Buying or Selling Property – the Promise of Sale (Konvenju)

If you are looking to buy or sell a property, the first step to formalise an agreement is to enter into a promise of sale (konvenju). This article will explain some of the main items one needs to be aware of before signing a promise of sale and during the period of validity of the promise of sale.

A promise of sale is a binding agreement whereby the buyer and seller undertake to enter into an actual deed of sale between themselves. A promise of sale is normally done in front of a Notary Public, and in order to be valid, it must be in writing, fulfill certain requirements and be registered with the Inland Revenue Department.

A simple verbal agreement between a buyer and seller, or a written agreement which does not fulfill the legal requirements, does not constitute a promise of sale and would not be legally enforceable. Either party would be free to change their mind about buying or selling, or about the terms and conditions.

Although the promise of sale is not the final deed of transfer, it is arguably more important than the actual transfer. This is due to the fact that the promise of sale is legally binding, and the terms and conditions agreed upon in the promise of sale cannot be changed on the final deed (unless both buyer and seller agree). The seller cannot, for example, unilaterally decide to raise the price of the property after signing the promise of sale, just because he forgot to consider the agency fee or taxes payable.

Some conditions to consider and be aware of when entering into a promise of sale are:

1. Whether the deposit is left with Notary or given directly to the sellers (or released in favour of the sellers upon the fulfillment of certain conditions)

2. Customarily, the deposit is given on account of the price. However, it may also be given as earnest (kapparra). In this latter case, the promise of sale is not enforceable, and therefore either party may back out of the promise of sale subject to forfeiture of the kapparra.

3. Whether the property is freehold or subject to a groundrent (whether a temporary or perpetual groundrent)

4. The description of the property, what rights it enjoys and whether it is subject to any burdens or constraints

5. Whether the property is built according to permit

6. Whether the property is being sold as is and with all guarantees according to law, and whether movables are also part of the sale

These are just some of the clauses that may need to be considered and may have important repercussions on the promise of sale and eventual final deed, for both the buyer and the seller.

By way of example, if the property is subject to a groundrent which needs to be redeemed in order to render the property freehold, but on the promise of sale the property is erroneously described as being freehold, the seller would be obliged to pay for this redemption in order to sell according to the conditions agreed in the promise of sale. However, if the property was correctly described in the promise of sale as being subject to the groundrent, the buyer would have to buy the property as subject to the groundrent or else to redeem at his expense.

Any conditions to which the promise of sale is subject, must be clearly disclosed in the promise of sale. Thus for example, if the buyer requires a bank loan in order to acquire or wants to acquire subject to obtaining a planning permit, these conditions must be stated. Conditions may also be included in favour of the seller, for example when the sale is subject to obtaining court authorisation for the sale. If such conditions are not stated in the promise of sale, then the parties cannot rely on them. Therefore if, for instance, the promise of sale is not subject to the buyer obtaining a bank loan, the buyer cannot then back out of the sale citing failure to obtain a bank loan.

The promise of sale will have a stated period of validity. A promise of sale is only valid and enforceable during its period of validity. Any action to either enforce the promise of sale (that is, to force the other party to appear on the final deed of sale) or to terminate the promise of sale due to the fault of the other party, must be taken prior to the expiry of the promise of sale. This action must be taken through court – normally a judicial letter is first sent, which has the legal effect of extending the promise of sale by 30 days, and then this would be followed up with a court case.

If a promise of sale is left to expire without taking judicial (court) action, the promise of sale simply falls through and loses its effect. The result is that the parties return to the ‘status quo ante’, and the deposit would be refundable to the buyer.

When buying or selling a property, legal advice may be required at all stages, even before marketing a property or negotiating the transfer. However, the promise of sale is the main starting point since it sets out the binding parameters for the eventual sale and therefore may significantly limit or broaden the eventual legal actions that may be taken in relation to the sale.

Dr Douglas Aquilina