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A Brief Overview of Promise of Sale Agreements
Also known as signing a “konvenju”, signing a Promise of Sale agreement doesn’t have to be a stressful experience, although it can become something complicated if you’re unaware of exactly what you are signing. We will explain exactly what it is and why you should take your time and even get a professional opinion before you put your hand to paper.
The Promise of Sale – Exactly what is it?
In simple terms, a Promise of Sale is a private agreement where the rightful owner of a property commits to selling and the buyer agrees to purchase a property at an agreed price.
For the agreement to be legally binding, both the parties involved must agree on several key points such as:
- the price,
- the deposit amount,
- the duration of the agreement,
- and any additional terms or conditions that may apply.
It’s common for buyers to feel anxious until the Promise of Sale on a property is signed and this concern is understandable, as the seller can still, up to that stage, negotiate with other potential buyers until an agreement is formally signed. Once the Promise of Sale is executed, the sale of the property to you is effectively secured and the property will then usually be removed from the market.
Who has the right to select the notary?
The buyer will usually have the right to choose a notary to set up an appointment at a set date to formalise the Promise of Sale. The notary will have a critical role in drafting the document that accurately reflects all the agreed terms and conditions between the buyer and the seller.
While the buyer selects and pays the notary, it’s important to note that the notary must remain impartial and cannot offer legal advice. Their main role is to explain the legal effects as contained and stipulated in the Promise of Sale. Should any disagreements arise during negotiations, the notary does not take sides and each party will then be advised to seek their own further legal representation. Luckily this does not happen often.
Ask about and understand “ground rent” to avoid any surprises
To avoid any complications, the seller will be asked to bring a copy of their original acquisition contract when both parties are meeting the notary. This allows the notary to review the finer details before both parties are given the go-ahead to sign the Promise of Sale and helps avoid any unexpected issues.
A contract of sale typically includes a detailed description of the property, including its official address and boundaries, if relevant. It will also state whether the property is subject to ground rent. Ground rent does not apply to all properties and can almost always be redeemed.
Why fully understanding what you are signing is so crucial
One common issue is the confusion around ground rent. When asked by the notary if the property is subject to ground rent, many sellers fail to distinguish between temporary and perpetual ground rent:
- Perpetual ground rent affects the property indefinitely but can usually be redeemed by paying a sum equivalent to five per cent of the rent.
- Temporary ground rent is not as easily redeemed and in some cases cannot be redeemed at all. It’s crucial for the buyer to know if the property is subject to a ground rent that cannot be cleared before signing the agreement, as this may influence the outcome of the entire transaction.
Key elements of a Promise of Sale
In addition to the property description and whether it’s subject to ground rent, the notary will include several key elements in the agreement:
- Whether a deposit is being made and, if so, whether it will be handed to the seller or held by the notary, with conditions for its release upon the final sale.
- The price agreed upon by both parties.
- The duration or validity period of the agreement.
- Any additional terms, such as whether the sale is dependent on the buyer securing a bank loan first.
To recap, here’s a simplified overview of the buying and selling process, step-by-step:
- Draw up a Promise of Sale (Konvenju) using a notary. This is the legal and binding contract with conditions as set out and agreed upon between the buyer and the seller.
- A date will be set to proceed to the next step, which is the signing of the final contract.
- Prior to this date, experts will investigate and fact-check everything regarding the property.
- The notary will verify who owns the property, the area of land and its boundaries and whether there are any legal issues related to the property/or land. Additionally the notary will investigate what type of ground rent is applicable if at all, determine what fixtures and what fittings are included in the sale.
- The notary and their associates will execute searches on the property, check for any guarantees on the property, verify planning permission, building regulation certificates and also verify that the seller is the undisputed owner of the property.
- Once this is done, the notary will prepare to transfer the title deed of the property in to the buyer’s name.
- As the buyer you will have to pay stamp duty/tax on the property.
- Now it will be time to sign the final contract.
- At this time both parties will also have to settle
- any fees owed to the notary,
- the estate agency’s commission and
- taxes payable to the government and
- pay the remainder of the purchase price.
Once everything has been approved and signed, the contract will be registered with the Public Registry and you can take possession of the property.
Final thoughts
Remember that the terms and conditions outlined in the Promise of Sale will be binding in the final contract. Any changes to this final contract must be agreed upon by both the buyer and the seller. If anything along the entire process is unclear to you and you do not understand some of the legal terminology, make this known soonest so it can be explained to you. Not doing so can lead to issues later on. However, if everything is handled carefully, the Promise of Sale can bring both parties peace of mind and confidence in moving forward with the purchase. Frank Salt Real Estate’s consultants will always assist you when going to the notary and will be able to answer many of your questions. If they can’t, they will consult with our expert back office team and managers in order to find you the right answers.
