Preliminary Contract and deposit payment
The preliminary contract is a biding agreement and one of the first important steps before committing to the final sale/purchase. Its content needs to be carefully drafted by an expert lawyer in terms of avoiding any misunderstanding between parties.
Even though this contract does not transfer the property onto the name of the buyer, it does constitute an important phase in which both parties agree the terms of the sale/purchase, therefore they both need to be well aware of its content and related risks.
Also, considering that with the signature of the preliminary contract the buyer transfers money onto the vendor’s account, all the condition and clauses included in the contract needs to be clear and well explained to both parties, this will avoid misunderstandings, legal procedures, money and time wasted.
When signing a preliminary contract you can decide if you wish to have it registered in the Land Registry (transcription), in this case the contract will be enforceable against third parties. Therefore if the seller signs several preliminary contracts for the sale of one single property, and he obtains deposits from all the potential buyers, the transcription makes the difference. The buyer who has signed and registered the contract first, is the one who will prevail against the others.
What you might not know
When the buyer signs an offer, he very often things not to be involved in any obligation, this is not correct.
Many clients come to our firm saying that they have made an offer in writing but it was ensured to them that this was not going to constitute an obligation. This is not always true, in fact, if the vendor accepts your offer, this will automatically have the same effects of a preliminary contract.
You will not be committed until the vendor has expressed his intention to accept your offer, in which case you need to fulfill the content of your offer and purchase the property, no matter what.
Many people do not know the importance that the payment of a deposit might have and what are the consequences in case they change their mind after having paid it.
If you pay a down payment called “Caparra Confirmatoria” (usually 10% to 30% of the purchase price), you will not receive it back if you just change your mind about purchasing the property, in fact the vendor can retain your money as an indemnity for the lost chance to sell his property to someone else.
The above situations and many others are the reasons why when signing a document, or when paying a certain amount of money, you need to be aware of the legal consequences you might incur. If the agent, or broker, or even the other side suggests you to sign, be very careful and ask for an opinion to your lawyer.