
Preliminary agreement: how to avoid unfair treatment and protect your rights?
Preliminary contracts for the sale and purchase of real estate may seem like a simple first step towards a successful transaction, but even small details can be a source of significant conflict, lawyers say.
What if the seller refuses to conclude the main contract? What to do when the deposit has already been paid and the agreements do not meet the original expectations of the parties? How can I protect my interests? Viktorija Dubovskienė of AVOCAD answers these questions .
You own real estate and have decided to sell it. A potential buyer has come along and you have entered into a preliminary contract for the sale of the property with him. In the contract, you agreed on a date by which the main contract for the sale of the land must be concluded. The purchase price consisted of an advance to be paid immediately after the signing of the preliminary contract, a further advance after a certain period of time, and a third, remaining part after the main contract had been signed, within 6 months from the date of signing the main contract.
Everything went smoothly in your situation - both advances from the buyer were paid. However, when the signing of the main contract is arranged at the notary's office, the seller indicates that he does not want to conclude the main contract and refuses to reimburse the advances to the buyer. The argument put forward by the seller is that the money has to be paid at the time of conclusion of the main contract.
The lawyer points out that it is in such a situation that the legal basis for civil liability is the party's dishonest behaviour. The case law of the Supreme Court of Lithuania notes that it is the party's dishonest behaviour that is regarded as unlawful conduct when deciding on pre-contractual civil liability when a party fails to perform a preliminary agreement, i.e. refuses to conclude a main contract.
As mentioned above, the buyer paid most of the advance into the seller's bank account before the main contract was signed. The parties agreed in the Preliminary Agreement that the remaining amount of money, the third payment, would be made after the signature of the Main Contract within 6 months from the signature of the Main Contract. The draft main contract, which included the condition of payment of the balance of the price at the time of conclusion of the main contract, was not in conformity with the essential conditions for the conclusion of the main contract, which had been agreed between the parties in the preliminary contract, concerning the payment procedure for the purchase of the property. For that reason, the buyer's refusal to sign such a draft contract on the ground that the procedure for payment of the price of the property was not in accordance with the intention of the parties under the preliminary agreement cannot be regarded as unreasonable and unfair conduct.
The Civil Code obliges each party to a contract not only to perform its obligations in good faith and properly, but also to carry out its duties as economically as possible and to cooperate with the other party. "Both parties to a contract have a duty to cooperate and to exercise their rights in good faith, and therefore both parties must act actively and perform actions that are consistent with reasonableness, which is a prerequisite for proper cooperation between the parties," attorney-at-law V. Dubovskienė notes in her commentary on the case law.
Since the draft of the main contract in such a situation was prepared by the notary proposed by the seller in accordance with the terms and conditions specified by the seller, the Court of Cassation held that it was the seller's duty to ensure that the proposed draft was in conformity with the provisions of the main contract on the procedure for payment for the purchase of the purchased property as laid down in the preliminary contract. The seller failed to fulfil that obligation by taking the position that the price of the property to be acquired was to be paid on the date of signature of the contract and, if the buyer did not agree to sign the main contract in accordance with the design proposed by the defendants, by informing the buyer that the contract was to be regarded as not having been concluded through the fault of the buyer.
According to the lawyer, this behaviour of both parties can be qualified as a breach of the duty of cooperation between the parties, which led to the failure to conclude the main contract. As a result of the breach of the duty to cooperate by both parties and the failure to conclude the main contract, it was decided to oblige the seller to reimburse the buyer for the advance paid by him, but not to grant the buyer's request for a penalty.
Thus, in such a situation, the most frequent and initial assessment will be the pre-contractual relationship and its evaluation, with a particular focus on the behaviour of the parties. Therefore, according to AVOCAD's lawyer, it is necessary to pay attention to what has been agreed and not to deviate unilaterally from the original agreements.