The following are examples of what needs to be included in a proposal for sale or purchase and in a preliminary contract:
- the precise description of the asset or assets;
- the exact identification of the owner or owners and of the purchaser or purchasers;
- the obligations of the vendor and of the purchaser;
- the price of the sale and method of payment;
- the conditions of the conveyance and relevant guarantees;
- documentation of the history of the asset or assets;
- indication of any encumbrances such as mortgages;
- the date of possession of the asset or assets;
- the deadline by which settlement must take place.
This does not mean that it is not possible, for any number of reasons, to reach a cut-down preliminary agreement containing only the essential elements, i.e.:
- the parties to the agreement;
- subject of the contract, which will be the future transfer of the property in exchange for payment of the sale price;
- deadline by which settlement must take place.
It is worth remembering that the preliminary contract and the definitive contract have an instrumental link, so that the definitive contract has a declarative and re-enforcing function with respect to the preliminary contract.
The function of the latter is so important that the promisee purchaser may apply to a court to have an uncompleted contract fulfilled should the vendor not comply with his obligations (see further detail in the chapter on the preliminary contract).
As further protection for the purchaser, the law provides that the preliminary contract, which must be stipulated as a public document or as a private agreement authenticated by a notary, must be able to be registered at the relevant Land Registry office: such registration has a “reservation” function, in the sense that the purchaser, following the preliminary agreement, is protected from any prejudice that may derive from any act that the vendor may undertake with respect to the asset described in the preliminary agreement after it has been signed.
This protection ceases, however, if within one year of the agreed date (hence the importance of the deadline in the preliminary contract) or within three years from registration, the definitive contract or equivalent (such as the sentence of a court as described above) has not been registered.
These rules apply also where the contract is for a property to be built, but in that case, the preliminary contract must include additional information with respect to the minimal content described above, such as the useable surface area of the portion of the building and the proportion of the whole building under construction which will belong to the promisee purchaser expressed in thousandths (on this point, see the paragraph on “Protection of Purchasers of Buildings Under Construction”).
In any case, the notary knows what information a “good” proposal or a “good” preliminary agreement must contain in the interests of both the selling and buying parties: on a case-by-case basis a technical-legal consultation will be prepared that best protects the interests of both parties.
In real estate practice, preliminary contracts on behalf of a person to be named are commonly used.
By this means, the purchaser can reserve the right to name at a subsequent date, in general at the time the definitive contract is stipulated, the person who is to acquire the rights and take on the obligations deriving from the contract.
This preliminary contract is particularly useful in allowing one party to participate at the stipulation of the preliminary contract and then, at will, to choose a different party as “purchaser”, who will be so considered from the time the contract is settled; this kind of contract may also be used for speculation.
In a contract with a person to be named there may however be pitfalls for the vendor, if one reflects that it is not always the same thing to have one purchaser rather than another, for any number of reasons (solvency of the named purchaser, personal and social considerations, previous relationships …).
However, since this is a procedure involving a high degree of technical competence, a notary will certainly be able to ensure the most suitable content for the requirements of the parties.