In principe, an agreement on the object of the contract and on the price is equivalent to a sale; but the conditions of a sale are rarely all combined when the parties envisaged this transaction. Notably, sales of real properties will be drawn up by a French notary. Because the French notary must gather different documents, the waiting period is sometimes quite long. Until the signature of the authentic instrument, the agreement between the vendor and the purchaser is guaranteed by a preliminary contract. Different categories of preliminary contracts exist : the most important are the unilateral undertaking to sell and the mutual agreement to sell. There is also the unilateral undertaking to purchase.

UNILATERAL UNDERTAKING TO SELL

Unilateral undertaking to sell, or "option", is an arrangement between the vendor and the purchaser. The vendor consents to the candidate purchaser, which is beneficiary of the promise, the right to purchase the real property at a determined price, when he will express his intent to purchase.

If the beneficiary accepts the commitment made in his favour, but does not immediately make a commitment to purchase. Hence he has an option of purchase on the asset, which he will exercise if he decides to become its owner.

The promise is just an offer that the vendor can take away any time if the beneficiary doesn't accept it.

Form and contents of unilateral undertaking to sell

The unilateral undertaking to sell can be conclued by an authentic instrument or by an instrument under private signature.

The existance of legal miscellaneous provisions results in the obligation to insert some clauses for the protection of the beneficiary or to deliver to him documents in view to enlighten his consent.

Obligations of the vendor before the beneficiary takes up the option

As long as the time of the option is no expired or as long as the beneficiary doesn't give up the purchase, the vendor must not sell his asset to benefit to a person which is not the beneficiary of the option. For example, he can't accept a better offer.

The seller must respect the promise during the period provided in the agreement. However, no law imposes the provision of a period in an unilateral undertaking to sell.

Holding Indemnity

Beacause the vendor is doing without his prerogatives during a certain period, it is fair that he receives an indemnity to compensate his commitment : it's the holding indemnity. The indemnity paid remains in the hands either of the estate agent, or, in most cases, with the notary with the responsability for the conveyancing, until the periode of undertaking to sell the specified party expires. The indemnity becomes an entitlement of the payable to the committed vendor if the beneficiary does not exercise the option, althrough the suspensive terms and conditions stipulated in the commitment have been realised. If however the sale is completed, the indemnity is simply returned if one or more of the suspensive conditions is not realised.

Compulsory registration of the undertaking to sell

Any unilateral undertaking to sell not recorded as a deed before notary or in private deed registered within ten days of its acceptance is null and void. This acceptance doesn't mean the exercise of an option of purchase but the acceptance of the offer to sell without assuming any obligation of purchase.

Usefulness of legal notification

The legal notification of the unilateral undertaking to sell is not obligatory. It's just an option for information of those whom it may concern. However, the legal notice of the unilateral undertaking to sell can be worthwhile for the beneficiary if the vendor sold his asset to another person despite the commitment. Legal notice of the commitment makes it easier to prove fraud by a third party, to whom the committed vendor might in bad faith sell the asset, so riding roughshod over commitment to the beneficiary.

Exercice of the option

With the exercise of the option, the beneficiary makes his will to purchase the asset, object of the unilateral undertaking to sell.Because the committed vendor has already given irrevocably his consent to sell, the deed of sale is formed at the time of the exercise of the option.

Legally, there is no formal procedure to exercise the option. Whatever its form, except a contrary specification in the unilateral undertaking to sell, the exercice of the option is sufficient to form the sale. However,in practice, the formal procedures for the exercise of the option must be stated carefully in the undertaking to sell, in order to avoid the beneficiary to become the owner of the property without the payment of the full price on associated expenses.

THE SYNALLAGMATIC OR RECIPROCAL AGREEMENT TO SELL AND PURCHASE (Or mutual agreement to sale)

The mutual agreement to sell is a contract by which two parties commit mutually. The seller commits to sell and the purchaser commits to purchase at a fixed price.

Considering article 1589 of French Civil Code, the mutual agreement to sale is deemed equivalent to sale  "A promise of sale is the same as a sale, when there is reciprocal consent of both parties as to the thing and the price".

The acceptance of the mutual agreement is equivalent to a definitive commitment of purchase.

As well as the unilateral undertaking, the mutual agreement can be concluded by an authentic instrument or by an instrument under private signature.

Down payment ("accompte"), deposit ("arrhes"), compensation payment ("dedit"), penal clause

Often a down payment, a penal clause, a deposit or a compensation payment are inserted in the mutual agreement of sale and it will be necessary to determine exactly the nature of this payment.

A down payment is a part payment; it is imputed to the amount of the price.

A penal clause is one by which the debtor, if he doesn't respect his commitment, will pay an indemnity fixed in advance to the creditor, and its amount is independent of the prejudice. It can be stipulated against the vendor if he stands in the way of implementation of the contract, but also against the purchaser if the sale is not implemented or if the implementation is lately reached by his fault.

A deposit is enabling the parties to repudiate commitments, the party paying the deposit simply foregoing the right to restitution if he does not proceed, while the party receiving the deposit is under an obligation to restore double of the amount received, in the event of his default.

A compensation payment works similary, except that payment is made by one party only to the other.

Registration of the mutual agreement to sell

The mutual agreement to sale should be subject to registration formalities within one month, failing which the arrangement will not be null and void, as with the unilateral undertaking, but will incur penalties for late registration.

But, if the mutual agreement to sell have been made along with suspensive conditions, which is often the case, transfer of ownership will not take place at this time, and it's not necessary to proceed at the registration.

Suspensive conditions

Suspensive conditions must involve a future, but uncertain event, which means that the parties at the time of the signature of the mutual agreement to sale cannot be certain that the event will occur. If the event occurs, the mutual agreement to sell will be effective and this effectiveness will go back to the day of its signature.

Different kinds of suspensive conditions are frequently inserted in mutual agreement to sell.

When the mutual agreement relates to a building used for accommodation or to a plot of land on which such building will constructed, the contract must show whether the full price will be paid with or without a loan contribution. If the purchaser decides to exercise such an option, the agreement is concluded subject to the suspensive condition of obtainig the loan. Otherwise, the purchaser must in his own hand make an endorsement under which it is acknowledged that he would not be entitled to seek protectioon under the Law of 13th July 1979 (Scivener Law).

Right of pre-emptive purchase is a right acknowledged to Administration authorities or to some private law agencies to acquire the property of an asset at the time of its tranfer and by preference to another purchaser. Of course, the preliminary contract will be drafted subject to the suspensive condition taht such parties do not exercise their rights of pre-emptive purchase. The preliminary contract is aslo signed subject to the suspensive condition that the town planning  documents which the notary shall seek to have delivered, do not show any encumbrances severely affecting the nature or value of the assets.

A suspensive condition for the obtaining of a building permit can also be inserted in the preliminary contract.

Legal Notice

The decree ("decret") of 4th January 1955 prescribes that all contracts, even the ones accompanied with suspensive condition, realising a transfer of property on an asset, are necessary subject to the formality of publication in the Mortgage Registry. So, with or without a suspensive condition, the mutual agreement must be published.

Completion of sale

In most cases, once the suspensive conditions have been realised, the contracting parties are convened by the notary to sign the deed completing the sale and entitling the purchaser to the deeds of property. The unilateral undertaking to purchase :

THE UNILATERAL PRELIMINARY TO PURCHASE IS THE OPPOSITE OF THE UNILATERAL UNDERTAKING TO SELL

A candidate purchaser (committed purchaser) undertakes to purchase an asset when the owner will decide to sell, the committed purchaser is the only one committed (not the owner). Such undertaking are rare. They are subject to the same rules as the undertaking to sell. However, unlike to the unilateral undertaking to sell, the unilateral undertaking to purchase is not subject to the formality of registration and does not incur the sanction of nullity incumbent on of this formality.