Preliminary sales agreement or letter of intent: What's the difference?
With our real estate agency in Paris's 16th arrondissement, our CENTURY 21 offices Auteuil Immobilier and Auteuil Seine, explore these two options in detail, including their pros and cons, as well as the steps you need to take to implement them.
What is a preliminary sales agreement?
A preliminary sales agreement, also known as a unilateral promise to sell, is a commitment made by the seller to sell their property to a potential buyer for a specified period. During this period, the buyer has an exclusive option to purchase the property. The buyer has the right, but not the obligation, to purchase the property under the terms set forth in the promise of sale.
What is a preliminary sales agreement?
A sales agreement, also known as a synallagmatic promise of sale, is a reciprocal agreement between the seller and the buyer. Both parties make mutual commitments: the seller to sell the property and the buyer to purchase it, under the terms set forth in the preliminary agreement. This commitment is binding on both parties, subject to the fulfillment of the conditions precedent if any.
What are the similarities between a preliminary sales agreement and a sales contract?
Despite their differences, a promise to sell and a sales agreement share several common characteristics:
- Both are preliminary agreements for the final sale of real estate;
- They specify the terms of the sale: price, description of the property, date of signing of the notarized deed ;
- They may include conditions precedent, such as obtaining a bank loan or a building permit;
- They give to the payment of a security deposit (for the preliminary agreement) and the earnest money (for the promise) paid by the buyer;
- They offer a 10-day cancellation period to non-professional buyers.
What are the differences between a preliminary sales agreement and a binding sales agreement?
The main differences lie in the parties’ commitment and the resulting consequences:
- The parties’ commitments: In a preliminary sales agreement, only the seller makes a commitment, whereas in a binding agreement, both the seller and the buyer make mutual commitments;
- The buyer’s freedom: The buyer is free to decide whether or not to exercise the purchase option in a preliminary sales agreement, whereas the buyer is obligated to purchase under a binding agreement (unless certain conditions precedent have not been met);
- Reservation Fee: In a preliminary sales agreement, the buyer pays a reservation fee in exchange for the option, which will be forfeited if the buyer does not exercise the option. In a preliminary sales agreement, the security deposit is refunded if the conditions precedent are not met;
- Term: A preliminary sales agreement generally has a limited term (often 2 to 3 months), whereas the The compromise has no predetermined duration.
