The legal myth surrounding the preliminary agreement

In property transactions, the choice of the form of a preliminary agreement is of significant legal and commercial importance. In practice, this form can determine both the level of protection for the parties’ interests and the effectiveness of enforcing claims. “It’s only a preliminary agreement; you can always withdraw from it” is one of the most common myths in the property market. However, it can lead to serious consequences if the agreement has not been properly drafted. The Civil Code provides for two different levels of protection, depending on the form in which the agreement is concluded: 1. An agreement in simple written form If a preliminary agreement for the sale of property has been concluded exclusively in writing, and one of the parties refuses to enter into the final agreement, the other party may only claim compensation for damages within the limits of the so-called ‘negative contractual interest’ (Article 390 § 1 of the Civil Code), i.e. reimbursement of costs incurred whilst awaiting the conclusion of the agreement. However, they cannot effectively demand the transfer of ownership of the property. 2. A contract in the form of a notarial deed The situation is different in the case of a preliminary contract concluded in the form of a notarial deed, which is required for a contract for the sale of immovable property (Article 158 of the Civil Code). In such cases, the entitled party may apply to the court to enforce the conclusion of the final contract, and a final and binding judgment takes the place of the declaration of intent by the party evading the conclusion of the contract (Article 390(2) of the Civil Code in conjunction with Article 64 of the Civil Code and Article 1047 of the Code of Civil Procedure). In practice, this means that the transfer of ownership can be enforced. It is worth bearing in mind that claims arising from a preliminary agreement become time-barred one year after the date on which the final agreement was to have been concluded (Article 390 § 3 of the Civil Code). This is particularly important in situations involving protracted negotiations or changes to the transaction timetable. What does this mean in practice?

The form of a preliminary agreement is not merely a technical matter. A notarial deed enables the buyer to enforce the conclusion of the final agreement and to have a claim recorded in the land register, which further safeguards the buyer’s interests. A simple written form, on the other hand, provides only protection in the form of damages. A well-drafted preliminary agreement should also precisely set out the conditions for concluding the final agreement, the consequences of failing to meet deadlines, and the method of settling the deposit and advance payments, which have different legal consequences.