The sales agreement
by Lex Thielen 1
Definition of the sales agreement
The sale agreement of an immovable is a synallagmatic promise (a promise on both sides giving rise to reciprocal obligations for the parties) by which a person undertakes to sell real estate to another person who commits himself to acquire it at a fixed price and under certain conditions.
In fact, the term "compromise does not correspond to the specific legal terminology in this area, because that concept is, in its strict sense, the convention by which two parties submit the solution of a dispute to the arbitration procedure provided for by the Articles 1224 et seq. of the new Code of Civil Procedure. Also the civil code uses the term "promise of sale. However, as is often the case, this term has become public and has become an integral part of the legal vocabulary for real estate sales.
Scope
A sales agreement is still possible in real estate, with the exception of the sale of a building to build. This is the subject of special legislation and the Civil Code provides that only a reservation contract as defined by Article 1601-13 of the Civil Code may precede the forward sale contract or the sale. in the future state of completion. Any other agreement concerning the reservation of a building to be built, such as a sales agreement, is void.
Conditions of form and substance
The sales agreement is not in itself subject to a particular formality and a verbal agreement may be sufficient in principle. But because of the requirement of Article 1341 of the Civil Code to prove in writing any legal act relating to a sum or value above a certain threshold (currently set at 2,500 euros), in practice the parties are obliged to pass the written compromise in order to be able to prove it in case of need against the other party.
As for the substantive conditions of the sales agreement, they are the same as for any contract: each party must have the capacity and the power to proceed with the proposed transaction, their consent must be free, the object must be determined (the real estate as well as the price), and the cause of the sale must be real and lawful .
Usefulness of the sales agreement
What is the utility of the sales agreement if it already constitutes in itself an irreversible commitment of sale and acquisition for the parties?
The first reason is the obligation to have the real estate sale recorded by an authentic instrument. Admittedly, the notarial deed is not necessary for the sale to be valid between the parties. But the legislator imposes the obligation of an authentic act in order to make the sale public and therefore opposable to third parties. However, the notary is usually not present when the parties agree on the real estate transaction to be carried out, and the appointment at the notary may take some time, so it is important for the parties to nail their agreement as soon as they have both expressed their consent to the sale, to prevent the other party from being damaged before going to the notary.
The second reason is the possibility of providing a suspensive condition in the compromise.
Suspensive condition
Often a part of the parties, usually the buyer, intends to submit the sale transaction to the prior fulfillment of a condition precedent before being committed to the transfer of ownership. This is most often the agreement of a bank on a loan to finance the acquisition, but there are other reasons to provide a condition precedent, eg obtaining a specific administrative authorization or the verification of the condition of mortgages on the real estate.
The parties often provide a period within which the party for whom the suspensive condition was introduced must do so, failing which the sales agreement will lapse. If no delay is provided, it is up to the judge who is seized of the request in resolution of the compromise to verify if it has become certain that the condition will not be realized. 2 The parties may also waive the time provided for the fulfillment of the condition and this waiver may even be tacit; proof of such an extension of time must be proven in writing and can not be reported by way of testimony. 3
It should be noted that according to case law confirmed by the Luxembourg Court of Cassation, the buyer who enters into a suspensive condition is bound by an obligation to cooperate fairly so that the condition can be fulfilled and he must undertake any its possible for the operation to succeed. 4
In the event that the suspensive condition is not fulfilled, the sales agreement automatically lapses and ceases to produce effects. A partial fulfillment of the condition precedent is not considered as fulfillment of the condition to make the sale effective; it has been held that if the bank agrees to a loan of less than the amount requested in accordance with the sales agreement, the condition is not fulfilled 5 .
If the suspensive condition is not fulfilled because of a faulty attitude of the contracting partner (eg the buyer does not introduce a loan application, it deliberately lags in not providing timely to the bank the documents the other party has the right to request performance of the contract after the expiry of the prescribed period as if the condition had been fulfilled.
Finally, if the buyer obtains the granting of the loan but fails to inform the seller of the fulfillment of the condition precedent, the seller commits a fault if he sells the property to another person without first inquiring about the fate of the loan from the buyer, unless such an information obligation has been provided for in the compromise. 6
Can a party cancel a sales agreement?
Yes, under certain conditions. Firstly, the parties may provide in the agreement a resolutive clause automatically in case of non-performance of its obligation by one of the parties. It should be noted that the execution of such a clause does not preclude the party who may invoke it from continuing rather with forced execution if it prefers.
In the absence of a resolutive clause, and if the other party opposes an amicable resolution, a party who wishes to cancel a compromise must apply to the judge for a judicial resolution. This is so not only in the event of non-performance by one of the parties of its obligations, but also, for example, if there is an error in the very substance of the object. Thus was canceled the compromise of an acquirer who thought to buy a semi-detached house with lateral passage on the other side while the land next to the house was a building site belonging to the seller and allowing the construction of a house also twinned on this side of the house. 7
Time for reiteration
Generally the sales agreement provides for a period within which the authentic deed of sale must be passed. This delay is called the reiteration delay. Both its duration and its point of departure may be freely determined by the parties in the compromis.
When the deadline is exceeded without the parties having to go before the notary, the compromise does not become null and void, unless it provides for a resolutive clause by operation of law. At the expiry of the period of reiteration, each of the parties may require the other party to perform the compromise and, failing that, to ask the judge to either enforce the execution or judicial notice of the sale, or to -this.
Warranty clauses
A penalty clause may be provided for the non-completion of the real estate transaction by one of the parties. The purpose of such a clause is to charge a lump sum of money by one party to the contract when it fails to honor its commitment. Such a penalty clause could also be provided for exceeding the reiteration period.
Compromise can also contain a deduction clause. This allows one of the parties to withdraw from the contract without executing it, by paying a specified sum of money to the other party. It should be noted that if the latter has accepted a withdrawal clause, he can not oppose the invocation of this clause by the other party and can not therefore request a compulsory execution.
Article 1590 of the Civil Code expressly provides for the possibility of stipulating a deposit, the latter allowing each party to divest itself of its commitment. If it is the buyer who gives up, he loses the amount paid as a deposit, if it is the seller, he must return to the buyer double that amount.
Finally, a down payment can be expected also, but this assumption is rarer in practice. However, it has the advantage of guaranteeing the seller the payment - at least partially - of the amounts due not only for the payment of the price, but where appropriate also under a penalty clause or a deduction clause. In the absence of a clause to the contrary, the deposit must be returned in the event that a condition precedent stipulated in the contract is not fulfilled and makes the compromise null and void.
Substitution clause
Often the sales agreements provide for a substitution clause that allows the buyer to substitute another person who will ultimately be the purchaser of the property. Such a clause is valid, but the substitution must be notified to the seller. It is obvious that in the absence of such a clause, a substitution of the purchaser is not possible, unless the seller agrees.
Effects of the sales agreement
A sales agreement is in itself a real contract that engages the parties. Admittedly the compromise is not the contract of sale, but under the terms of article 1589 of the civil code the promise of sale "is worth selling when there is mutual consent of the parties both on the object and the price. As soon as this mutual consent is realized, the effects of the compromise are the same as those of the sale itself. If afterwards one of the parties refuses to formalize the sale before the notary, the other party may request enforcement. However, since the compromise is only a sale but not a sale, the parties can waive it or derogate from it by mutual agreement, since the provision of Article 1589 of the Civil Code is not of public order. .
Is the transfer of ownership at the time of the compromise or the authentic instrument?
In principle the transfer of ownership is between the parties at the time of signing the sales agreement.
If the agreement provides for one or more conditions precedent, the transfer of ownership is suspended until the fulfillment of the last of these conditions. When all conditions precedent are fulfilled, the transfer of ownership is made retroactively to the date of the sales agreement. On the other hand, if the conditions precedent are not fulfilled, the agreement ceases to exist, the buyer is released from his obligation and there will be no transfer of ownership.
However, the parties may provide in the agreement of sale that the transfer of ownership will take place at another time, eg at the signature of the authentic deed. In this case, the transfer of ownership occurs at the time stipulated in the sales agreement. In case of difficulty of interpretation of the compromise, it will be up to the judge to seek the will of the parties.
Real Estate Commission
Very often the sale is done through a real estate agent. The sales agreement then generally provides for the real estate agent's commission and the terms of his payment (eg direct retention by the notary of the commission of the sale price and continuation to the real estate agent).
What happens if the seller sells the real estate to another buyer before signing the deed?
Sometimes after signing a sales agreement with an interested buyer, the seller sells the real estate to another person before the signature of the authentic instrument with the first interested buyer, eg because he obtains the second a better price. Then arises the question of which of the two buyers will be transferred ownership.
Priority will be given in this case to the purchaser in good faith whose deed will have been transcribed first by his deposit at the Mortgage Retention Office, in accordance with the legislation on land registration. It should be noted that if authentic instruments can be transcribed, this is not possible for private acts; a non-authentic sales agreement can not be transcribed and a notarial act of sale will thus always have the preference over a prior private sale agreement, even if the compromise has been registered and has a certain date.
If the two purchasers can assert an authentic instrument, preference will be given to the title which is the first to date. If none of the purchasers has published its right, the preference will go to the one whose title has acquired certain date. If both titles have a certain date - even if the two do not have - the oldest date prevails over the other.
In this case, the first purchaser will no longer be able to claim the transfer of ownership, but may, where appropriate, use a penalty clause or claim damages from the seller.
On the other hand, in the event of bad faith of the purchaser, ie if the latter is aware of the priority of the title of the first purchaser at the time he signs his own compromise, the case-law considers that there is a fault on the part of the second purchaser and that for this reason he can not rely on his profit the rules of opposability of the land advertising.
1 Lex Thielen is a lawyer at the Court and author of the books "Real Estate Professions in Luxembourg Law", Editions Larcier, 2010, "The lease contract", Editions Promoculture / Larcier 2013, "All about real estate" , Editions Promoculture / Larcier (1st edition 2015, 2nd edition November 2016) and "Immobilienrecht in Luxemburg, einfach erklärt" Editions Promoculture / Larcier 2016. This article has already been published in the issue 64 - February 2011 of habiter.lu, and has been updated.
2 Court of Cassation (civil) 26 March 2009, Luxembourg Pasicrisie, volume 34, n ° 4/2009, p. 407.
3 Court of Appeal (civil) December 12, 2007, Pasicrisie luxembourgeoise, volume 34, n ° 3/2008, p. 81.
4 Cour de cassation (civil) 14 July 2009, Luxembourg Pasicrisie, volume 34, n ° 4/2009, p. 4.
5 Court of Appeal 22 October 2008, Jurisprudence Information Bulletin of the Young Bar Association of Luxembourg (BIJ), 2009 p. 2.
6 Court of Appeal April 16, 2008, BIJ 2009 p. 24.
7 Court of Appeal December 10, 2003, JurisNews Construction and Real Estate, vol. 1 no. 01/2007 p. 1.