What is an Agreement for Transfer of Ownership?
An Agreement for Transfer of Ownership, popularly known as a Sale Deed or simply a Sale Agreement, is a written document signed by the seller and the buyer of a property, as a transfer of ownership rights from the seller to the buyer to a specific property. The purpose of the same is that once the sale deed is signed by the parties, it helps in preserving the settlement by evidencing its existence in future , whenever needed apart from entring into a legal contract. The permissions pertaining to the right of transferring the ownership of the property may be needed to be obtained from the competent authorities prior to the execution of the sale deed and should therefore be acquired beforehand. There is no need for prior permission in case of transferring the right of ownership of agricultural land in Maharashtra which is attained after the payment of a nominal price either in lumpsum or installment. The agreement can be written in Arabic or Roman script and if the date of execution is not mentioned then, the date of the first binding agreement would be considered as the date of execution of the sale deed.
What to Include in Agreements for Transfer of Ownership
Like most commercial agreements, the agreement for a transfer of ownership requires a number of essential components, such as:
The parties – In some circumstances, the property subject to the agreement can include a single asset with one party being the "Seller" and the other party being the "Buyer." In most circumstances, however, the transfer agreement is for the conveyance of title to real property and the parties to the agreement are two separately identified parties – the Grantor and the Grantee. While the terms Seller and Buyer are typically used in conveyances of personal property, they can be used for real property as well.
The property – The property can be defined in a number of ways including by an address, an exhibit or schedule. In the case of real property, the property is typically identified by a legal description.
The consideration – Consideration means something paid or given in exchange for the property. Consideration will often be identified as money ($XX), plus assumption of specified liability/ies, plus other factors, such as an X year period of product supply from a seller or the assumption of an existing contract with a seller.
Warranties or Representations – Warranties (or representations) identify rights and obligations or constraints on the parties in relation to the property. Warranties typically set out the recourse a buyer has against a seller if the property is not as presented. Representations typically set out that one or both of the parties are making a representation about a particular fact.
Different Types of Agreements for the Transfer of Ownership
Agreements performed to transfer ownership of an asset or business can take many forms, though certain types are more common than others. This section provides a brief overview of some of the most commonly-used agreements.
A quitclaim deed transfers whatever ownership interest is held by the grantor in a particular piece of property, whether that interest is partial or full, and whether or not it is associated with any encumbrances. It does not offer to provide warranties or guarantees to the grantee beyond the actual interest held by the grantor. The grantor normally provides the grantee with a written statement regarding any mortgages or judgments associated with the property in question.
In a warranty deed, the grantor agrees to defend the grantee against claims to title of the property. This type of agreement is typically used in real estate transactions.
A bill of sale is a written agreement that formally records the sale of a property. It is typically used in the context of business assets, and conveys ownership from seller to buyer. It should include a description of the property being transferred, and the terms set forth in the original purchase agreement.
For example, if a seller entered into a purchase agreement to sell a used car for $10,000, the bill of sale would be completed with the car’s VIN and a statement explaining the seller’s obligations within the context of the original agreement. The $10,000 amount agreed to in the conditions of the sale would also appear on the bill of sale.
Legal Tips for Drafting Agreements for Transfer of Ownership
It is essential to navigate any legal considerations when engaging in a business transfer, as non-compliance with legal requirements could jeopardize the entire process. Depending on the size of your business, the industry you operate in or the specifics of any employees involved, potential legal considerations could be vast. These can include jurisdictional requirements, necessary third-party approvals or the need for any legal due diligence prior to the transaction. In general, there are two broad categories of legal considerations that must be addressed prior to the completion of a business transfer. Firstly, what jurisdiction governs the terms of the agreement; and secondly, are there any specific regulatory requirements that apply to your company or the buyer. It’s critical to ensure that you mandate the jurisdiction governing the terms of the agreement, to protect against unforeseeable circumstances later on. While it is often preferable to align jurisdiction to that of the buyer when transferring ownership information, it’s equally as important to ensure the specific jurisdiction is familiar to you and your legal team. There are a small number of regulatory considerations to keep in mind. For example, if the business transfer involves the sale of multi-jurisdictional real estate, you need to consider foreign investment regulation and tax considerations in each of the jurisdictions where real estate is located, which can be vary widely from one jurisdiction to the next. For situations where regulatory authority over a competitor exists to engage in the transaction, their approval would need to be secured as well. In the context of M&A, this could be the case when there are national security concerns or any concerns involving Canadian Competition Law. It’s common for the buyer and seller to require a transitional period to allow the buyer time to ease into the new client engagement and improve site(s) performance in the event that multiple sites are involved. It’s also important to consider confidentiality and non-solicitation clauses to stipulate the level of access the seller has to business information post transfer. It’s important to identify and discuss any other requirements, as these could affect the approach taken or even the success of the transfer overall.
Steps for Completing an Agreement for the Transfer of Ownership
The first step is to negotiate the terms of the agreement with the other party. This may involve discussing what is being transferred, any warranties or representations being made, and what the purchase price will be. Sometimes, the agreement may also address how disputes will be handled, such as through mediation or arbitration. Once an agreement is reached in principle, it is important to put the document into writing. This can help avoid future disputes over what was agreed to. The agreement should include all relevant terms, and be signed and dated by all parties . If a real estate property is involved, it is recommended that the document be notarized by a notary public. Depending on the nature of the property being transferred, the next step may be to file the document with the proper local, state, or federal agency. For real estate, this could mean filing the agreement with the county clerk or recorder. After the agreement has been filed, the final step to execute a transfer of ownership agreement is to pay any necessary taxes or fees. This may vary depending on the nature of the property and the applicable local, state, and federal laws.
Common Errors and How to Prevent Them
A common mistake that people make when entering into an agreement for the transfer of equipment ownership is to sign the agreement and rely on the other party to draft the transfer document or bill of sale. The problems with this approach are many, and include: Another common problem, and one that I frequently see in my practice, is when clients come to me having issues with a transaction and I learn that the parties signed a "bill of sale" which contains several terms and conditions that could pose real legal problems. A "bill of sale" should be a simple document that describes the item being sold, identifies the seller, the buyer and the price for the item, but nothing more. Everything else belongs in an agreement for transfer of ownership.
Many agreements are entered into by parties who have very little, if any, prior experience with similar transactions and so party should always insist on having an attorney draft the document, or at a minimum, review the document prior to signing it.
Role of the Legal Professional in Agreements for the Transfer of Ownership
A key component of the process of transferring ownership is the execution of an agreement for the transfer. Although it is possible to create these agreements without the assistance of a legal professional, doing so is not recommended.
Given the multi-faceted nature of many transfers of business ownership, involving a legal professional in the execution of the transaction can be instrumental in ensuring that all legal aspects of the transfer are properly addressed and that the agreement is enforceable. The legal professional can either draft the agreement or simply act as a part of the formal execution process. Regardless of what role the legal professional plays in the execution of the agreement, their objective should always be to ensure that all parties have a thorough understanding of the purpose, structure and desired effect of the agreement prior to them being executed.
A poorly drafted or unexecuted agreement can cause serious problems later on in the process of transferring the ownership of a business. Having a legal professional assist in the execution of the agreement can help ensure that all legal aspects of the transfer are properly addressed.
Current Trends, Developments, and Changes in Agreements for the Transfer of Ownership
The landscape for transfer agreements continues to evolve as partners, company shareholders and even independent contractors seek to transfer ownership rights in a partner’s business and other business interests. As with other business areas, technology continues to impact ownership transfers. Larger firms with the resources to build sophisticated contractual templates are doing so to help reduce the time and cost associated with each new agreement and the administrative complexity of tracking the proper documents among hundreds of employees or collaborators. Yet, these larger firms still face the challenge of customizing an agreement every time one is needed.
Online legal consulting services are now offering tools that may streamline the process for small and medium-sized businesses. LegalZoom, Rocket Lawyer, UpCounsel, 1-800-Contract and several other online services have an extensive library of document templates that can be downloaded for $20-100, or customers may pay a monthly subscription to access all of the documents in the library. For companies that find themselves needing to establish an agreement on a regular basis, these services present a lower cost alternative with a streamlined process .
Several noteworthy developments include the following:
The Alliance for Business and Women (ABW) routinely offers education sessions to help women entrepreneurs to enhance their business operations. ABW recently highlighted a case in which the owners of a company with multiple locations implemented an ownership agreement without engaging a business law attorney. Months later, an attorney found that "the contract wording was not sound" and told the business owners that all of their agreements would have to be rewritten by a business law expert or it would negate ownership transactions that had been completed. The entire ownership structure would then need to be re-organized—and that was the best-case scenario. To avoid such negative outcomes, entrepreneurs should not attempt to draft transfer agreements without the guidance of a business law professional. Those who download agreement templates from an online service should still consult an attorney to ensure that their agreements are customized, include all the necessary transfer parameters, and avoid or minimize unintended consequences.