Buying property in Malta

21-09-2015

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Initial agreement between the seller and the buyer - Before Contract

What form can this agreement take? Preliminary contract?

According to article 1233 (1) (a) of the Civil Code, Chapter 16 of the Laws of Malta,  a promise of sale agreement must take the form of a written agreement. It is not necessary that the agreement is authenticated by a notary public, however it may be authenticated by a notary public or a lawyer. According to Article 3 (6) of the Duty on Documents and Transfers Act Chapter 364 of the Laws of Malta, the validity of a promise of sale agreement also depends on its registration, that is to say, a promise of sale agreement is only valid if it is registered within the prescribed time (21 days) with the Commissioner of Inland Revenue. For such registration to be effected, there must also be presented a payment of twenty percent (20%) on account of the tax to be paid on the final deed.

With whom must the parties (buyer/seller) formalise the initial agreement? Is a legal form imposed?

According to Maltese law, it is enough if the initial agreement is signed between the parties (buyer/seller) themselves. In practice, however, the initial agreement is usually witnessed and formalised with a notary who will then be responsible for the registration as indicated in the previous question. 

What are the legal effects of this preliminary contract? Is a preliminary contract necessary?

A preliminary contract is not necessary. A buyer and a seller may proceed directly with the final deed without entering into such a preliminary contract.

If, however, a preliminary contract is entered into, it is binding between the parties. The effects of the preliminary contract differ depending on whether the sum of money paid by the purchaser to the vendor on the preliminary agreement is paid on account of the purchase price or whether it is paid as earnest.

If the said amount of money is paid on account of the purchase price, according to article 1357 of the Civil Code, and one of the parties fails to appear on the final deed of sale, it is within the rights of the other party to request specific performance of this obligation and therefore ask the Court to order the sale to be carried out.

If on the other hand, the amount of money is paid in earnest, according to article 1359 of the Civil Code, Chapter 16 of the Laws of Malta, each of the parties shall be at liberty to recede from the contract: the party giving the earnest forfeiting such earnest, and the party receiving the earnest returning double the amount thereof.

Are there amounts to be paid, and to whom? Can these amounts be repaid?

No specific regulations dictate specific amounts to be paid, apart from the 20% of the tax which is to be paid on account of the same tax in order for the promise of sale agreement to be able to be registered, as required by law.

Usually, the buyer pays 10% of the price (or any other amount agreed between the parties) on account of the purchase price or in earnest. The 10% of the purchase price, may be either passed on to the vendor on the promise of sale agreement, or at a later time (as agreed between the parties) or deposited with the notary who will release it in favour of the vendor on the final deed of sale. 

Are there any consumer protection measures (cooling-off period, right of withdrawal)?

No.

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