In the field of selling and buying real estate, it is very common to come across the concepts of “promise to sell” (promesa de venta), “commitment to sell” (compromiso de venta), “offer to buy” (oferta de compra) and other similar concepts, all of which are part of what is legally defined as the “precontract” (precontrato). But what is a so-called promise to sell? And, not least, how does it differ from the contract of sale (contrato de venta) itself?
The promise of sale is included in the Spanish Civil Code in article 1451, defined as “The promise to sell or buy…” after which “…there being agreement on the thing and the price, it will give the contracting parties the right to reciprocally claim the fulfilment of the contract”.
This agreement between buyer and seller is characterised by the fact that the seller will keep the property off the market for a limited period of time, usually two to three months, and may not renounce the sale or sell the property to a third party. The purpose of this agreement is nothing more than to conclude, at a future date agreed in the contract, a contract of sale.
In short, the purpose of this agreement is to allow one of the parties to sell or buy the property at a future date due to the existence of specific and justifiable circumstances that prevent that party from signing the sale or purchase contract at this time.
However, the promise to sell in the purchase and sale process is a temporary and time-limited agreement, which is never an end in itself. This promise must end irrevocably in one of two ways: either the agreement expires if one of the parties does not sign the deed within the stipulated time, or the agreement is concluded by an official deed of sale at a notary.
When the term of this agreement expires, or earlier if the conditions of the promise of sale are met, an official deed of sale can be signed. The elements of the promise of sale are then set out in the final sale agreement.
Elements that a promise of sale may contain
A promise of sale typically contains at least the following details:
- Identification of the property. Registration number of the property, street, city and postal number, cadastral reference and anything else necessary to identify the property;
- Price. Fixed in the deed of sale;
- Date of signing the deed of sale. It may also set a specific date for formalisation, as well as a deadline or even a condition.
In addition, in many cases, it will also include the following details:
- Deed or proof of ownership;
- Existing easements;
- The mortgage situation;
- The status of the lease;
- The elements related to the co-ownership, if any, co-ownership regulations, etc.;
- The installations for energy, water, sewage, and swimming pools.
Many of these things should be included in the covenant to avoid misunderstandings. In any case, it will be necessary to include them in the final purchase agreement.
The seller must also commit to keeping the property in the condition observed at the time of signing this promise. The seller does not have the right to rent out the property if this has not been agreed with the buyer and not included in the agreement.
Differences from the contract of sale
Unlike the sales contract, the buyer does not have to pay the agreed price and the seller does not have to transfer ownership at the time of signing the promise to sell agreement. A purchase contract, on the other hand, is binding. Thus, the seller is obliged to deliver his property and the buyer is obliged to pay for it. The contract is enforceable and can only be terminated for legal reasons. In some cases, both parties can come to an agreement and solve the problem by paying financial compensation by the failing party.
Another distinction is that normally, in case of a promise to sell, the terms “reservation for the sale” (reserva para la compra), “penalty payment” (arras penitenciales), “deposit for the sale” (señal para la compra ) or “penalty clauses” (cláusulas penales) are referred to, while in contracts of sale, the terms “confirmatory deposit” (arras confirmatorias) or “down payment on account” (cantidad a cuenta) are referred to. In addition, the essential elements of the contract (price, form of payment, object, term) are usually closed. In case of non-performance by one of the parties, either mandatory performance or termination of the contract with financial compensation may be demanded. For this purpose, a penalty clause is usually included in the promise of sale that specifies the amount to be paid in case of non-performance.
What do the courts think about this?
The Supreme Court ruling of 11-06-1998 (ED 7870), states that the promise to sell is a: “preliminary matter or pre-contract in which the parties are not definitively bound as buyer and seller, but recognise each other’s right to demand performance of the intended relationship in the future without the need for new consent”.
This doctrine is based on the “negotiating will which consists of ‘giving future consent to conclude the effective sale, already outlined in its elements'”.
In outlining the elements of the future contract, the form is not so important (the parties are free to define it as they see fit) as the agreement on the mutual duty to conclude a contract in the future on the agreed terms, which thus requires cooperation between buyer and seller.
If you are in the process of buying or selling and would like us to examine an issue relating to a promise to sell, please do not hesitate to contact Lex Foris International Law.
Rafael Montes Velástegui