Buying property in Europe

When a seller and a buyer have agreed on the sale of a real estate property, they enter into an undertaking to sell subject to conditions precedent (also called ‘suspensive conditions’).

This undertaking to sell can take the form of:

• A unilateral promise to sell, according to which only the seller is obliged to sell, and the buyer has an option to buy within an agreed time period. If the latter does not exercise her/his option, s/he will lose the security deposit (known as the immobilisation compensation or ‘compensation for immobilisation’) that has been paid, unless one of the conditions precedent to the sale taking place has not been fulfilled;
• A bilateral undertaking to sell (or pre-contract), according to which the seller is obliged to sell, and the buyer is obliged to buy as soon as all conditions precedent stipulated therein have been fulfilled.

In both cases, the preliminary contract may be entered into either by notarial act (however, this form is not obligatory) or by private agreement.

In the case of a private agreement, the real estate agent will draft the preliminary contract. In the case of a notarial act, the parties may either use the services of the same notary or each will appoint a different notary, who will then work together to draft the preliminary contract. In practice, due to the ever-increasing complexity of regulations, more and more clients request the assistance of a notary as from the preparation of the undertaking to sell. 

In the case of a unilateral promise to sell, only the seller is obliged to sell her/his property; the buyer has a purchase option within the agreed time period. Should the latter not exercise her/his option, s/he will lose the security deposit (known as the immobilisation compensation) that has been paid, unless one of the conditions precedent provided for the sale to take place has not been fulfilled. If the seller refuses to sell, the courts can compel her/him to do so.

In the case of a bilateral undertaking to sell (agreement of sale or pre-contract), both parties are obliged to fulfil their promises: the seller is obliged to sell and the buyer is obliged to buy.

However, in both cases, these preliminary contracts are subject to conditions precedent (verification of title to property, enforcement of the right of first refusal or of preference, the granting of a loan, etc.), which are preconditions to the sale going through. If any of these conditions are not fulfilled, the final sale will not be concluded.

The preliminary contract also specifies the time span within which the sale has to take place. As a rule, it is within 2-3 months.

There is no obligation to pay, nor any minimum amount to pay. However, in both types of undertaking an amount of 5 to 10% of the agreed sale price is generally paid to the notary or into the estate agent’s regulated account at the signing of the preliminary contract.

In the case of a unilateral undertaking to sell, this is an immobilisation compensation and, in the case of a bilateral agreement to sell, a security deposit.

The money is treated in the same way in both cases:

• If the sale takes place, this money is a down payment on the price to pay, which is thus decreased by this amount;
• If the sale does not take place, even though all conditions precedent have been satisfied, the money is paid to the seller by way of damages. The seller can, however, force the buyer to buy in the case of a bilateral agreement to sell;
• If the sale does not take place due to an unsatisfied condition precedent, the money is returned to the buyer.

This money paid at the signing of the preliminary contract (by bank transfer) is not given to the seller directly. Instead, it is held in escrow either by the notary or on a regulated bank account of the estate agent.    

When the preliminary contract is for a residential property and the buyer is a private party, the buyer has a withdrawal period of ten full days.

The withdrawal period starts the day after the notified letter is first presented to the buyer or the day after delivery of the document in the event of delivery by hand.

During that time, the buyer can notify the seller of her/his wish to withdraw, without having to state any reason. This must be done by registered letter addressed to the seller. The preliminary contract then becomes null and void automatically and the sum paid by the buyer is immediately returned to her/him.

A cooling-off period (of ten days from the notification or delivery of the draft document according to the same terms as for the withdrawal period) applies in the absence of a preliminary contract (Article L. 271-1 of the French Construction and Housing Code).

The seller, for her/his part, has no cooling-off period or right of withdrawal.