Despite the considerable sums that can be involved in real estate preliminary sales agreements (compromise de vente), many are those who deem that they do not need the opinion of an attorney who specializes in the subject.
Such a gamble, which approaches recklessness, can sometimes be very costly.
Specifically, our experience shows nearly daily that the parties to a real estate sale generally do not pay enough attention to the drafting of preliminary sales agreements, and particularly to the conditions precedent (examples: obtaining of financing, obtaining of a building permit, …), so that they end up – without realizing it – being prisoners of their preliminary sales agreements for an indefinite period.
Pursuant to Article 1176 of the Civil Code:
“When an obligation is entered into by contract under the condition that an event will occur in a fixed period of time, satisfaction of that condition is deemed to have failed when the time has expired without the event having occurred. If there is no fixed time period, the condition can still be satisfied; and its satisfaction is only deemed to have failed when it has become certain that the event will not occur “.
Consequently, given that the notarial deed of sale cannot in principle be passed until after the satisfaction of the conditions precedent (unless they have been waived), if the preliminary sales agreement does not provide for a date limit for their satisfaction, the parties can remain “trapped” for years without being able to go before the notary, and thus for the seller, without being able to be paid, and at the same time without being able to get out of the obligation.
As the Civil Code and case law instruct us, the party thus prejudiced can only get out of the preliminary sales agreement when it is certain that the conditions stipulated therein will never be fulfilled.
So, how does one prove that an event will never occur?
To that end, a Court of Cassation decision of 26 March 2009 (n°20/09) shows us in substance that, in the absence of a fixed time period for the satisfaction of conditions precedent, it is not sufficient to establish that a purchaser has not taken enough action for nearly two years with a view to satisfying them for it to declare the termination of a preliminary sales agreement. To the contrary, according to the Court of Cassation, it must imperatively be ascertained that they could never be satisfied.
Unless the purchaser goes bankrupt in obtaining financing, or the land is reclassified, rendering the contemplated project impossible, the task could prove to be very complicated.
Thus, if one does not want to end up in a situation in which one cannot collect the purchase price of an expected sale for years, it is best to provide ab initio deadlines for the satisfaction of conditions precedent.
In contrast, if one is a purchaser and wishes to “block” a sale for an indefinite period to one’s benefit, it could be advantageous to exclude any time limits… but then, one would have to think to maintain sufficient financial coverage to be able to honor one’s commitments in the event the condition precedent occurs.
In conclusion, the only certainty is that each preliminary sales agreement must imperatively be drafted in a “custom-made” fashion and that each point that may seem a small detail may in reality turn out to have serious consequences.
By Vanessa LOMORO, Counsel – Avocat à la Cour.
Rubrique Droit & Conseil Juridique – NEOMAG 41.