Points to watch out for when signing a preliminary sale agreement or a unilateral promise of sale
Be careful with the vocabulary: the obligations of the co-contracting parties vary depending on whether you sign a preliminary sales agreement or a unilateral promise of sale.
The preliminary sales agreements or synallagmatic promises to sell are governed by the provisions of article 1589 of the civil code.
The promise to sell is equivalent to a sale, i.e. the two parties are committed to the sale as soon as the compromise or promise is signed, to buy and sell at a fixed price.
There is a withdrawal period for non-professional buyers: the buyer must notify the seller of his withdrawal by registered letter with acknowledgement of receipt before the expiry of a period of 10 calendar days from the day after the first presentation of the letter notifying him of the preliminary contract (Article L 271-1, paragraph 1 of the French Construction and Housing Code).
In case of multiple buyers, the preliminary contract must be notified to each of them (Cass. 3e civ. 4-10-2018 n° 17-25.688), otherwise the withdrawal period does not run, which will lead to legal uncertainty.
At the end of this period, if one of the parties renounces the sale without a valid reason (for example, it is possible to escape the execution of the contract in case of non-fulfillment of one of the suspensive conditions provided for in the preliminary sales agreement), the other party can force the sale by requesting a forced sale from the court and/or ask for damages.
The unilateral promise of sale is governed by article 1124 of the civil code.
Only the promisor, who is the seller, is committed.
During the period of validity of the promise, he cannot renounce the sale or offer the property to another buyer.
The beneficiary of the promise has the discretion to exercise the option or not. It is only when the option is exercised that he will commit himself definitively to the sale.
To be admissible, the exercise of the option must be made within the validity period of the promise and according to the forms provided for in the contract.
To be valid, the promise must be registered with the tax authorities within 10 days of the signing of the deed.
If the validity period of the promise is longer than 18 months, it must be carried out by a notarial act.
Please note that in the case of a sale in the future state of completion, the parties do not sign a preliminary sales agreement or a promise to purchase but a reservation contract.
The content is distinct and the obligations arising from it are different from those of a compromise or a promise.
The reservation contract has only a provisional character so that the characteristics of the property and the terms of the sale can be modified.
Both the reserving party and the buyer can then renounce the sale.
To reserve the property, the seller may ask the buyer to pay a deposit.
The deposit is returned to the buyer without deduction or penalty, within a period of 3 months, in the following situations (article R261-31 of the construction and housing code):
- Loan refused by the bank,
- Contract not concluded due to the seller within the time limit specified in the preliminary contract
- Sale price more than 5% higher than the revised estimated price
- Abnormal difference between the sales contract and the forecasts of the preliminary contract.
Apart from these cases, the security deposit remains with the seller.
The signatories of a preliminary contract or a promise to sell must be careful about the deadlines for the signature of the final deed of sale and for the fulfilment of the conditions precedent:
For the reiteration of the sale: the preliminary contract specifies a date of validity of the contract which constitutes a deadline for regularizing the final deed of sale.
This deadline is justified in order to allow the necessary time for the suspensive conditions to be fulfilled.
Specific deadlines may be provided for the fulfilment of certain conditions of the sale.
If these deadlines are not respected, sanctions may be applied.
Caducity of the preliminary contract
The contract is automatically terminated if the sale is not reiterated within the validity period of the promise or the preliminary sales agreement, or in case of non-fulfilment of the suspensive conditions within the same period or within the specific periods that may be provided for each of the conditions.
Penalty clause and immobilization indemnity
The term “immobilization indemnity” is used in the context of unilateral promises to sell.
This indemnity is the counterpart of the option left to the beneficiary of the promise to buy or not.
The beneficiary pays this indemnity to the seller. It is in principle equal to 10% of the sale price.
If the beneficiary does not exercise the option, and does not buy, the indemnity will remain with the seller as compensation.
If the sale is concluded, the amount of the indemnity already paid will be deducted from the sale price.
This is known as a penalty clause in the context of a compromise or a synallagmatic promise to sell.
At the time of the signature of the compromise, it is foreseen that the purchaser will pay a sum generally of the order of 10% of the selling price.
In order to implement a penalty clause, there must be non-performance by the debtor. The debtor must have clearly refused to fulfill his obligations: in this case, signing the real estate deed of sale.
The penalty clause can be implemented by a letter of formal notice, addressed to the defaulting party.
In case of dispute, the case will have to be brought before a judge. The judge can revise the clause, moderate it or increase the penalty agreed between the parties.
Our lawyers are at your disposal to answer all your questions and advise you. Our meetings can be held in person or by videoconference. You can make an appointment directly online at www.agn-avocats.com.
AGN AVOCATS – Real Estate Department
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