Venkateswaran Krishnan (Mgr) 07 July 2013

Token advance at the time of agreement of sale

I am looking for some advise here. I am planning to purchase a house(a plot with a small building constructed) in Kerala. The value is approx 40L. Since I want the bank to finance as much of the sale amount as possible, I want to enter into an agreement of sale with the seller and want to apply for loan based on this. As I understand the token advance at the time of the agreement can be a small amount to the tune of 1 or 2L. But the seller initially was insisting that I pay 50% of the sale value at the time of the agreement. I told him that that is not possible since I will be looking for 80 to 90% loan as the bank may provide me. Despite that he is not willing to settle for a token advance of less than 5 lakhs. My questions are

1. Is he justifed in asking a significant sum like 5L. What is the amount normally considered as token advance/earnest money in such value transactions.

2. If after I pay 5L, he defaults either due to his personal reasons or because titles are not clear, how difficult is it to claim the amount back.

Thanks,

Venkat

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1 Replies

Puneet Yadav (Advocate) 07 July 2013

Dear Venkat,

Answer to Query No.1: Generally the token amount is 10 % of the total consideration amount which in your case shall be an amount of Rs.4 lakhs. However, there is no straight jacket formula for token amounts which can vary as per the discretion of the parties.

Answer to Query No.2 : In case the seller defaults you would have to file either a suit for recovery of money (in case you just want the money back) or a suit for specific performance of the agreement entered into between you and the seller (in case you want to purchase the property). No specific time line can be specificed in which a suit can be decided, however it generally takes 2-3 years for a judgment to be pronounced in a suit.

Thank You

Puneet Yadav

Advocate

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