Preliminary Sales Agreement: What Do You Need to Know Before Signing?
What is a preliminary sales agreement?
A preliminary sales agreement, also known as synallagmatic promise of sale, is a contract under which a seller agrees to sell a property to a buyer who agrees to purchase it, either subject to certain conditions or unconditionally, at a specified price. This document is legally binding and marks the official start of the real estate transaction.
What is included in a preliminary sales agreement?
A sales agreement generally includes the following elements:
- The specific identities of the parties (seller and buyer);
- A detailed description of the property (address, square footage, condition, etc.);
- The agreed-upon sale price;
- Payment terms;
- The date thenotarized document ;
- The conditions precedent ;
- The Mandatory Real Estate Inspections ;
- Any easements or encumbrances on the property;
- The amount of the security deposit.
What are the conditions precedent to a preliminary sales agreement?
Conditions precedent are clauses that allow the buyer or seller to withdraw from the sale if certain conditions are not met. The most common ones are:
- Obtaining a mortgage: This is the most common condition precedent. It stipulates that the sale will be effective only if the buyer obtains the financing necessary to purchase the property;
- Obtaining a building permit: This condition is particularly important for building lots or major renovation projects. It allows the buyer to back out if local authorities deny the building permit or require substantial changes to the original project;
- The municipality's lack of preemptive right: In certain areas, the municipality has a urban right of first refusal (DPU) which gives the municipality the right of first refusal to purchase the property. The preliminary sales agreement may include a clause stipulating that the sale will be effective only if the municipality does not exercise this right;
- Completion of specific work: This condition may be used if significant work is required prior to the sale. For example, if the seller agrees to perform certain repairs or bring the property up to code, the buyer may include a clause stipulating that the sale will be finalized only if this work is completed satisfactorily;
- The sale of another property: Often, the purchase of a new property depends on the sale of an existing one. This clause allows the buyer to make the purchase contingent upon the prior sale of their own property.
If these conditions are not met in the time limit, the preliminary agreement becomes null and void, and the parties are released from their obligations.
How do you draft and sign a preliminary sales agreement?
Although it is possible, it is not recommended to draft a preliminary sales agreement on your own. It is best to consult a professional (notary, real estate agent) to ensure that all legal aspects are properly handled. The signing can take place at private document (between the parties) or before a notary.
Good to Know : In any case, it is recommended that you have the document registered with the tax authorities to establish a definitive date.
