Preliminary sales agreement: everything you need to know

What is a preliminary sales agreement?

The preliminary sales agreement is a contract between two parties, commonly used to secure the purchase and sale of real estate. It anticipates the formalization of the deal, binding the parties to execute a final contract (public deed or definitive agreement) on a future date.

Its primary function is to protect both parties, ensuring that the seller commits to selling the property and the buyer commits to purchasing it under predefined conditions.

Essential elements of the agreement

The preliminary sales agreement is crucial in real estate transactions, establishing clear commitments between the buyer and seller before the finalization of the deal. To be valid and legally effective, it must include essential elements that protect both parties.

Firstly, complete identification of the parties is necessary, including name, address, taxpayer identification number (TIN), and other details ensuring the contract's legitimacy. Additionally, property identification is indispensable, with detailed information such as location, description, and land registry details to confirm the legality of the transaction.

Another key aspect is the price and payment terms, specifying the total amount, payment methods, and possible deposits as guarantees. The contract must also define deadlines for signing the definitive agreement and, if applicable, conditions for property delivery.

Lastly, specific clauses should be included, such as penalties for non-compliance or termination conditions. These provisions ensure both parties are protected and help prevent future disputes.

Ensuring the preliminary sales agreement is comprehensive and clear is essential for a secure and legally valid real estate transaction.

Validity and enforceability

To guarantee the validity of the preliminary sales agreement, it is recommended to draft it in writing and, in some cases, have it notarized. In transactions involving real estate, Portuguese law requires the contract to be executed through a public deed or authenticated private document to have enforceable power.

It is important to note that while the preliminary sales agreement does not transfer property ownership, it legally binds both parties to fulfill the agreed-upon transaction in the future.

The importance of the deposit in the agreement

The deposit is a sum paid by the prospective buyer to the seller as a guarantee of contract fulfillment. This amount, usually a percentage of the property's total value, is a critical element of the preliminary sales agreement.

If the buyer fails to comply, the seller can retain the deposit as compensation. Conversely, if the seller breaches the agreement, the buyer is entitled to receive double the deposit amount.

Benefits of a preliminary sales agreement

The preliminary sales agreement offers several advantages to the involved parties. The first is legal security, ensuring the deal will be completed as agreed. This type of contract also provides flexibility, allowing negotiation of deadlines and payment terms before the definitive agreement. Lastly, it protects rights with specific clauses safeguarding mutual interests and reducing the risk of future conflicts.

Risks and necessary precautions

Despite its advantages, careful attention must be paid when drafting and signing the preliminary sales agreement, as there are risks that could jeopardize the transaction. One of the main risks is the inclusion of unfair clauses that may impose unfavorable conditions on one party. Another risk involves legal issues with the property, such as irregularities in the land registry, mortgages, or outstanding debts, which must be verified in advance. Finally, contract non-compliance by either party can result in financial losses or delays, making it essential to include protective clauses.

How to ensure the agreement's legality?

To ensure the preliminary sales agreement is legal and effective, several recommendations should be followed. First, seek the guidance of a specialized lawyer who can assist in drafting the agreement and analyzing its clauses in detail to prevent future issues. Additionally, thorough document verification is essential to confirm the validity of the property's and parties' documents, ensuring compliance with legal requirements. Lastly, notarization through a public deed or authenticated document is recommended to strengthen the agreement's legal validity.

Conflict resolution

If disputes arise regarding the preliminary sales agreement, judicial or mediation routes are available. Thus, having a clear and well-structured contract is vital to minimizing potential conflicts.

The role of Engel & Völkers in the buying and selling process

Engel & Völkers stands out in Portugal's real estate market for its excellence and personalized services. With experienced consultants, we ensure that every step of the buying and selling process is handled with precision, guaranteeing that documents and contracts meet all legal requirements.

The preliminary sales agreement is fundamental to ensuring security and transparency in real estate transactions. Proper drafting requires attention to detail and the support of specialists to avoid complications.

If you are planning to buy or sell a property, trust Engel & Völkers to assist you at every stage of the process. Our team is prepared to make your transaction safe and efficient, protecting your interests throughout all phases.