What form can this agreement take? Preliminary contract?
When the seller and the buyer agree on the sale of a real estate, they may enter into a reservation contract or into a preliminary contract of sale.
A reservation contract is usually entered into when the buyer reserves the right to buy the real estate for a period of time (the reservation period) and pays a reservation fee. The seller states that he/she will not sell the real estate to another person during the reservation period. If the buyer decides not to proceed with the purchase within an agreed period of time, the reservation agreement automatically expires. He/she will lose the reservation fee.
A preliminary contract of sale is usually entered into when the parties have agreed that they will enter into a contract of sale within a certain period of time. At the same time, they shall agree on the essential elements of the contract ( subject of the contrat, purchase price, deadline within which the sale has to take place). This obligation shall cease to exist if the circumstances, on which the parties based their decision to incur the obligation, have changed to such an extent that the conclusion of the contract may not be fairly required.
With whom must the parties (buyer/seller) formalise the initial agreement? Is a legal form imposed?
In both cases, a contract can be entered into by a written private agreement. In practice, the real estate agent will draft a preliminary contract.
What are the legal effects of this preliminary contract? Is a preliminary contract necessary?
In case of a reservation contract, the seller is obliged to sell his/her real property and the buyer has a “purchase option” during the agreed period of time. If the buyer does not exercise his/her option and decides not to proceed with the purchase, he/she will lose the reservation fee.
In case of a preliminary contract, both parties are obliged to comply with their undertaking - to conclude a contract of sale within the agreed time period. The seller is obliged to sell and the buyer is obliged to buy. The preliminary contract specifies the deadline date upon which the sale has to have taken place. If the contract is not concluded within the agreed period of time, it is possible to apply to the court within one year in order to replace the act of volition with a court decision.
A preliminary contract may be subject to the fulfilment of a conditions precedent, which are preconditions to the sale being concluded. Due to the reason that preliminary contracts are drawn up predominantly by real estate agents, the inclusion of conditions precedent is not always the norm (especially in relation to the reservation contract).
The conclusion of a preliminary contract is discretionary.
Are there amounts to be paid, and to whom? Can these amounts be repaid?
There is no statutory obligation to pay, nor any minimum amount to pay. However, a security deposit (in case of preliminary contract of sale) or reservation fee (in case of reservation contract) is generally paid at the signing of the preliminary contract.
If the sale takes place, the reservation fee/security deposit is treated as a deposit on the agreed price which is accordingly decreased by this amount.
If the sale does not take place, the reservation fee/security deposit is paid to the seller to cover damages.
If the sale does not take place due to an unsatisfied condition precedent (provided that conditions precedent were included in the preliminary contract), the reservation fee/security deposit is paid to the buyer.
A security deposit/reservation fee is paid at the signing of the preliminary contract and is generally held by the real estate agent.
Are there any consumer protection measures (cooling-off period, right of withdrawal)?
There are no specific consumer protection measures related to preliminary contracts.
Generally, a party may withdraw from a contract only if such option is set out by the law, or so agreed by the parties. A party that concluded a contract under duress or under clearly disadvantageous conditions has the right to withdraw from the contract.
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