

Rajinder Kumar
Advocate, New Delhi
88 Answers
6 Consultations

4.9 on 5.0

You can ask the buyer to specify that if they would like to buy this property on their individual names or in the name of the XYZ company, you can prepare the sale deed accordingly and can ignore the MOU  othrwise, if you treat this MOU as a sale agreement then you can ask them to altetr or modify the MOU accordinlgy. 

T Kalaiselvan
Advocate, Vellore
80015 Answers
1674 Consultations

5.0 on 5.0

1. Full payment to be made prior to or on signing of sale deed 

2. Mou once signed is legally binding 

3. Notary is ok 

4. Even if there is no mou, there would be verbal agreement or agreement by exchange of correspondence or letters which is also legally binding and can be enforced by either party against the other 

5. Provided the terms are balanced for both parties, then sign mou. There should be an exit /termination clause in case of default or breach by either party 

Follow up 

The 2 could be the authorized representatives of the LLP. Check the resolution 

Yusuf Rampurawala
Advocate, Mumbai. E: adv.yusuf.rampurawala@gmail.com
7074 Answers
79 Consultations

5.0 on 5.0

It  can lead to issues of title in such case as stated above

Prashant Nayak
Advocate, Mumbai
28570 Answers
101 Consultations

4.4 on 5.0

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