The purchase of real estate is an increasingly up-to-date choice among investors – individuals and legal entities looking to earn a passive income, save money or build an investment portfolio. It often occurs when „ good offer “ for attractive property, for fear of being overtaken by another buyer, the persons to be hastily bound by preliminary contracts under unprofitable conditions, without providing themselves with sufficient time to inform themselves in depth about their offer, incl. to obtain documents, certifying the lack of encumbrances or rights of third parties on the property and to study their potential counterparty. These risks can largely be avoided by concluding a deposit contract (or so-called „ stop deposit ”, „ deposit receipt ”, „ buyer guarantee agreement ”, etc.). However, in the event of ignorance of the legal nature of the deposit contract, potential buyers are at risk of losing a considerable amount they have paid under it, or to make a transfer transaction unprofitable for them.
What is a deposit contract when buying real estate?
The conclusion of a contract is usually preceded by a negotiation process. In view of the complexity of the real estate transfer transaction, these negotiations may be too lengthy. That is why in Art. 12 of the Law on Obligations and Contracts the institute of pre-contractual liability is introduced, when the parties do not act in good faith in the conduct of the negotiations. However, it is permissible for them to agree on the parameters of future negotiations with each other and thus to outline the criteria for their conscientious conduct. Manifestation of this possibility for preliminary determination of the parameters of a future transaction for sale of real estate is the conclusion of a deposit contract, which precedes the signing of a preliminary contract within the meaning of art. 19 ZZD. The deposit agreement has no regulation in the Bulgarian legislation, but finds wide application on the occasion of the forthcoming conclusion of a preliminary contract for purchase and sale of real estate. With the deposit agreement the parties shall settle within the framework of the freedom of negotiation established in Art. 9 CPA, its relationship in relation to a cash amount transmitted by the future buyer to the future seller, which serves as a guarantee for the buyer’s intention to be bound validly by a preliminary contract for the purchase and sale of real estate. The agreement thus reached constitutes an unnamed contract (“ agreement of intent “) under which the parties govern their pre-contractual relations. Its purpose is to ensure the commitment of the counterparties to the future transaction by granting a / or „ stop deposit “/
What Rights And Obligations Arise For The Parties When Concluding A Deposit Agreement When Buying Real Estate?
The content of the contract in question is freely determined by the parties. Although the parameters of the deposit contract for the purchase of real estate are not regulated by law, the usual obligations that the parties assume when concluding such can be deduced. First of all, the seller of the property undertakes inaction, namely not to offer it to other candidate buyers during an agreed period of time. For its part, the future buyer undertakes to pay the seller a certain amount, which the parties may provide will be deducted from the sale price of the property. A penalty in case of non-fulfillment of the obligation for concluding the contract by the parties may be for the retention of the given amount under the deposit contract by the seller or the return of the same in double amount of the buyer (depending on which is the defaulting party), in case the counterparties have given to the amount paid under the contract the meaning of a grant within the meaning of Art. 93 ZZD. Thus, if the preliminary contract is concluded, the given is considered to be an advance payment of the purchase price and should be deducted from it, and if no such is concluded, if there is no stipulation, that the given represents an assignment, the amount will be subject to return on the grounds of Art. 55, para. 1, front. 3 CPA as paid without a legal basis.
Deposit agreement concluded with the real estate seller
There are two main hypotheses for concluding a deposit contract. They are, first, between the candidate-buyer and the candidate-seller, and secondly – between the candidate-buyer and the real estate agency, which acts as an intermediary in the conclusion of the transaction for sale of the real estate. Where the deposit contract is concluded between the prospective buyer and the seller, it is essential that the party to the contract is precisely the seller, his legal or voluntary representative, as it is not possible for a counterparty to be a person who has limited real or bond rights to the property. At the first variety of the deposit contract, the potential seller undertakes to cease its business of offering the property to third parties, as well as to conclude preliminary and respectively final contracts for the sale of the property within the specified period. The time in which the preliminary contract must be concluded shall also be agreed, and a longer period or a specific date may be provided. It is the agreed period for the future seller to refrain from conducting inspections and concluding sales contracts that should serve the parties to agree on the main parameters of the forthcoming transfer transaction. In addition, in this way, the potential acquirer has the opportunity to carefully examine the existence of encumbrances on the property and other circumstances that would dissuade him from entering into a contractual relationship with the seller.
What should we keep in mind when concluding a deposit agreement with a real estate agency?
In the second variety of the deposit contract, the candidate-buyer pays the real estate agency an amount that serves as a guarantee for the purchase of the real estate, and the agency as an intermediary undertakes to reach with the seller an agreement on the conditions desired by the buyer, which will be objectified in the preliminary contract. The function of the amount given under the deposit contract is to ensure the fulfillment of the obligations of the parties. The intermediary should return the guarantee to the future acquirer in case the latter concludes the preliminary contract under which the agency has agreed with the seller in accordance with the instructions of the buyer. The amount will serve as a kind of penalty for non-fulfillment of the obligations under the guarantee contract with a buyer if he does not conclude the preliminary contract despite the acceptance of its terms by the seller. Moreover, if the real estate agency fails to negotiate the parameters of the preliminary contract desired by the buyer, it should return the amount given under the deposit contract. However, potential buyers should keep in mind that concluding such a contract does not in itself guarantee that they will be able to purchase the property in which they are interested. This is because the party to the deposit contract is the real estate agency, not the seller, who is free to dispose of his property in favor of a third party while the negotiation process is ongoing.