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Preliminary contract in Bulgaria: Main aspects


Preliminary contract in Bulgaria: Main aspects

Are you selling or buying a property in Bulgaria? Then you would need to sign a preliminary contract first. This is already common practice in real estate transactions. It represents a formal promise for selling the real estate.

Here we will discuss the most important questions related to this kind of contract and why it is necessary.

Why sign a preliminary contract?

By law, the sale of real estate is carried out in the form of a notary deed. A notary deed is a type of contract that is prepared and signed before a notary.

However, sometimes parties are not ready to sign a notary deed yet. In this case, it is highly recommendable that they sign a preliminary contract. This secures the deal before it is finalized in the notary’s office.

Note that the signing of a preliminary contract doesn’t establish a property right for the buyer.

How to sign a preliminary contract?

This type of contract has to be in written form and signed by both parties who can be individuals or legal entities. They cannot be under 18 years old.

The preliminary agreement has to contain a description of the property and its sale price, as well as a clear statement of what the contract’s purpose is. Additionally, the parties can agree on a deadline for the conclusion of the final contract, payment methods and other details.

As in any other contract, the main elements are the rights and obligations of each party. Under the preliminary contract, they are obliged to sign a final contract for purchasing / selling the property and have the right to demand the fulfillment of this obligation.

Preliminary contract for purchase / sale of property: Content

The preliminary contract must include all the essential terms of the final contract and should include clauses that accurately describe the real estate to be transferred.

These are its main points:

  1. Place and date of signing the contract.
  2. Name, personal identification number and contact details of the buyer and the seller.
  3. Subject of the contract - purchase / sale of the respective real estate with specified address, area, property, its purpose and boundaries, neighbours, etc.
  4. Purchase price of the property.
  5. Deadline for signing a final contract - with the respective conditions to be fulfilled within this term.
  6. Expenses and terms of payment.
  7. Obligations of both parties.
  8. Cancellation and penalties under the contract.
  9. Additional provisions.
  10. Signatures.

Moreover, the seller also needs to declare in the contract that third parties do not have any rights over the property.

Real estate agencies usually offer their clients ready-made standard preliminary contracts. It is highly recommended that the contract be drawn up and / or verified by a good real estate lawyer. It is a good idea for your lawyer to be present at the signing of the contract. This will protect you from concluding an unprofitable deal.

Do you need legal advice and assistance? Contact our experienced lawyers.

Preliminary contract: Advantages

Although it is called a preliminary contract, it is just as important as the main contract. It brings more security to both parties, as well as other benefits, for example:

  • Additional time for getting financing

The contract provides the buyer with an additional period of time to obtain the amount required for the purchase. The buyer can apply for a mortgage loan or sell their own real estate. It is possible to arrange deferred payment as well.

  • Additional time for completion of construction (when buying a property under construction)

The seller of the property is able to perform some construction and installation work and to obtain the necessary documents for the property such as tax assessment, sketch, scheme of the property, etc.

With the preliminary contract the owner of the property is obliged to obtain (as of the date of conclusion of the final contract) a certificate for lack of encumbrances on the property - mortgages, foreclosures, registered claims, established right of use.

  • Security at a lower price

Signing a preliminary contract is much cheaper than a transaction before a notary. It isn’t necessary to pay any fees and obtain any documents at this point.

Failure to fulfill obligations under the preliminary contract: Consequences

If one of the parties doesn’t fulfill their obligations under the preliminary contract, finalizing the deal might not be possible. For example, in case the buyer does not pay the rest of the price or the seller does not appear on the agreed day for conclusion of the transaction before a notary.

In this case, the non-defaulting party can choose between several options:

  • Invite the other party to voluntarily fulfill their obligations within a reasonable time.

Usually the parties agree on payment of part of the sale price at the conclusion of the preliminary contract - most often this is 10% of the final amount. This serves as a deposit. If one of the parties fails to fulfill the contract, the other party may demand double the amount of the deposit back as a refund.

  • Request that the preliminary contract be declared final.

According to Art. 19, para. 3 of the Bulgarian Obligations and Contracts Act, each party to a preliminary contract may file a claim for declaring it final, provided that they have fulfilled their own obligations under the contract. In such a case, the final contract will be concluded by a court decision.

  • Terminate the contract and seek compensation.

The amount of compensation should be agreed in the preliminary contract in advance. It isn’t mandatory, but in case of cancellation of the contract, the compensation will cover only the monetary losses and the lost possible income from the property. However, they may be difficult to prove or might not amount to much.

 

It is crucial to know your rights and obligations so that you can seek compensation or avoid sanctions. Signing a preliminary contract when buying / selling real estate in Bulgaria is a must nowadays, and it is best if you seek the assistance of a good lawyer to carefully examine it.

Moreover, note that the contract must be in Bulgarian to meet legal requirements. Some developers and estate agents provide contracts in English to facilitate the process, but remember that to be legally binding, the contract must also be in Bulgarian. Have a trusted translator with you if necessary.


In case you need to consult an expert, contact our law firm.

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