What is a preliminary agreement
A preliminary agreement for the purchase and sale of an apartment is a legal instrument that will help force the parties to conclude and register the main agreement with Rosreestr. Moreover, with the conditions specified in the preliminary one.
Such an agreement is used when the parties cannot conclude a deal immediately. For example, an apartment buyer applies for a mortgage and needs time to collect documents. During this time, the parties enter into a preliminary agreement, and perhaps at this stage the buyer transfers a deposit for the apartment to the seller.
A preliminary agreement seems to be a simple tool and is needed, by and large, to secure the interests of both parties. Problems begin when the buyer or seller decides to refuse the deal - then the second one can try to conclude a deal through the court or demand compensation. Therefore, the contract must specify not only the nuances of the future transaction, but also the termination algorithm in detail.
Requirements for preliminary agreements
What a preliminary agreement for the purchase and sale of an apartment should be is set out in Art. 429 of the Civil Code of the Russian Federation, in the position of the Supreme Court on this instrument and in clarifications of judicial practice on this article of the Civil Code of the Russian Federation. This is what must be in the contract in order for it to be recognized as legal.
Subject of the agreement.
This is a legal term meaning a key action that the parties must perform. In the case of a transaction with an apartment, the seller is obliged to transfer the property to the buyer.
To understand which specific apartment is being transferred, you need to describe its characteristics. The main thing is the cadastral number of the housing - you can find it out through the Rosreestr service at the address or by ordering an extract from the Unified State Register of Real Estate at the MFC. This is enough for secondary housing.
If an apartment is sold in a building under construction, by assignment, it is worth adding the essential parameters of the property to the contract - its construction address, area, location in the house and on the floor.
An example of an apartment description for a house under construction:
“The seller transfers the property to the buyer - an apartment with an area of 101 square meters. m, located at the construction address of Moscow, Lenina Street, building No. 101, apartment No. 45, in a house that is being built on a land plot under cadastral number 64:00:0000053:223, on the fifth above-ground floor, in block section D , entrance No. 4."
Minimum content of the contract.
In addition to the subject of the contract, it must contain essential terms - this is information that must be added to the contract by law.
There are no special requirements for preliminary agreements - it is enough to add the subject of the agreement and the data of the parties to them. For example, it is not necessary to indicate the price. Thus, you seem to say: “Yes, we have definitely agreed on a deal, and we are confident that we will agree on the price.”
If you don’t agree, you’ll have to go to court and discuss the future deal there. It turns out that the price of the apartment will ultimately be set by the judge.
To prevent this from happening, add as many detailed conditions as possible to the contract.
Contract time.
This is the name for the period in which the parties must begin the process of concluding the main agreement. When the period is not specified, it is considered to be equal to a year.
If the parties do not conclude a deal within the specified period or one of the parties does not offer to sign the agreement, then the preliminary document will be automatically terminated and become invalid.
Registration of the agreement.
The parties are required to have the preliminary agreement certified by a notary only when the main agreement must be carried out in a similar way. For example, these are transactions with the sale of a share of an apartment or transactions with minors.
You can voluntarily register any contract with a notary; you are not limited in this. This assurance is a small insurance policy. For example, if a notary suspects that one of the parties is incompetent, or sees another potential violation of rights, he may warn about this and refuse to certify such an agreement. Or maybe he won’t refuse.
If the preliminary agreement for the sale of an apartment with minors is not certified by a notary, the agreement will be considered void by law - that is, it will not have legal force and will not be accepted in court as evidence.
Preliminary agreement with deposit
Additional, but no less important, documents to the Preliminary Agreement are the Deposit Agreement and a receipt from the seller for receipt of money. From June 1, 2015, clause 4 on the deposit was added to Article 380 of the Civil Code of the Russian Federation.
A preliminary agreement is an opportunity to secure the obligations of the parties to complete a real estate purchase and sale transaction. The payment of a deposit becomes a guarantor of the conclusion of the main contract. Other obligations under the preliminary agreement cannot become the basis for the deposit.
By agreement between the parties to the transaction, a deposit may be made within the framework of the preliminary agreement. This is a monetary guarantee that the transaction will take place, since failure to fulfill the terms of the contract and refusal to complete the sale and purchase entails (Article 381 of the Civil Code of the Russian Federation):
- loss of the deposit amount if the buyer refuses the transaction;
- refund of double the amount of the deposit if the seller refuses.
Making a deposit under a preliminary agreement is beneficial for both parties if they want to insure against evasion of the transaction, which can be initiated by both the buyer and the seller before the conclusion of the main agreement. Please note that the deposit amount will be taken into account in the final settlement.
When specifying a deposit in the preliminary agreement, its functions should be clarified. The deposit is not an advance. In case of disputes, the advance payment is returned to the buyer and does not depend on the reasons for refusal to conclude the main contract.
Important! We note that according to clause 2 of Art. 381 of the Civil Code, if the seller refuses to enter into the main contract, he is obliged to return the received deposit to the buyer in double amount. However, in the case of a preliminary contract, the deposit is part of the payment for the goods that will be purchased under the main contract. If the seller refuses it, then the deposit cannot be doubled, it will simply be returned to the buyer.
The transfer of money must be confirmed by a receipt issued by the seller upon receipt of the deposit. In this case, the receipt is an annex to the agreement, and not an independent document. Together they ensure the reliability of the agreements reached.
Find out more information about the deposit and receipt here.
Only all these documents working together ensure the reliability of the agreements.
Arbitrage practice
In judicial practice, there are cases of abuse associated with receiving a deposit under a preliminary agreement. For example, the buyer made a deposit under a preliminary agreement, but due to circumstances was unable to conclude the main contract. The seller refused to return it. But the court sided with the buyer, recognizing the preliminary agreement as the main one, and the deposit as an advance payment for it. As a result, according to a court decision, all funds were returned to the buyer - see the court decision.
Deposit agreement for the purchase and sale of a land plot with a house:
What else is important to add to the preliminary agreement?
De facto, the preliminary agreement should be perceived as the main one - write down in it all the conditions that you want to agree on with the other party to the transaction. This is the minimum required.
Foundation documents.
Add information to the preliminary agreement about the basis on which the seller has the right to dispose of the apartment. For example, this could be a purchase and sale agreement with the previous owner. Or a share participation agreement and permission from the developer that he is not against the sale of the right to claim this property.
Seller's guarantees.
This clause must include the seller’s promise that the apartment is not encumbered by the rights of other persons. For example, it is not under arrest, is not pledged, and is not an obligation under any loan or other transaction.
If the apartment was purchased with the help of maternal capital, then the seller must guarantee respect for the rights of children and the availability of shares allocated to them. If there is no maternal capital, then write that the seller guarantees that there are no rights to a share in the housing due to the maternal capital in the apartment being sold.
Availability of registered persons.
This paragraph specifies the procedure and time frame within which the apartment is vacated from the citizens registered there.
Add here the seller’s guarantees that he is not silent about citizens who have the right to live in the apartment, albeit without property rights. For example, none of those registered have previously served a sentence in a colony, or are in military service - such people are discharged from housing, but do not lose the right to live there after returning to civilian life.
Apartment price.
Indicate the full amount for which you plan to purchase and sell.
Availability of prepayment.
Please indicate in what form the prepayment was sent, if any:
- Deposit - if the transaction is canceled due to the fault of the seller, it will have to be returned in double amount. Due to the buyer's fault, the deposit remains with the seller.
- Advance - the same amount is returned or remains, respectively, as given.
- Security payment - it can be considered an advance payment, but this must be indicated in the contract. The difference between such a payment and an advance and a deposit is that it can be used even before the transaction. For example, pay the costs of fees or legal services.
Duration and format of transfer of the apartment.
It is not necessary to indicate an exact period; it is enough to add a variable - for example, write that “the apartment is transferred to the buyer within seven working days after the transfer of rights to the real estate and the appearance of such an entry in the Unified State Register of Real Estate.”
Availability of furniture and condition of the apartment.
This is important if housing is purchased on the secondary market, for example, in the business segment - where furniture, appliances and the renovation itself affect the price of the transaction. Write down in the contract what interior items the seller must leave and what shortcomings there are in the repair.
Payment procedure. How do you plan to pay after signing the main contract? For example, through cash, rent a safe deposit box or use a quick payment service. Add to this clause a decision about who pays the associated costs of the transaction.
Procedure for terminating the contract.
Indicate in which cases the parties can terminate the contract without penalties. How should termination occur? For example, you need to exchange registered letters or it is enough to send a letter by email. If the latter, add a paragraph listing mail addresses and indicating that the parties agree to consider such letters legally binding.
Responsibility of the parties.
Here it is worth adding information about compensation in the event of unilateral termination of the contract, refusal to conclude it, or evasion of it. By evasion we understand a situation when a party does not directly refuse a deal, but in every possible way prevents its conclusion - for example, it delays deadlines, is late, or, on flimsy pretexts, looks for reasons to otherwise delay the deal.
Buyer's insurance.
In real estate transactions, the buyer takes more risk. Therefore, he needs to provide for options when he should be able to refuse to enter into a contract without compensation or penalties. For example, do not make a deal if new circumstances are discovered in the housing documents - information about new owners will appear, guardianship authorities will refuse to give permission to sell an apartment with a child, it will become known about heirs vying for the apartment.
Registration of the deposit
The deposit in this agreement is a guarantor of the fulfillment of the conditions specified in the document itself. It represents the amount agreed upon by both parties, which the buyer is obliged to pay within a certain time frame. It is not necessary to pay a deposit. But it is a more reliable guarantee that the terms of the contract will be fulfilled by both parties, since if the buyer refuses to sign the main contract, he loses the money contributed. In such a situation, the seller is obliged to return the buyer's deposit in double amount. The prepayment made in the contract can be called exclusively a deposit, not an advance payment or an advance payment. Otherwise, this legal norm will not apply.
To conclude the main purchase and sale transaction, the seller must have ownership rights to the property. If the land plot is located in SNT, then its owner is required to have a document that will indicate his ownership rights or an extract from the Unified State Register of Real Estate, in which he will be indicated as the copyright holder.
A garden book has no legal force. Therefore, it is better not to draw up a preliminary agreement based on such a document; it will not have legal force. SNT also cannot sell land plots on the basis of a garden book. This means that the property is not actually registered with them.
Features of the preliminary purchase and sale agreement with the developer
A preliminary purchase and sale agreement with a developer is actually the same instrument as a preliminary agreement in a regular purchase and sale - it is a tool for “booking” real estate while documents for the main transaction are being prepared. But there are several nuances.
DDU in accordance with Art. 48 FZ-218 must be registered in Rosreestr - data about the transaction is entered into the Unified State Register of Real Estate. This eliminates the so-called “double sales” - when an unscrupulous developer sells the same home several times. Pre-contracts are not entered into the Unified State Register of Real Estate, so no one can guarantee that the developer has not entered into an agreement for the same apartment with someone else.
The equity participation agreement must be paid only after state registration of the transaction - the norm is stated in clause 3 of Art. 5 FZ-214. It is better to refuse the deal if the developer offers to contribute some money at the stage of signing the preliminary agreement - carry out all calculations after the main agreement is registered in the Unified State Register of Real Estate.
How to correctly draw up a preliminary contract for the sale and purchase of land and a house?
The agreement is drawn up in writing and signed by both parties to the transaction.
Regulatory basis for compilation:
- The Civil Code in Article 429 determines the content of the preliminary agreement, as well as the timing of its execution.
- Its basic terms will form the basis of the main contract. They are established by Federal Law dated March 8, 2015 No. 42-FZ.
- The parties have the right to agree on the payment of a deposit (Part 4 of Article 380 of the Civil Code).
- Only a written agreement has legal force (Article 550 of the Civil Code).
- If one of the parties refuses to complete a transaction, the provisions of Article 445 of the Civil Code apply.
The form of the document is not established by law, but must contain the main points that are usually present in the main agreement.
The preliminary agreement contains the same information as the main one, but there are some differences:
- the subject of the preliminary agreement is the intention to complete a purchase and sale transaction;
- the preliminary agreement does not require registration with Rosreestr and comes into force from the moment of signing;
- is temporary in nature until the date of conclusion of the main contract;
- the advance payment or deposit made is taken into account in the final settlement under the main agreement.
Risks when drawing up a preliminary agreement
In a real estate transaction, the buyer takes more risk - the seller should agree on a safe method of transferring money and that’s it. A pre-contract reduces the likelihood of problems arising, but does not guarantee complete security for the parties.
The seller refuses the deal.
The mere fact of having a signed preliminary contract does not mean that the buyer is guaranteed to receive housing. If the seller changes his mind, the situation will develop depending on what is specified in the contract.
- If this is agreed upon by the parties, the seller returns the advance payment in the required amount or pays compensation, and the transaction ends.
- Or the seller refuses to fulfill his obligations altogether. Then the buyer needs to go to court and hope that the decision will be in his favor. Civil cases of this type are not common - many do not want to go to court because the result is unknown, and they will have to spend money on a lawyer.
As a rule, the parties agree on compensation without going to court.
The court declares the contract invalid.
Even if one party goes to court, this does not necessarily mean that the transaction will be forced. If the pre-contract violates the form of the conclusion or does not agree on all the essential terms, it may be declared invalid.
The seller disappears with the advance payment.
If the preliminary agreement does not need to be certified by a notary, then de facto it does not need to be registered anywhere. Therefore, nothing prevents an unscrupulous seller from taking an advance payment from one or more buyers and disappearing.
This risk can be avoided with the help of guarantors - an independent party that will keep the money and control the transaction, for example, a real estate agency.
The apartment is sold with encumbrances.
The seller may keep silent about the fact that the apartment has a prohibition on transactions - for example, it is pledged to the bank or another person has the right to live in it for life. To avoid this, order an extract and the Unified State Register yourself - it must contain all the information.
The extract does not guarantee the absence of encumbrances. For example, an old mortgage may not be included there, since the database has been collected since 1998, and at the beginning it was not replenished with all transactions and with technical errors.
Therefore, write down guarantees in the pre-contract - the seller’s promise that the apartment is not encumbered at the time of the transaction. Add liability for violation, such as a fine.
Contents of the preliminary agreement
This document can be presented in court to force one of the parties to fulfill its obligations specified in it.
The information that must be indicated when drawing up the document is as follows:
- A detailed description of the conditions under which the contract will be drawn up.
- Full information about the participants in the transaction.
- All information about the land plot and the real estate on it (address, number of floors, cadastral numbers, etc.).
- The cost of land and real estate on it.
- Payment terms for both parties.
- A deposit that will be used as an advance payment.
- The intentions of both parties to enter into a basic contract. Period of its signing.
Article 429 of the Civil Code of the Russian Federation states that if the terms of the preliminary agreement do not correspond to the main one, it will lose its legal force.
The preliminary agreement is drawn up in writing. It can be notarized if the parties so require.
After both parties conclude the main agreement, the preliminary agreement loses its legal force. A preliminary agreement does not make it possible to transfer ownership rights; it only records the fact of concluding a transaction between two parties for the purpose of buying and selling a property.
How to terminate a pre-contract
The principles of termination or forcing the parties to enter into binding contracts are prescribed in Art. 445 of the Civil Code of the Russian Federation. Here are the options.
By agreement of the parties
- when you and the other party change your mind about entering into a deal.
Make the agreement in writing. This will help avoid unexpected claims. If you don’t do this, your opponent in the transaction may go to court and claim that you are delaying the conclusion of the contract. Oral agreements, if there is no recording and evidence, are not taken into account.
The contract has expired.
The contract is considered terminated if its terms are not fulfilled and the parties do not present claims to each other.
To go to court, the parties have six months from the moment the main agreement is to be concluded.
Unilaterally.
This is possible if you have provided for such a procedure in the contract itself. For example, they decided that either party could refuse the deal if it paid the other compensation in a certain amount.
In specified cases.
The agreement specifies the possibility of termination without penalties in certain cases. For example, if the buyer has a mortgage, and the bank refuses to issue money. Or new circumstances appear in the transaction - for example, a new heir lays claim to the apartment.
Through the court.
If any of the parties does not agree to conclude or terminate the contract, they have the right to go to court within the period specified by law. No one can give guarantees what decision the judge will make - it all depends on the specific situation and the details specified in your contract.
Checklist for drawing up a preliminary agreement
Treat the preliminary agreement as the main one. Ideally, to draw up the main purchase and sale agreement, you only need to remove the word “preliminary” and synonyms from the first agreement.
- Be careful when drawing up a preliminary agreement.
If it does not fully describe the technical characteristics of the apartment and other nuances of the transaction, then such an agreement may be declared void in court. - The advance payment should not be too large.
There is no specific level established by law; it is worth focusing on market realities. For example, in Moscow, the market average is considered to be a deposit of 1-3% of the total cost of the property. In business segments, the advance can reach up to 10%. - Conclude a preliminary agreement in the same form as the main one.
If a notary is needed for the second, then the first will also have to be certified. - Agree on all financial issues in the preliminary agreement.
If the price is not specified, then in the event of a conflict it will be determined by the court. - Specify in the contract the procedure for termination and sanctions for this.
For example, you can terminate a contract unilaterally, but only through written notice and with payment of compensation to the other party.
The more conditions are specified in the preliminary agreement, the better.
