How are conditional sale clauses structured?

Conditional sale clauses are provisions included in a sale agreement that make the transfer of property subject to the fulfillment of specific conditions by either or both parties. These clauses are used to protect interests, manage risks, and control the timing of ownership transfer, especially in transactions involving approvals, phased payments, or documentation dependencies.

1. Placement in Agreement

• Conditional clauses are typically inserted in the:
  
  • Main body of the Agreement to Sell or Sale Deed
    
  • As a dedicated section titled “Conditions Precedent”, “Subject to Fulfillment”, or “Contingent Conditions”
    
• They can also appear as schedules or annexures to maintain clarity.
  

2. Structure of a Conditional Clause

A well-drafted conditional clause includes:

• Condition Trigger: Clearly defines what needs to happen
  Example: “Subject to the seller obtaining non-agricultural (NA) permission from the competent authority…”
  
• Responsible Party: Specifies who is obligated to fulfill the condition
  Example: “The seller shall, at their own cost…”
  
• Time Frame: Sets a deadline or valid period for the condition
  Example: “…within 90 days from the date of execution of this agreement.”
  
• Effect of Non-Compliance: Describes what happens if the condition is not fulfilled
  Example: “Failure to comply shall entitle the buyer to cancel the agreement and claim refund of the advance paid.”
  
• Verification or Certification: Mentions how compliance will be confirmed
  Example: “The party shall furnish documentary evidence in support of such fulfillment.”
  

3. Common Types of Conditional Clauses

• Regulatory Approvals
  E.g., conversion of land use, clearance from development authority, environmental clearance
  
• Title Clarity or Document Submission
  E.g., mutation entry completion, submission of chain of title, revenue NOC
  
• Payment-Linked Conditions
  E.g., balance payment to be made only upon handing over physical possession
  
• Third-Party Consent or Clearances
  E.g., approval from society, government, or co-owners
  
• Buyer’s Conditions
  E.g., subject to due diligence, loan sanction, or board approval
  

4. Enforceability of Conditions

• Conditions must be specific, time-bound, and measurable to be legally enforceable.
  
• Ambiguous or broad conditions may lead to disputes and delayed enforcement.
  
• Clauses are often followed by dispute resolution or penalty provisions.
  

5. Conditional Transfer or Deferred Execution

• In some agreements, the execution of the sale deed is made conditional upon fulfillment of agreed clauses.
  
• Until conditions are met, the transaction remains incomplete, and possession or registration may be withheld.
  

6. Termination or Refund Linked Clauses

• Most conditional clauses also include:
  
  • Right to terminate upon breach
    
  • Refund of advance if the deal collapses due to unmet conditions
    
  • Retention clauses allowing the seller to deduct a portion of the payment under defined circumstances
    

7. Role of Escrow or Post-Dated Instruments

• To enforce conditional clauses, parties may:
  
  • Route payments through escrow accounts
    
  • Use post-dated cheques or conditional bank drafts
    
  • Include third-party oversight by legal counsel or banks