Sale Agreements, Lease & Rental Agreements, MOUs (Memorandums of Understanding), Development Agreements, Joint Venture Agreements

Drafting is one of the prominent factors in the judiciary process, whether it’s the sale or purchase process, or starting any new business, leasing or renting any property or wanting to give your land for development. Making a good draft that is filled with all the necessary clauses and signed by each party helps to reduce future disputes between parties and also helps to avoid future legal consequences for the parties. Sales agreements are legal documents that decide terms and conditions between buyers and owners of the property. Sales agreements are mainly used in the real estate sector; this agreement transfers the ownership of property from one person to another person. Joint venture agreements are used for various corporate deals and businesses. This agreement is mainly used by businesses when any two or more companies want to start any business together; it is a  binding agreement on all the parties who are involved in the agreement. Development agreements are mainly signed between the owner and developer of the property. In the development agreement, the  owner of the land and the developer of the land decide how the  both parties share their profit in this development deal. 

Lease and rental agreements are signed between landlords and tenants of the property; this agreement mainly includes the clause related to the amount of rent, the deposit amount for the property, the period of rental agreements, etc. MOUs means Memorandums of Understanding. MOU agreements  is not legally binding documents on the parties; they just show the intention of the two parties to enter into a legal contract in the future. This agreement decides the common grounds of the parties, like their intentions and expectations of working together.

Sales agreement 

Sales agreement mainly addresses the clauses of the sale between the buyer and seller of the property, such as price, quantity, quality, timeline for delivery and terms related to the warranty of any goods or services or for any property. The main aim of making the sales agreement is reducing the risk of future consequences and protecting the rights of both parties. Sales agreements are use in various industries, such as a real estate sector, automotive, wholesale and retail, services sector, manufacturing sector, intellectual property sector, mergers and acquisitions, etc.,

What is the important clause of sales agreement

Some clause in the sales agreement is mandatory to add; this clause makes this agreement a lawful course of action and helps to avoid the disputes between the parties and helps to avoid future legal consequences.

• Name of both the parties along with age and residential address proof of both the parties.
• Date and place of implementation of the sales agreement.
• Willingness of the both the parties to enter into sales agreement
• Proof of documents from the seller of the property that the property is free from any encumbrance or government obligations. 
• Sale amount of the property and payment details 
• Documented proof from the seller that there are no outstanding dues pending on the properties
• Timeline of completion of transactions
• Clause related to which party bears the cost of the transfer of the property
• Condition for delivery possession of the property 
• In case any party default than penalty and forfeiture clauses. 

Types of sales agreement 

Goods sale agreement 

Goods sale agreement is signed between the seller and the buyers of the tangible goods. Clauses included in this agreement are about whether the sale of goods is wholesale or retail and specific terms for the quantity, quality and delivery schedules of the  goods.

Asset purchase agreement 

This agreement mainly highlights the terms related to the purchase of any assets of a company. When any buyers only purchase assets of the company, not an entire company, then they sign the asset purchase agreement. This agreement is commonly made in the process of mergers and acquisitions; clauses in this agreement are mainly related to the asset valuation and ownership transfer. 

Services sales agreement 

A service sales agreement governs the services provided by professionals like consulting services, maintenance services, and finance services. The clauses covered under this agreement are the scope of services and the payment rate and method for the services provided by professionals. 

Real estate sales agreement 

Real estate sales agreements mainly cover the clauses related to the rate of the property, possession date of the property, payment methods of the sale amount, etc. Real estate sales agreements protect the rights of the buyers and strengthen the duties of the builders or promoters. 

Benefits of sales agreement

Transparency

Each clause of the sales agreement is important for maintaining transparency between the parties of the sales agreement.  Clauses related to obligations, rights and liabilities of the parties; the price of any goods or services; the date of possession of the goods or property; and payment method-related clauses. It helps to create transparency between the parties of the agreements. 

Legal protection 

In the sales agreement, outline the legally binding framework that shows the responsibilities and duties of both the buyer and seller of the properties. It ensures that both parties agree upon each term in the sale regarding goods, services and property. 

Risk minimization 

Making proper sales agreements and adding all the related clause like  a payment terms, delivery schedules, warranties and dispute resolution methods, helps to minimize the risks related to the sales transactions.

Financial security 

Sales agreements create financial security for the buyers and sellers; buyers know that they will receive the goods, services and property as per the decided timeline in the sales agreement.  Sellers have assurances that they received the payment according to the decided timeline in the sales agreement. 

Prevent disputes 

Clear terms in the sales agreements related to the price, payment methods, or delivery timeline reduce the chance of misunderstandings and disputes among the parties and also help to avoid legal consequences between the parties. 

Lease and rental agreements 

Lease and rental agreements are used when any owner of the property gives their property to tenants either on lease or rent. The nature of both the agreements is similar, but these two agreements are not the same. Some terms in the agreements are different and make these two agreements vary from each other.

When any landowner wants to give their property on rent for a longer period and intends to transfer possession and conditional ownership of the property to the tenant, they make an agreement known as a lease agreement. When the landowner does not transfer the conditional ownership and only gives the possession of the property to the tenant for a short period, that is known as a rental agreement.

Important clause in the rental and lease agreement 

• In the lease and rental agreement mention the address, size, amenities and features of the property.
• Name and address proof of the owner and tenants of the properties. 
• Duration of the rental or lease agreement.
• Mention the rental amount and deposit amount that were decided by the parties and the payment method of the rent.
• Responsibilities and duties of the owner and tenants like maintenance responsibilities, utility payments, and rights related to inspections or repairs of the property. 
• Terms related to the renewal and termination of the rental or lease agreement, including the notice periods and penalties for early termination. 
• Clauses that state the lease or rental agreement conforms to related laws for rental and lease agreements. 

Types of lease and rental agreements 

Residential  rental agreement

This is the short-period agreement between the owner and tenants of the property; the  duration of that agreement is fixed for 11 months. Registration is not mandatory in these agreements; they are simple and shorter-period agreements, more convenient for the people. Once the duration of the 11 months is complete, either party can renew, termination or extend the agreement. 

Long term lease agreement 

Agreement between the owner and tenants of the property is that the duration is between one year and three years; this is known as a long-term lease agreement. Registration with the relevant government body is mandatory for completing legal compliance with this agreement. 

Commercial lease agreement

Commercial lease agreements are for renting commercial property like offices, factories and shops. Duration of this agreement is between three to five years. The reason behind this long duration of the commercial lease agreement is that setting up the business in any place takes lots of investment. Registration of this agreement is mandatory because it exceeds a period of eleven months. 

Benefits of rental and lease agreement 

Written agreements 

Lease and rental agreements are made in written form; this makes them more formal and legally binding to both parties. Hence, these agreements work as evidentiary documents for the future of the parties if any disputes arise between the parties. 

Rent stability 

Rental and lease agreements provide rent stability to the tenants of the property. Before the completion of the fixed period of the agreement, the owner can not increase the rent of the property.

Privacy 

Rental or lease agreements set the boundaries for owner entry into rental properties. It ensures that tenants receive their privacy, and it is the duty of the owner to maintain those boundaries.

Property maintenance 

In the rental or lease agreements, there is a clear explanation of the terms related to the maintenance of the property. It gives a clear idea to the tenants of which part of the property they need to repair and which part they need to contact the owner of the property for repair.

Development agreements 

When any landowner offers their land to a developer for the development, for securing their rights, they both sign the development agreement.  These development agreements secure the rights of the landowner and developer of the properties. This agreement mainly included the clause related to the distribution of the profit, distribution of the built-up area, timeline of the completion of the project of the property, and responsibilities of both parties in the development agreements. Any developer agreement is the crucial legal document for the landowner and developer of the property. In India, development agreements increase its importance due to booming in the real estate sector. 

Important clauses of development agreement 

• Name, address and identity proof of the landowners and developers of the property.
• Details related to the land that is offered for development, such as ownership details, property descriptions like the size of the land, and property ownership history. 
• Terms and conditions related to the offer and acceptance between the landowner and developer. 
• Rights and duties of the landowner and developer in the development project.
• Obligations and restrictions of the landowner and developer.
• Date of the completion of the development project.
• Payment method or profit-sharing clause between the landowner and developer of the property. 

Types of development agreement 

Revenue sharing development agreement 

In the revenue-sharing development agreement, landowners and developers decided to share revenue generated from the developed property. Either by selling or renting, whatever revenue was generated, they decided to share between them according to the decided ratio of each party. In this type of development agreement, both parties share the financial risks and revenue generation on the basis of the project’s sales performance. 

Property sharing development agreements 

In the property-sharing development agreement, the landowner and developer decided to share the developed property, meaning the developer agreed to give some part of the developed property to the landowners. In this type of agreements  the  landowner is responsible for the maintenance of their property part; the landowner either can use that for living by themselves or make that property sale or give on the lease.

Profit sharing developments agreements 

In the profit-sharing development agreements, the  landowner and developer decided to share the profit generated from the development property. In this agreement they decided on one ratio for sharing the profit with each other. 

Joint venture Agreement 

When any two or more parties or companies decide to do business together, then they sign the joint venture agreement. Mainly joint ventures are used by companies to enter into new markets or develop any new product or technology. In the joint venture, companies share their risks, costs, and profits  in the new business venture. Joint venture is a legal document that shows the commercial relationship between two or more companies for completing any special target or any business aim. Joint ventures are mostly formed for short periods, but they can also transfer to the partnerships of the companies. 

Important information under the joint venture agreement 

• Names of all the parties along with proof of identity of the parties
• Information related what the purpose of the creating the joint venture among the parties
• Contributions of each party in the joint venture must be clearly mentioned in the agreement.
• Profit and loss sharing ratio of each party in the  joint venture agreement.
• Information related to handling the management of the joint venture.
• Rules and regulations related to the dissolution of the joint venture. 
• Information related to when a joint venture can be terminated by the parties.
• Clauses related to dispute resolutions among the parties of the joint venture. 

Types of joint ventures 

Horizontal joint ventures

Horizontal joint ventures form between two or more companies in the same industry or market. This joint venture mostly happens for the purpose of research, development, and marketing. 

Vertical joint ventures 

Vertical joint ventures form between two or more companies that operate their businesses in different supply chain stages, like when one manufacturing company wants to start a joint venture with another distributor company. Purpose of this joint venture is to increase efficiency, decrease the cost of the product and increase the supply chain of the product in the market.

International joint ventures

International joint ventures are formed between two or more companies that are situated in different countries. Purpose of the international joint ventures is to enter into new markets, gain access to new resources or expertise, and do business in another country with local regulations. 

Memorandum of Understanding 

The MOU is the first step in the negotiation process between the companies. In this stage, parties must explain the responsibilities and requirements to each other, as well as solve any disputes or conflicts that arise, and state their expectations before taking the next step of the formal contract. In the MOU does not involve any financial exchange between the parties. Main benefits of making an MOU is avoiding future disputes among the parties once each party knows their goals, responsibilities, and expectations from the opposite party are clear. This helps to avoid the disputes between the parties, and an MOU takes less time for termination compared to the formal contract. An MOU is not a legally binding document for the parties. 

Important information included in the Memorandum of Understanding 

• Name, contact details and other related details of each party who is involved in the MOU agreement.
• Common business or other commercial goals of each party in the MOU agreement.
• Information related to the responsibilities and duties of each party in the future business plan.
• Accurate or tentative dates when the MOU agreement will be functional.
• Consent of all the parties for each clause in the MOU agreement, by giving their signatures. 
• Disputes resolution measures 

Types of Memorandum of understanding 

Bilateral Memorandum of Understanding 

When any two parties want to discuss their common goals and intentions with each other and want to enter into any future contract regarding this, they form the Memorandum of Understanding that is known as the Bilateral Memorandum of Understanding.

Multilateral Memorandum of Understanding 

When two or more parties come together to achieve any common business goals and for this want to enter into any future contract. Then, in the initial stage, they form the Memorandum of understanding that is known as the Multilateral Memorandum of Understanding.   

Advantages of the creating Memorandum Of Understanding 

Creating an MOU helped the parties reduce the risk of uncertainty in business because starting any business relationship between them is difficult and crucial for the parties, in this case, an MOU helps the parties to set clear goals, and each party knows their responsibilities and rights clearly before entering into a formal contract.

An MOU is not a legally binding agreement on the parties; this makes ending the agreement easy for the parties. When any party is unsure about making a formal contract with the other party, they first form the MOU and discuss their business goals or achievements they want to achieve with this venture. If  they do not agree with each other’s terms, they can terminate this MOU agreement. An MOU agreement is not a legal document so it’s easy to terminate this in comparison to the formal contract.

FAQs – Understanding Sales, Lease, Development, Joint Venture & MOU Agreements