Preliminary agreement for purchase and sale of real estate

Signing a preliminary agreement is a common practice when selling or buying real estate. Such an agreement is drawn up in accordance with the requirements of Article 19 of the Obligations and Contracts Act. 

The sale itself is effected with the drawing up of a title deed by a notary public. But in many cases, both parties are not ready for a direct sale, so they should contact a lawyer to draw up a preliminary sale contract. Thus, the relationship between the seller and the buyer is guaranteed, before the deal itself is confessed before a notary and the title deed is signed. 

What the preliminary agreement should contain

This agreement must be executed in writing and needs to contain the following data:

  • description of the property - this includes the address, the area, what are the boundaries of the neighboring properties, what is the purpose of the property, what property is in it;
  • the sale price of the property;
  • a deadline for the execution of the final contract in the form of a title deed;
  • how the payment of the price will be made;
  • what other costs will be incurred;
  • data about the seller and the buyer - these include their full names, personal identification numbers, the contact details of both parties;
  • additional provisions, if any;
  • the seller must declare that no third parties have a right to the property and there are no encumbrances imposed on the property.

The preliminary agreement may also stipulate other obligations of both parties tailored to the concrete case.  

Obligations of the seller to certify the absence of encumbrances on the property

The preliminary contract also includes the seller's obligation to obtain an Encumbrance Certificate for the property by the date of signing the sales contract (title deed) evidencing that the property is free from mortgages, established rights of use, and entered into the Property Register statements of claim.  

It is not necessary to appear before a notary public to execute the preliminary agreement

Unlike the title deed, for which a high notary fee is usually paid, there is no legal requirement for the preliminary agreement to be executed by the parties before a notary public. 

preliminary agreement for purchase and sale of real estate

What are the benefits of signing the preliminary agreement?

If you are a buyer and you need time to obtain bank credit or to otherwise secure funds for the purchase of the property, within the preliminary agreement you can stipulate a time for this and the obligation of the other party not to sell the property to another buyer in the meantime. Usually, the buyer pays an earnest amounting to 10% of the sale price when signing the preliminary agreement and if the property is sold to another the seller is obliged to return the earnest double.

If the property is still under construction, the preliminary agreement guarantees the deal to both the buyer and the seller - for the buyer that he will be able to purchase it and for the seller - that it will be sold after the construction is completed. 

Why it is important to consult an experienced lawyer

Consulting a good lawyer ensures that the preliminary agreement is drawn up correctly and does not contain terms disadvantageous to you before the sale itself. The lawyer will also advise you on what to do if the other party defaults. Please note, that the preliminary agreement templates the real estate broker often provides you with, may not correspond to the specifics of the deal or your interest.

If you are a seller and the buyer has paid part of the price of the property but has not paid the rest, or if you are a buyer and on the day and time of execution of the deal before the notary the seller does not appear, assuming you have fulfilled all your obligations you will be able to bring an action before the court for declaring the preliminary agreement as final and definitive.

Another possibility for the injured party is to demand the rescission of the preliminary agreement and compensation for the monetary losses suffered and the loss of income from the property.

This article has been prepared for the purposes of general information only and does not constitute legal advice with respect to any particular subject or situation. For specific legal advice you should contact an attorney-at-law. Stoeva, Tchompalov & Znepolski is not responsible for any legal action undertaken on the basis of the information contained herein.