PRELIMINARY AGREEMENT - IN WRITING OR AT A NOTARY?

Preliminary contract – in writing or at a notary?

The preliminary agreement plays a very important role in economic transactions. It is particularly often concluded in transactions involving the transfer of ownership of real estate. This is due to the fact thatit enables full protection of the mutual interests of the parties who have promised to conclude a specific contract. However, the condition for the effectiveness of such a contract is compliance with the requirements specified by applicable law when signing it. What? You will find out from this post!

What is a preliminary agreement?

By means of a preliminary agreement, its parties undertake to conclude another, precisely defined contract in the future, i.e. the so-called final contract.

In the real estate market, its conclusion serves to "guarantee" that the parties will conclude a subsequent agreement under which there will be a direct transfer of ownership of the property covered by it. Apart from that:

it protects the parties against withdrawal of one of them (or both) from the planned transaction,

allows for its full preparation in a situation where the party or parties need a certain period of time to be able to finalize the agreed project, for example by obtaining a bank loan by the buyer and at the same time full finishing of the residential premises by the seller. Therefore, it is a kind of "reserving" a specific house or apartment for a future transaction.

From a legal point of view, the fulfillment of the obligation under the preliminary contract will be the conclusion of the final contract specified in its content after a certain period of time.

Therefore, you must remember that the preliminary agreement does not transfer ownership of the property to you, it is only a kind of preparation for it! This will only be done on the basis of a final agreement concluded for this purpose.

What should a preliminary agreement contain?

You must know that for the preliminary agreement to be fully effective, must contain certain necessary elements specified by law.

First of all, it is necessary to introduce all relevant provisions into its content - the so-called essentialia negotii, without which no civil law contract can be effectively concluded. They constitute the absolute minimum content of any contract of obligation. It should be remembered that the preliminary contract should also specify the important provisions of the final contract.

If the preliminary agreement concerns real estate, it should contain at least:

indication of the date and place of its signing,

determining the parties' personal data,

description of the subject of the contract, i.e. a specific property, including, among others: its square footage, number of rooms, technical condition, as well as a presentation of its legal status and the number of the Land and Mortgage Register and the number of the plot on which it is located,

a record of the price agreed by the parties and the date of its payment, or at least specifying the grounds and principles for its determination in the final contract,

indication of the buyer's obligation to pay an advance payment or deposit, as well as the contractual penalties provided for by the parties in the event of non-performance of the contract,

catalog of possible terms of withdrawal from the contract,

handwritten signatures of both parties.

It should be noted that the preliminary contract should also indicate the date within which the final contract, in this case transferring ownership, is to be concluded. However, this is not a condition for its legal validity. Moreover, it may provide for the scope of compensation due to each party if the other party avoids concluding the final contract.

It is worth mentioning that the preliminary agreement may take the form of a separate contract or be part of another agreement.

What form should the preliminary agreement take?

It is worth emphasizing that no applicable legal provisions require any specific form for the validity of a preliminary contract. Therefore, it is sufficient to comply with the usual written form in this respect, also when the subject matter is real estate. In this respect, only a written preliminary sales agreement will be fully effective, even though the law requires the appropriate form of a notarial deed to conclude the agreement.

Therefore, the common opinions that in the case of real estate a notarial deed is necessary are not true. What's more, theoretically a preliminary agreement canbe concluded even in oral form, which, however, is definitely not recommended due to the lack of appropriate evidentiary value of such a form. Therefore, the written form is the absolute minimum, as it allows it to be used in court as evidence of the content of the parties' arrangements in the event that a dispute arises between them on this background. Nevertheless, the form of a notarial deed is the most recommended - it gives the parties the greatest legal and evidentiary value. Why? – I will explain it to you by pointing out…

What are the differences between a preliminary agreement concluded in writing and in the form of a notarial deed?

The differences between these two forms of concluding a preliminary contract are very far-reaching in terms of the legal effects they produce. First of all, if it is concluded in the form of a notarial deed, then there is the so-called "stronger effect of the preliminary agreement." It significantly expands the possibilities of the party asserting its rights under such a contract, significantly increasing the certainty of its execution and protecting against a situation in which the other party suddenly changes its mind and decides not to conclude the contract that was previously concluded.seen.

This results from the provision of the Civil Code, according to which - when the preliminary contract meets the requirements on which the validity of the contract dependsof the promised contract, in particular the requirements as to the form, the entitled party may demand the conclusion of the final contract. This means that if the preliminary real estate sale agreement is drawn up in the form of a notarial deed and at the same time contains all the elements required by law, then the entitled party will have the right to courtly compel the other party to enter into and then execute the agreement. they agreed on each other in it. In practice, appearancethis means that she files a lawsuit for the court to issue a judgment constituting the so-called substitute declaration of will. Once final, it has the force of a declaration of will of the party refusing to conclude the final agreement, resulting in the transfer of ownership of the real estate to the buyer.

If the preliminary agreement is concluded only in ordinary written form, the so-called "weaker effect of the preliminary contract", consisting only in the fact that if the party obliged to conclude the final contract avoids doing so, the other party may only demand compensation for the damage it suffered because it counted on its conclusion. This means that she will not be able to claim the conclusion of the contract as provided for in the preliminary contract, and she will only be entitled to claim damages.That.

Moreover, concluding a preliminary agreement before a notary guarantees greater transaction security. It belongs to the so-called persons of public trust, whose conduct must be guided by an increased level of reliability and the principle of increasing citizens' trust in the prevailing legal system. Therefore, he is obliged to ensure that all provisions of the preliminary contract are fully consistent with applicable law.

And finally, according to the provisions of the Notarial Law, notarial acts performed by a notary in accordance with the law are of an official nature. Therefore, notarial deeds have the status of official documents and, as such, have greater evidentiary value in court than ordinary written documents.

The only negative effect of concluding a preliminary contract before a notary is increased costs - he will charge the so-called notarial fee, i.e. a fee for the activity performed. Depending on the arrangements made, it is usually covered by the buyer. An ordinary civil law contract does not involve this type of expense, so it is cheaper in this respect.

In the above context, it should be noted that moreatknownreal estate agencies on the market constantly cooperate with selected law firmsnotarial services, thanks to which they obtain "preferential" conditions for their clients - often the notary fee in such a case, thanks to the notary's help, is distributedmyselfequally to both parties of the transaction, so it does not only burdenbuyer, but is applied in a ratio of half and half to each of them.

Therefore, it is worth considering whether it would be better to use the help of an officereal estatewith appropriate experience and a positive opinionamongsatisfied customersthan having to dig through hundreds of advertisements that we are unable to verify. It will not only ensure that you choose the best one availablereal estate- exactly as it is"desirable"by the buyer - but alsoefficient and comprehensive preparation of the transaction and proper notary service, thus enabling a significant reduction in costs.

When should the parties conclude the final agreement?

As I wrote above, as a rule, the date of concluding the final contract should be indicated by the parties in the preliminary contract itself.

If this has not been done, then the party entitled to request its establishment may indicate the time within which it should take place. If both parties have equal rights and each of them has set a different deadline, the priority of submitting a declaration on this subject is decisive. Therefore, you must remember that in such a case, the party that has previously submitted an appropriate declaration has the privilege.

However, if the parties have not set a deadline for concluding the final contract within one year from the date of conclusion of the preliminary contract, there are no legal grounds for submitting a request in this regard. This deadline is mandatory, which means that its ineffective expiry results in the loss of the entitlement in this matter. In such a situation, you can no longer demand that the other party conclude the final contract.

How does a preliminary agreement protect the interests of the parties?

If the party obliged to conclude a final contract avoids performing this legal act, the other party has the options described in the previous paragraph, and therefore, depending on the form of its conclusion, it may claim either:

concluding a final contract (notarial deed),

compensation (standard written form).

You must know that if a final contract is concluded in a notarial form, the creditor, i.e. the person entitled under the preliminary contract, is entitled to both of these claims, and the choice between them is his sole decision.

It should be noted that "avoidance" should be understood as a situation in which the obligated party commits a fully conscious act or omission aimed at groundless non-conclusion of the promised contract, agreeing in advance to such a result. This may, for example, take the form of an unjustified delay in fulfilling an obligation.

The scope of compensation claimed by the beneficiary under the preliminary agreement includes primarily the reimbursement of all expenses incurred in connection with its conclusion, which in particular concerns the costs of:

its preparation,

travel undertaken in order to conclude it,

stamp and court fees.

In addition, it also covers compensation for other damages, in particular lost profits.

The parties may determine the scope of compensation due in a different way in the preliminary agreement, which means that they may limit or expand its limits.

Are claims under the preliminary contract subject to a statute of limitations?

You must remember that your claims are based on the preliminary contractare subject to limitation.

This takes place after one year from the date on which the specified final contract was to be concluded.

However, if a dispute arises between the parties to the preliminary agreement and the court rejects the request to conclude it, then the claims arising from it become time-barred after one year from the date on which such a judgment became final.

What should you take care of when concluding a preliminary real estate contract?

Concluding a preliminary contract involves many legal risks, so you should make sure that:

it fully complied with applicable law and

protects your interests as much as possible.

The first of these conditions, contrary to appearances, is very important.

You must remember thatin accordance with the provisions of the Civil Code, a legal act that is inconsistent with the Act or is intended to circumvent it is invalid and therefore does not produce any legal effects.

Therefore, you must check whether the draft preliminary agreement contains in particular:

necessary data of the parties to the contract,

appropriate description of the subject of the transaction, for example the real estate covered by it,

the sales price or at least the basis and principles of its determination in the final contract.

The former should be detailed enough to enable you to precisely identify the other party's identity. If it is a natural person, it is necessary to provide his/her name, surname, residential address, ID card number and, optionally, PESEL number. In the case of a legal person, for example a limited liability company, or an organizational unit with legal capacity, such as a partnership, it is necessary to provide the full name (company), registered office address, NIP number, REGON number,KRS and data of the person representing such an entity, usually the President of the Management Board.

You must be aware that the lack of the above-mentioned data will significantly hamper or even prevent you from pursuing any claims in court.

It is very important for you to ensure that the seller submits appropriate declarations regarding the lack of liabilities on the sold property. First of all, this applies to possible debts and limited property rights, especially mortgages and easements. He should also provide an assurance that no enforcement proceedings are being carried out against him that may lead to the seizure of the property and its subsequent sale to cover the debts. It's best to keep this facthas been confirmed by appropriate certificates, especially from the relevant Tax Office, ZUS, as well as an extract from the Land and Mortgage Register.

Since the preliminary agreement is valid only when signed by all co-owners of the property, if it covers real estate, you should check the entries in the Land and Mortgage Register in this respect before concluding it.

If, in turn, you want to properly ensure the protection of your interests in the preliminary contract, you should first of all include the following provisions:

regulating the manner and principles of making changes therein,

regarding the conditions of withdrawal or termination without negative consequences for the buyer.

The above is very important due to the possibility of events that cannot be predicted, awhichwill prevent you from making the real estate purchase you have planned. In particular, you should try to include provisions in the preliminary agreement enabling you to withdraw from it without any legal consequences if you fail to obtain a loan from the bank for the purchase of real estate. Finally, you should prevent it from including any provisions stipulating a contractual penalty for the seller in the event of your withdrawal from concluding the final contract or in the event ofia delay in payment of the purchase price agreed by the parties as a result of the subsequent granting of a loan.

You must also remember to include the following provisions in the preliminary contract:

indicating the exact date of concluding the final contract, preferably specifying the day of this activity - this will make it much easier for you to pursue any claims in court,

obliging the seller to bring the property to an appropriate condition at his expense in terms of technical and operational requirements and to remove any identified defects by the time the final agreement is concluded. They should provide for the sanction of withdrawal from the contract or imposition of contractual penalties in the event of failure to meet these conditions. The same solution should also apply to possible legal defects and delays in concluding the final contract or handing over the property to you,

specifying the consequences of a possible increase in the price of the apartment in the period between the conclusion of the preliminary contract and the transfer of ownership. It is best for this to be a provision guaranteeing the buyer the possibility of resigning from the latter if the total price increase exceeds the indicated percentage of the price that was previously agreed.

Finally, it is worth mentioning that if you decide to provide the other party with a specific sum of money as security for your performance of the preliminary agreement, make sure that it is defined as an advance payment, not a deposit. In such a case, if you withdraw from concluding the final contract, you will be able to demand its full refund - but more about this in the next entry, which will be published soon...