The conclusion of a preliminary real estate sale contract is a key stage in the process of purchasing immovable property. It establishes the fundamental rights and obligations of the parties in the process of transferring ownership of a specific immovable property and constitutes a legally binding agreement. Ambiguities or omissions in the signed preliminary real estate sale contract can lead to serious legal and financial risks, such as clauses for high penalties upon withdrawal from the contract or a lack of clear deadlines for the fulfillment of commitments undertaken by the parties. The legal framework is set out in the Law on Obligations and Contracts.
The most common risks when drafting a preliminary real estate sale contract, as well as what to look out for when selling a property, will be examined below.
Risks when concluding a preliminary real estate sale contract
First Risk
The first risk when concluding a preliminary real estate sale contract is the insufficiently clear description of the property, which is the subject of the preliminary real estate sale contract.
Risk: The lack of a detailed description of the property (address, area, boundaries, neighbors, purpose, identifier if any, and similar details) can lead to a dispute over which specific property is the subject of the contract.
Example: If, instead of a precise address or cadastral map identifier, only “apartment in a residential building” is specified, this can be used for abuse or to refuse to conclude the deal.
Recommendation: Include a detailed description of the property, including its unique identifier from the cadastral map, which description should be identical to that in the notary deed or the property sketch.
Second Risk
The second risk when concluding a preliminary real estate sale contract is the unspecified sale price and payment terms.
Risk: Lack of clarity regarding the final price or payment method can lead to disputes or claims for additional amounts, earlier payment than verbally agreed, etc.
Example: The preliminary contract states a price without VAT, but the seller subsequently demands additional payment because it was not specified whether the amount included taxes.
Recommendation: Specify the exact amount, currency, payment method and deadlines, the amount of each installment, and when it is due.
Third Risk
The third risk when concluding a preliminary real estate sale contract is the lack of performance deadlines in the contract.
Risk: Unspecified or vaguely formulated deadlines for obtaining certain documents, for notarizing the transaction, and others can lead to delays or the inability to file claims for non-performance.
Example: The contract lacks a final deadline for notarizing the transaction in the form of a notary deed, which allows the seller to postpone the sale for months. The buyer might not be able to obtain a bank loan because a certificate of encumbrances has not been issued on time.
Recommendation: Include clear deadlines in the preliminary contract, which should specify at least:
– When the payment of a deposit/advance and other payments should be made.
– Preparation and notarization of the notary deed for the transfer of ownership;
– Handover of possession of the property.
The fourth risk when concluding a preliminary real estate sale contract is allowing omissions in the clauses regarding liability for non-performance
Risk: If there are no clearly formulated clauses in the contract regarding the consequences of non-performance by either party of the obligations undertaken in the contract, it can lead to difficult dispute resolution or inability to obtain compensation.
Example: The absence of a penalty clause for delays by the seller in providing specific documents can leave the buyer without compensation for lost profits.
Recommendation: Include clear and specific penalty clauses for delays in the performance of certain obligations by the parties to the contract, withdrawal from the transaction, or other forms of non-performance of contractual obligations. This will clarify the contractual obligations and allow for the prior determination of the scope of liability that each party will bear in case of non-performance of their contractual obligations.
The fifth risk when concluding a preliminary real estate sale contract is the lack of information about encumbrances and third-party rights over the property.
Risk: If the seller does not declare that the property is free of encumbrances, the buyer may acquire a property with mortgages, injunctions, or third-party rights, or be obliged to acquire such a property.
Example: The contract does not state that the property is mortgaged, which only becomes clear during the encumbrance check, and at the same time, the seller has not committed to transfer the property free of real encumbrances. The buyer discovers that there is a registered injunction on the property for an old debt of the seller, which was not declared in the contract.
Recommendation: Include a clause in the contract stating that the seller declares the property is free of encumbrances and third-party rights, or if not, that at the time of concluding the transaction, the property should not be burdened by such encumbrances.
The sixth risk when concluding a preliminary real estate sale contract is the unspecified distribution of transaction costs.
Risk: The absence of clauses specifying who will cover notary fees, taxes, and other charges can lead to disputes.
Example: If the costs for the notary transfer are not specified, one party may refuse to pay them. In another case, the buyer might have to pay a fee for the deletion of a mortgage because it was not specified in the contract whose obligation this is.
Recommendation: Clearly define which transaction costs each party covers. In practice, the costs for the transfer of the property before a notary are usually borne by the buyer, but the costs incurred for securing the necessary documents related to the transaction are the responsibility of the seller.
The seventh risk when concluding a preliminary real estate sale contract is the lack of a clause for liability for hidden defects/deficiencies of the property
Risk: If there is a lack of clarity in the preliminary contract on how to proceed upon discovery of hidden defects/deficiencies, the buyer may incur significant losses.
Example: After purchasing the property, the buyer discovers problems with cracks in the property’s foundations (not visible during inspection, but can lead to serious structural issues); faulty waterproofing (leading to water penetration into the basement or walls, causing dampness and mold, which was not mentioned in the contract); roof problems (a hidden leak that only becomes visible after heavy rains) and similar issues, and is forced to incur significant expenses to rectify them.
Recommendation: Add a clause that obliges the seller to be liable for hidden deficiencies/defects.
The eighth risk when concluding a preliminary real estate sale contract is omissions in contract clauses that regulate deposits and/or advance payments.
Risk: If it is unclear whether a paid amount is a deposit or an advance payment, disputes may arise in case of non-performance of the contract.
Example: The buyer pays a deposit, which the seller calls an advance, but upon withdrawal from the deal due to this discrepancy, the seller refuses to return double the amount.
Recommendation: Clarify whether the amount paid is a deposit (which is refunded to the buyer in double the amount if the seller withdraws) or an advance payment (which is returned in full).
This error can lead to the loss of a deposit or to legal disputes that strain relations between the parties or completely hinder the execution of the transaction.
CONCLUSION
The purchase of real estate is a serious process that requires attention to every detail. Overlooking important checks can lead to financial losses and legal problems. Do not risk your financial stability and peace of mind – consult an experienced lawyer to protect your interests. The preliminary contract is the foundation of every successful property transaction. Ensure clear clauses and protection to avoid legal and financial problems. If you need assistance in this regard, you can contact us.
Some risks due to ambiguities in the preliminary contract are:
- Delay of the transaction or complete inability to finalize it;
- Legal disputes between the parties and loss of trust;
- Monetary losses for the buyer or additional unforeseen expenses;
- Risk of a transaction involving a property with encumbrances or other legal issues.
Sole Law Firm “Silvia Petkova” has competent and experienced real estate lawyers.
Legal consultations at the office or by phone are provided by appointment.
If you need a preliminary real estate sale contract drafted, you can contact us at the following:
tel. 0885 47 77 57
working hours: Monday to Friday from 10:00 AM to 6:00 PM
email: office@petkovalegal.com
address: Sofia, “Tri ushi” St. No. 2, floor 3
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