UNILATERAL AND BILATERAL PROMISE TO SELL : The promise to sell and preliminary sale agreement are two contracts with different consequences for the buyer and seller. Unilateral promise to sell In the promise to sell (also called a unilateral promise to sell) the owner undertakes to sell to the potential buyer (called the beneficiary) his/her property at a given price. The seller therefore gives the buyer an exclusive option for a limited period of time (generally two to three months). During this time period, the seller is prohibited from cancelling the sale or offering the property to another buyer. The potential buyer can use the promise to decide whether or not he wishes to buy, which is a definite advantage ! In exchange, the potential buyer pays the seller a security deposit, which is usually 10% of the selling price. If the potential buyer decides to proceed with the purchase, the deposit is deducted from the total price to be paid. But if the potential buyer withdraws his/her offer or fails to accept within the option period, the owner retains the deposit as compensation. In order to be valid, the tax authorities must be notified of the promise to sell within ten days of signing for private documents, or within a month for notarised instruments. The registration fee, which the buyer pays, is €125. The buyer and seller are often in a hurry to conclude the sale and often imagine that signing the preliminary contract is no great commitment. They are wrong: despite the name, the preliminary agreement constitutes a genuine contract which imposes major obligations on both parties. It enables them to specify the conditions of the future sale and establishes their agreement. Even though it may not be legally compulsory, it is nevertheless absolutely necessary. Having the preliminary contract drawn up by a professional The buyer and seller are free to draw up the preliminary contract themselves on blank paper or they can use model contracts. However, its clauses are all the more important as the final contract usually merely repeats them. It is therefore recommended that a professional, i.e. your notaire, be appointed to draw it up because he/she is under obligation to inform both parties. Incidentally, the cost of drawing up the preliminary contract is included in the estate agent’s commission or the basic fees of the notaire’s office where the final deed of sale is signed. Preliminary sale agreement In the preliminary sale agreement (or bilateral promise to sell), the seller and buyer both agree to conclude the sale at a jointly determined price. In legal terms, the preliminary sale agreement therefore has the status of a final sale. If either party cancels the sale, the other may take legal action and claim damages. The buyer pays between 5% and 10% of the selling price on signing the preliminary sale agreement. This sum, known as a deposit, is deducted from the price when the notarised instrument is signed. Unlike the promise to sell, the preliminary sale agreement does not have to be registered with the tax authorities. The fact that charges are not applied is an advantage. Purchase offer This document, which is called either a purchase offer, unilateral promise to purchase or simply a price offer, is presented by certain estate agents and should be treated with caution. Its main characteristic is that it only commits the buyer and not the seller. The seller must send you the instrument by registered letter with acknowledgement of receipt or through bailiff. You have 7 days from when you receive the document in which to withdraw. This period of grace begins the day after the post office has presented the registered letter with acknowledgement of receipt for the first time, irrespective of whether it delivered by hand to the person directly or a drop card is left at the person’s place of residence. A basic precaution is to include conditions precedent (for example obtaining a loan) and to only leave the seller a short time (a week or fifteen days) in which to reply. The buyer cannot be asked to make any payment, otherwise the offer is cancelled (Article 1589-1 of the French Civil Code). Exceptions to the commitment The buyer and seller may agree to include conditions precedent in either a promise to sell or a preliminary sale agreement. They enable the preliminary contract to be cancelled if certain events freeing both parties occur before the final sale. The agreement may be cancelled if, for example, the buyer’s bank refuses to grant the loan, the municipal authorities exercise their pre-emption right or a major urban easement is discovered. Under these circumstances the sums paid by the buyer are refunded. A preliminary sale agreement may also include a release clause that enables the seller and/or buyer to cancel the sale for no reason, leaving the other party a sum agreed upon previously. This situation does not, however, occur very often. It should not be confused with the penalty clause, which is included in most preliminary sale agreements, according to which the buyer agrees to pay to the seller flat-rate compensation if he refuses to sign the sale agreement. Withdrawal period for buyers Buyers of new or old housing signing a preliminary contract, a unilateral promise or a preliminary sale agreement have a minimum seven days in which they may withdraw their offer (by registered letter with acknowledgement of receipt). Irrespective of the reason for cancellation, the sums paid must be returned in full. The withdrawal period begins on the day after the registered letter with acknowledgement of receipt containing the preliminary contract is delivered (or first presented). As an example, if the letter is sent on the 10th of the month and is first presented on the 12th, the withdrawal period will begin on the 13th and expire at midnight on the 19th. Notaires are property specialists and therefore pay particular attention to the sellers and buyer’s personal circumstances (marital status, PAC, people under divorce proceedings, proportions of acquisition, etc.). Each case needs to be thoroughly examined on a personal basis. So contact your notaire before you make any commitments.
Posted on: Fri, 07 Mar 2014 09:38:40 +0000