A certain preparation period is always necessary before acquiring a chosen property, even if the property is completed and the seller is ready to sell. Therefore, in practice, the notary deed for such a transaction is preceded by a preliminary contract.
Depending on the expected preparatory actions, the period between signing the preliminary contract and signing the final contract can be quite lengthy. When specific construction activities are agreed to be performed before the final transaction, the preliminary contract has a more complex legal character, and special attention shall be paid to its clauses.
* If you missed the article Tips for Buying a Home ‘Off-plan’, we recommend reading it.
The final contract transferring the agreed property must be concluded in the form of a notary deed. However, in some specific cases, the effect of the notary deed can be achieved through other means, which are discussed below.
Issues
The failure to conclude a final contract may be due to objective reasons (force majeure, etc.) or subjective reasons (fault of one of the parties, mutual agreement to amend or terminate the preliminary contract, etc.). Here are some of the main hypotheses:
Lack of transferable real estate
This hypothesis occurs when the property agreed upon in the preliminary contract no longer exists (it has been demolished) or was never built at all. Unfortunately, in this case, there is an absolute objective obstacle to concluding a final contract. Instead of the property, you can only receive an indemnity (monetary compensation), depending on the specific case.
Breach of contract
If you have stipulated in the preliminary contract that the final contract should be concluded on a specific date, but the seller refuses to do so without a valid reason that excludes their fault, this makes them a defaulting party. Inaccuracy may also manifest as a discrepancy between the property’s originally agreed characteristics and what is subsequently offered as the final version at the time of concluding the final contract.
Whatever the case may be, culpable inaccurate performance should be sanctioned, and if necessary, you may seek to enforce your rights in court.
Imposing (new) conditions for concluding the final contract
All essential parameters of the final contract should be agreed upon in the preliminary contract, such as: property characteristics (description), deadlines, price, timing, and the number of due instalments. Depending on the transaction, many other provisions may be present. Everything included in the preliminary contract is binding for the parties, and the agreements reached cannot be amended unilaterally.
Nevertheless, there are cases where the seller begins to impose conditions, stating that if you do not agree to their new requirements, they will not fulfil their obligations under the preliminary contract. For example, in our practice, we have seen cases where buyers are asked for price indexation, extensions of deadlines, or the replacement of the due property with another, etc. Usually, the seller pairs such claims with threats of not proceeding with the final deal. These threats are often calculated and typically made only verbally. Consequently, there is no clear evidence for this type of new “proposal”, leaving the buyer confused and feeling trapped.
Sellers who resort to such tactics may point out many reasons for their claims, appearing seemingly convincing. That said, reasons such as inflation or supply chain disruptions due to the Covid pandemic are often used. The blackmail can even reach a point where, through distorted arguments, the buyer is lectured that if a lawsuit is filed, they will inevitably lose.
It is important to keep in mind that such threats should be subjected to serious verification; the buyer should not give in or agree to amendments that contradict their interests and contractual rights. The clauses of the preliminary contract must be executed with the content that was agreed upon by both parties at the time of signing. If the contract is not being fulfilled, competent legal intervention is required. Hastily signing an addendum, agreement, or any other document that modifies previously reached agreements can seriously worsen the buyer’s position.
When shall a lawsuit be initiated?
The initiation of a lawsuit aims to establish the actual legal situation based on the facts and to provide protection for specific rights of the parties. Therefore, a lawsuit can be filed by either party to a preliminary contract. The claim may relate to seeking performance by one of the parties, a statement for the termination of the contract, or a claim for penalties or other types of compensation.
Lawsuit initiated by the seller
It can be said that these are rarer cases.
In “off-plan” sales, the buyer makes monetary instalments before the property is constructed (completed). Given this, the seller usually lacks a significant incentive to file a lawsuit: in the event of a disagreement between the seller and the buyer, it is often easier for the seller to simply conclude a new contract with another person for the same property.
As the party responsible for constructing the property, the seller under such contracts has certain claims specific to their position. They may request an adjustment of their remuneration in very limited cases or claim so-called “economic hardship” (commercial impracticability). To successfully justify such claims, very specific circumstances must be present, and the specific content of the contract is essential. In current market conditions, such claims would be well-founded only in exceptionally rare cases.
Important: Regardless of whether you have received a notice that you are a defendant in such a case or the seller has threatened to file one, it is crucial to have the case thoroughly analysed promptly.
Lawsuit initiated by the buyer
For the buyer, there is typically a broader range of reasons for filing a lawsuit against the seller under a preliminary contract for the purchase of real estate.
Buyers under preliminary contracts may seek various forms of damages for inaccurate performance through performance claims. This can occur both under an active preliminary contract and in relation to a terminated one.
In the event of a material breach of contract by the seller, the buyer may request to terminate the contract, upon which the seller shall owe the refund of all amounts paid by the buyer. In these hypotheses, monetary compensation may also be claimed.
In the general case, buyers want to receive contractual performance from the respective sellers. When the seller fails to perform voluntarily (fails to meet deadlines, imposes new conditions, etc.), the buyer may seek assistance from the court. Once the actual legal situation is established – confirming that the seller was obligated to conclude the final contract via a notary transaction – the court may declare the preliminary contract final. The court ruling itself will then replace the missing notary deed.
When a lawsuit is conducted for the buyer to achieve acquisition of the property, certain additional legal steps shall be taken to prevent the seller from transferring the property to another person in the meantime.