Is it worth notarising a preliminary real estate contract?
The property market has remained active in recent years, while the supply of new-build housing has been limited. As a result, buyers are increasingly signing contracts to buy properties that have not yet been built. In this case, the first step is usually the signing of a preliminary contract.
"A preliminary agreement is an agreement between the parties to enter into a future main contract of sale and purchase. It is a kind of commitment by which the buyer and the seller define in advance the terms of the future transaction," explains Eimantas Čepas, an attorney at AVOCAD.
Buying an unbuilt home: how does a pre-agreement work?
The Civil Code provides special rules for the acquisition of future assets. In this case, the buyer, a natural person, may conclude a preliminary contract for the sale of an unbuilt house or apartment, under which the seller undertakes to build the property as provided for in the contract and then to conclude the main contract. One of the usual elements of these contracts is the payment of a down payment by the buyer, which often amounts to a significant sum. However, it is this element that can later become a headache for the buyer.
"As construction processes can take a year or more, there is a risk that the contract will expire before the property is built. In this case, the buyer is faced with a situation where the deposit paid is frozen and the seller is unable to meet his obligations due to financial difficulties," the lawyer notes.
What happens when a builder defaults?
If the party that concluded the preliminary agreement unreasonably avoids or refuses to conclude the main agreement, it must compensate the other party for the damage caused.
However, in practice, according to Mr Čeps, the buyer often has to go to court to recover the advance payment, and court proceedings can be lengthy.
Notarisation - extra protection
By law, only the main contract for the sale of the property must be concluded in notarial form. However, a notary may also certify a preliminary contract if the law allows it to be concluded in a simple written form.
"Notarisation enables the contract to be used directly as a legal basis for obtaining an enforceable instrument. This means that if the seller defaults, the buyer can apply directly to the notary for an enforcement record and immediately submit this document to the bailiff for enforcement," notes AVOCAD attorney at law Eimantas Čepas.
This mechanism significantly speeds up the process of recovering advances and increases the likelihood of real recovery without lengthy litigation.
Notarisation of the preliminary agreement is an effective protection measure, especially for purchases of unbuilt housing. "It is a rational step for the buyer who wants to ensure that the invested funds are protected and that in case of unforeseen difficulties of the builder, it is possible to quickly initiate the recovery of the debt," emphasises E. Čepas.