French property contracts: the sales agreement
The pre-contract and undertaking to sell are two contracts with different consequences for the buyer and the seller.
Undertaking to sell
In the undertaking to sell (also called “unilateral undertaking to sell”), the owner commits to the potential buyer (named the beneficiary) to sell him/her his property at a specified price. He/she thus gives him/her an exclusive “option” for a limited time (typically two to three months).
During this period, it is forbidden for him to give up the sale or to propose the property to another purchaser. This promise allows the potential buyer to decide whether he wants to buy or not the property. An undeniable advantage!
In return, the potential buyer pays the seller a reservation fee, generally equal to 10% of the sale price.
If he/she decides to acquire the property, this fee will be credited on the sum to pay. But if he/she renounces to acquire the property, or if he/she does not signify his/her acceptance during the option period, the fee shall be legally withheld by the owner as compensation.
To be valid, the undertaking to sell must be registered with the tax office within the ten days following the signature if it concerns a deed under private seal .
Moreover, when the undertaking is granted for a duration greater than 18 months, said undertaking must be executed by authentic act.
The registration fees paid by the purchaser amount to €125.00.
Often in a hurry to conclude, the buyer and the seller sometimes believe that the signing of the pre-contract does not involve any significant commitment.
This is not correct: Despite its name, this preliminary agreement constitutes a genuine “contract” implying important obligations for both parties. This contract allows them to specify the conditions of the future sale and signify their agreement.
Although it is not legally mandatory, this document is thus indispensable.
In the pre-contract (or “synallagmatic promise of sale”), the seller and the buyer both undertake to conclude the sale at a commonly specified price. Legally, the compromise is then considered as a sale.
If one of the parties renounces to the transaction, the other party can force the renouncing party by way of justice, moreover by requiring the addition of damages and interests.
The signing of the compromise is accompanied by the payment by the purchaser of a sum comprised approximately between 5% and 10% of the sale price. Called security deposit , this sum shall be added to the price at the time of the signing of the notarial act.
Unlike the undertaking to sell, the pre-contract does not need to be registered with the tax services. This absence of fees is an asset.
Interchangeably called purchase bid, unilateral promise to purchase, or even simply price offer, this document presented by some real estate agents should be regarded with caution.
Indeed, its main characteristic is to engage only the buyer, not the seller.
The seller must notify his/her response to you within the time limits and according to the form provided in the offer (generally by registered letter with a form of acknowledgment receipt). If he/she accepts the offer in writing, the sale shall theoretically be deemed concluded. However, you may perfectly withdraw if the seller offers a counter-proposal or if it does not answer you within the deadlines.
An elementary precaution consists in including suspensive conditions in the purchase bid (for example, obtaining a loan) and leaving only little time to the seller (a week or two) to give you his/her answer.
No payment may be asked from the purchaser, under penalty of nullity of the offer (Article 1589-1 of the Civil Code).
Suspensive clauses: exceptions to the commitment
Whether it is an undertaking to sell or a pre-contract, the buyer and the seller may decide by common agreement to insert suspensive clauses. These clauses are used to allow the nullity of the pre-contract if certain events occur before the final sale (each of the parties being then free from the contract).
For example, this may concern the refusal of a loan from the bank of the purchaser, the exercise of the preemption right by the municipality, the discovery of a serious urban planning servitude, etc.
In that case, the sums which had been paid by the purchaser shall be returned to him/her.
In addition, a pre-contract may also contain a clause called “clause of withdrawal” allowing the seller and/or to the purchaser to withdraw from the sale without reason while leaving a previously agreed upon sum to the other party. However, this is rarely the case.
This clause should not be confused with the penal clause, included in most pre-contracts, according to which the purchaser undertakes to pay the seller a fixed amount for compensation when the purchaser refuses to sign the sale.
Withdrawal period for the purchasers
As purchaser of a new or old house, you sign a pre-contract, a unilateral promise or a sales agreement: you have a ten day period (incompressible) during which you may withdraw (by registered letter with advice of receipt).
Whatever your reason, the sums that you have paid shall in all cases be fully restored to you. This withdrawal period starts from the day after personally handing the documents (or from the signing of the act if it is retained by the public officer) in case of promise passed under authentic form, or from the first presentation of the registered letter with notice of receipt containing the pre-contract, in case of promise passed under private deed.
For example, if the letter is sent the 10th of the month and that its first presentation takes place the 12th, this period would start the 13th and expire the 22nd at midnight.
You should have your pre-contract prepared by a professional.
The buyer and the seller are free to write the pre-contract themselves on a sheet of paper, or from model contracts.
However, the clauses contained therein being of such importance, the final contract only reiterating said clauses, it is recommended to entrust their drafting to a professional (your Notary), who has the duty to inform both parties. The drafting cost of the pre-contract is included in the real estate agent’s commission or in the Notary’s emoluments who will sign the final sale.
- I am a tenant of my principal residence and owner of my second home. I want to sell it so I can buy a new home that I will assign to my main home. This residence is worth 300.000 €, but I still have 100.000 € of credit to refund. [...]
- Seven years ago, I had my house extended but I did not take out property damage insurance. I wish to sell my property but the notary tells me that I must personally guarantee the purchaser in case of occurrence of damage covered by the ten-year guarantee.