You can pay Rs 1 lakh as token amount
2) MOU is binding upon parties
3) it is better option to execute sale deed directly
4) get MOU drafted by lawyer
Is MOU legally binding?
I have paid a booking token of 1L to the seller for the purchase of a 1.8CR flat. The seller is flying abroad for a few days and we decided to do a MOU where I will pay part of downpayment, record the same in MOU and pay the rest during property registration next month. 1. How much should I ideally pay during this MOU? The least amount of payment. I was thinking 4-5L. Is this okay? 2. The MOU states forfeit of downpayment plus additional penalty payment in case seller backs out, so how much legally binding is this? 3. Instead of MOU, can I ask to get property registered directly next month where I pay full downpayment? Your clarifications will be much appreciated!
Asked 4 hours ago in Property Law
Religion: Hindu
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4 Answers
Memorandum of Understanding (MOU) is generally not legally binding for a property transfer. It is legally viewed as a preliminary "agreement to agree.
If the seller backs out or defaults under a basic MOU, getting a court to force the sale (Specific Performance) or recover penalties is difficult.
Instead, you may better enter into a sale agreement with the proposed terms.
Since the seller is leaving the country and you do not have a registered final Sale Deed yet, keep your payment as low as possible.
If the document is just titled "MOU" and isn't properly stamped (with the requisite stamp duty per your state's laws) or registered, the penalty and forfeit clauses may not be legally enforceable.
To make forfeiture and penalty clauses legally enforceable, ensure the document is structured as an Agreement to Sell, executed on dynamic e-stamp paper, and signed by two witnesses.
Instead of an interim MOU, you can wait for the seller to return next month. On that day, you can hand over the full downpayment simultaneously as you both sit down at the Sub-Registrar’s office to execute and register the final Sale Deed. This eliminates all interim risk where your money is out in the wild without the property title being in your name.
Tell the seller that you will park the ₹1 Lakh token as a good faith gesture while they are abroad. Insist that upon their return, you will skip the intermediate paperwork and go straight to final property registration against the full down payment and bank loan/remaining funds.
1. Instead of entering into MOU, let you enter into Sale Agreement with the seller. Normally, at the time of entering into sale agreement, about 10% of the sale consideration may be paid. However, if the seller is ready to accept 4-5 L, it can be considered.
2. In the sale agreement, you can mention forfeiture clause, breach of contract and specific performance of the contract. In case the Seller or the Buyer backs out, then the penalty clause would come into the picture, which would be legally binding on both the parties.
3. If the seller is agreeable for direct registration, then it can be done, provided the seller does not back out.
It’s binding but if both parties are willing and consenting then it can be registered
