Why is it done? The preliminary agreement, or “compromesso,” is made to protect your interests, whether you’re buying or selling. When used correctly, it is a powerful guarantee that supports you during such an important moment as buying or selling a house.
When an agreement is reached between the buyer and the seller, in addition to the price, there are numerous details to define. The preliminary sales agreement, therefore, is a contract that outlines the agreement between the parties in detail. It must be written, as for it to have legal value, one of the essential elements (besides the agreement, object, and cause) is that the preliminary agreement must be in the same written form as the final sales contract.
In simple terms, it is a contract in which two parties – the seller and the buyer – commit to finalizing the actual sales contract at a future date. In practice, it is a mutual financial commitment, a sort of “binding promise” that creates an obligation: today, the notarial deed is not signed, but the obligation to sign it at a future date is established.
Now, why is it so important?
Because it serves to protect both parties, providing certainty that the agreement will be fulfilled.
Indeed, what is written in the preliminary agreement is binding for the final sales contract, which will be executed before a notary.
Moreover, to strengthen the protection, in addition to the essential elements (such as written form, object, cause, and agreement), the accessory elements of the contract are also important: these include the deadline, deposit, or penalty.
The deadline specifies by which date the deed will take place. It ensures that the legal relationship is not left in uncertainty (otherwise, if we do not set a deadline, the law establishes that there is a 12-year period to finalize the deal).
The deposit or penalty is an advance on the agreed price and serves to guarantee the seriousness of both the seller and the buyer.
Let’s take a few practical examples to understand the utility of the preliminary agreement, who it benefits, and why it’s necessary.
Imagine you are the buyer and have found the home of your dreams. However, before proceeding, you need a few weeks to get the mortgage from the bank. In the meantime, you don’t want someone else to swoop in and snatch the house from under your nose. By signing the preliminary agreement, the seller commits to selling the house to you, and you commit to buying it, but not immediately. You have time to sort out all the details, knowing that the agreement is set in stone.
On the other hand, the seller may need time to clear the property of furniture and personal belongings, or there may be some minor repairs to complete before the delivery. The preliminary agreement ensures that there is no doubt if the buyer backs out at the last moment because they changed their mind… perhaps after incurring moving costs. It provides a form of security that, if everything goes according to plan, the sale will be finalized.
But what happens if one party doesn’t honor the commitment?
If one of the parties decides not to honor the preliminary agreement, the other party has three alternative options:
- Termination for breach of contract
- Damages compensation
- Specific performance of the obligation to conclude the contract.
The first option is contract termination, essentially saying, “The agreement is void, and the deal is off.” Typically, to ensure the seriousness of the parties involved, a confirmatory deposit is established. This means if the buyer changes their mind, they lose the deposit, and if the seller changes their mind, they must pay double the deposit.
The second option is to request damages compensation, which must be quantified. Therefore, the party must decide whether it is more beneficial to claim the deposit or pursue compensation for damages.
Finally, there is a third, more interesting option: you can ask the judge to compel the other party to honor the agreement, obtaining a judgment that has the same effect as a notarial deed, meaning the transfer of property rights, according to Article 2932 of the Civil Code. This is called specific performance enforcement.
Imagine you’ve signed the preliminary agreement, but then the seller changes their mind and decides they no longer want to sell. Thanks to Article 2932 of the Civil Code, you can ask the judge to do what the seller would have done: transfer the property to you. It’s as if the judge becomes the pen that signs in place of the party who refuses to honor the agreement. In this case, the judge, through a constitutive judgment, substitutes the inertia of one of the parties. The judgment will be recorded in the property registers.
Conclusion
In short, the preliminary real estate sales agreement is a kind of “safety net.” It gives both parties involved in the sale time and certainty, but above all, it is a serious, binding commitment. If things don’t go as planned, there are legal tools to enforce that commitment, even forcing the sale through a judgment.