The preliminary sale agreement is the document that seals the deal and sets the terms agreed between the seller and the buyer. Before signing a preliminary sale agreement, never forget that “a sale agreement equates a sale”. As Luxembourg law does not provide for a withdrawal period for property sale, it is crucial to be aware of what the signing of the sale agreement implies.
What a preliminary sale agreement should include to be valid
First of all, the sale agreement shall have a contractual value only if it mentions a minimum of information. This includes the name and address of each party, a precise description of the property, the selling price as well as the payment terms.
Though the sale agreement is not signed before a notary, it must be registered with the Administration to better protect the signing parties and, above all, to attribute a legal date to the contract. Be careful, if the agreement does not provide for a suspensive clause, the registration fee (7% of the selling price) becomes due as soon as the agreement is registered. As a general rule, make sure you read the whole document as it contains key information about the next steps of the process, and about your rights and duties.
“If the agreement does not provide for a suspensive clause, the registration fee (7% of the selling price) becomes due as soon as the agreement is registered.”
Understanding the main clauses of a preliminary sale agreement
In most cases, the buyer needs to request a mortgage loan to fund the transaction. And in this typical case, the sale agreement generally includes a suspensive condition of obtaining a loan. Concretely, this clause binds you to abide by your commitments only if you obtain the agreement of a financial institution.
If you are not sure to find a bank that will grant you a loan, you must ensure that such suspensive condition is included as it will give you the right to legally withdraw if you do not obtain the funds, without risking prosecution and without paying any compensation.
“If you are not sure to find a bank that will grant you a loan, you must ensure that such suspensive condition is included.”
The Penalty clause is also a rather unavoidable part of a sale agreement. It defines the amount of the compensation that shall be paid by any party who decides not to carry on. This amount is generally around 10% of the selling price.
What does the signing of the preliminary sale agreement concretely imply?
As a real contract, the preliminary sale agreement sets the terms of the property purchase. The seller and the buyer are bound to abide by this agreement or they risk a legal prosecution and the payment of a compensation (calculated according to the damage suffered by the other party).
To that extent, when you sign your name at the bottom of this document, you become legally bound to buy the property at the agreed price. You will not be able to revoke your decision without consequences, except if you have not obtained the loan and the suspensive clause related to the funding applied.
As for the seller, he is also committed to you. He is not allowed to conclude a deal with anybody else, even if he manages to be offered a better price. Should you be in this type of situation, you can bring the case before the court and request a compensation — the court will resort to the penalty clause to take a decision.
As a real official agreement between the buyer and the seller, the preliminary sale agreement shall be concluded prior to signing the deed of sale before a notary. This final step ratifies the purchase and gives the new owner the right to enjoy his property once the payment has been completed.