By Lucia Boccarossa – Senior Associate Luxury Real Estate
When buying or selling a property, attention often focuses on the price and timing.
However, the outcome of the transaction also depends on the results of the due diligence carried out on the property, the existence of encumbrances or restrictions, and the way in which the contract allocates risks and responsibilities.
The preliminary agreement defines the transaction
The preliminary agreement binds the parties to subsequently enter into the final sale agreement.
It may regulate the purchase price, payments, deadlines, warranties, conditions for completion and the consequences of default.
A generic clause may leave a key issue unresolved and turn it into a problem before completion.
Check the property before committing
Any planning, building or cadastral irregularities, mortgages, attachments and other restrictions may affect the value of the property and the terms of the transfer and, in some cases, the validity or effectiveness of the transaction.
The relevant checks should be carried out in good time, so that the parties can address or remedy any issues, where possible, or revise the terms of the transaction.
Identifying an issue is not enough.
The agreement should establish who is responsible for addressing or removing it, within what timeframe, and what consequences arise if the issue remains unresolved.
The preliminary agreement may provide for obligations, conditions and remedies relating, for example, to the regularisation of identified issues, the discharge or management of encumbrances, the obtaining of financing and the outcome of technical due diligence.
Deposit, penalty clause and withdrawal
Each mechanism produces different effects:
- the confirmatory deposit gives the non-defaulting party specific remedies in the event of breach. A withdrawal deposit, on the other hand, constitutes the consideration for an agreed right of withdrawal;
- the penalty clause predetermines the amount or performance due in the event of breach or delay;
- withdrawal and termination regulate the circumstances in which the contractual relationship may end.
The choice depends on the risk that the parties intend to manage.
Between the preliminary agreement and completion
This phase requires ongoing monitoring. The parties must complete any required regularisation procedures, discharge encumbrances, collect the relevant documentation and verify compliance with the agreed conditions. The final deed of sale must then reflect the agreements reached and any changes that occurred during the transaction.
Are you considering a real estate transaction?
Before signing, check the obligations, restrictions and risks connected with the transaction.
Contact us. Properly structuring the transaction can make the difference.