A preliminary agreement is concluded when, and a reservation agreement when?

Buying an apartment or house is one of the most important investments in life. When preparing for it, it's worth being aware that the transfer of property ownership is sometimes preceded by a preliminary or reservation agreement. How do these documents differ?

Preliminary and reservation agreements - why are they entered into?

In the real estate market, we very often encounter a situation where parties deciding to conclusion of a sales agreement, they need time to finalize it. This may be due to, for example, the need to:

• for the purchaser to obtain the necessary financial resources;
• completion of construction by the seller of the property.

In such a situation, parties have the ability to protect their interests by pre-agreement or reservation agreement. Each of the documents discussed should contain slightly different entries. We recommend that those interested in this issue read the text titled „The difference between a reservation agreement and a preliminary agreement„, published on the website of a well-known real estate law specialist — it contains detailed explanations of related issues. Importantly, entering into each of the agreements described above has different legal consequences.

What are the consequences of signing a reservation agreement?

Conclusion of a reservation agreement It is usually (though not always) a part of the process of buying a house or apartment on the primary market — its provisions exclude a local unit or other real estate offered by the developer from sale for a certain period. For making the reservation, the buyer pays a specific amount, called a reservation fee (it can be either refundable or non-refundable). However, such an agreement imposes practically no obligations on the parties regarding the transfer of ownership of the real estate — each of them can change their decision at any time.

Preliminary agreement and its effects

More serious consequences entail preliminary agreement drafting. Within its framework, both parties undertake to enter into a so-called preliminary agreement (in this case, a real estate purchase agreement). Usually, a portion of the agreed-upon amount is also paid – a deposit or an advance payment.

For our considerations, however, the most important are Legal consequences of a preliminary agreement — this document may form the basis for a claim for the conclusion of a definitive agreement. If one of the parties evades this obligation, the other party obtains a claim for damages incurred as a result. Moreover, the provisions of the preliminary agreement may be registered in the land and mortgage register of real estate, which is its subject.

What is the difference between a preliminary agreement and a reservation agreement?

In practice The reservation agreement can therefore be considered a kind of declaration — the parties state that they will strive to transfer ownership of the property. In practice, however, they are not obligated to do so — they can change their minds (this is most often related to the necessity of paying a contractual penalty). A preliminary agreement creates much more serious legal consequences — in this case, the conclusion of the final agreement can be, for example, enforced in court.

The most common solution is therefore to first conclude a reservation agreement, and then, when the parties make a final decision, a preliminary or development agreement.