On the Preliminary Purchase Agreement

“I want to buy a property; what should I pay attention to when signing the preliminary contract?” asks our reader.

Once we’ve found the right property, before committing ourselves to anything, we should check the documents related to the house/apartment/land: a recent land registry extract, cadastral documentation, energy certificate, building permit, etc. The land registry extract reflects the legal status, the identity of the owner, any mortgages, or alienation restrictions that may encumber the property. Additionally, to avoid unpleasant surprises, we can already ensure that taxes and service fees (water, gas, electricity, etc.) are up-to-date.

If there is any temporary obstacle to the sale (such as probate proceedings, dissolution of co-ownership, loan approval, etc.), it is advisable to conclude a preliminary contract in which the parties record the essential elements of the sale (price, payment deadlines, warranty conditions) and commit to signing the notarial purchase contract that transfers the ownership rights.

Formally, the preliminary purchase agreement for the property can be either a private or a notarial document; neither is sufficient to transfer ownership, only to establish the obligation to contract.

The amount of the down payment/deposit to be paid when signing the preliminary contract depends on the parties’ agreement. It serves as a guarantee for both parties, under a clause stating that the buyer will forfeit the down payment if they change their mind, and the seller will refund twice the deposit if they withdraw from the contract.

A penalty interest for delay and pre-determined compensation in case of breach of contract act as provisions to encourage completion.

A notarial document has the advantage of being an enforceable instrument, so if the preliminary contract is terminated, there is no need to go to court; the claim can be enforced by an executor without a lawsuit.

It is useful to stipulate that either party may legally (without a lawsuit) terminate the contract if the other party fails to meet its obligations, thus avoiding the potential loss of time, energy, and money involved in a lawsuit.

The law also allows the preliminary contract to be recorded in the land registry, provided the seller is the registered owner and the preliminary contract specifies a deadline for signing the notarial purchase contract. This entry can be made at any time within the specified deadline and, thereafter, within a maximum of six months. This way, anyone can become aware of the existence of the preliminary contract, and any new buyer would be considered in bad faith if they tried to conclude another preliminary contract for the property. In the case of properties under construction, the entry may involve minor inconveniences, as long as the part of the property to be purchased does not have its own land registry; the buyer must be present for each legal transaction (partition, sale, etc.).

Under Section 2386 of the Civil Code, the buyer has a statutory lien on the down payment if the seller fails to fulfill the obligation to contract.

If one party unreasonably refuses to sign the contract, it is possible to enforce the preliminary contract in court. Provisions on this were the subject of a previous article.