Everything you need to know about the “compromis de vente”
You are a first time buyer and are about to sign a “compromis de vente”? Before doing so you may want to know what the “compromis de vente” is all about. This Q&A will give you some insight before committing.
Published in the Delano.lu
What exactly is a “compromis de vente”?
When buying real estate property in Luxembourg, a buyer will often be required to sign a contract called “compromis de vente” or “sales agreement” in English.
A sales agreement is a contract that is concluded between seller and buyer prior to the signing of the notarial deed of sale. A binding promise is made between both parties, by which the seller undertakes to sell a real estate property to the buyer who in return undertakes to acquire the property under certain conditions and at a given price.
Unless provided otherwise, the transfer of the property takes place when the sales agreement is signed. At a later stage, a deed of sale will be signed before the notary which will render the sale public and enforceable against third parties.
What is a condition precedent in a “compromis de vente”?
A condition precedent (condition suspensive) provides that unless a certain event occurs, the agreement does not become due or binding upon the parties.
In most cases, the sale of property is subject to the condition precedent that the buyer obtains a mortgage approval (approval to lend from a bank in view of purchase) within a certain timeframe. If the buyer does obtain a mortgage approval within the given timeframe, the sales agreement becomes binding on both parties. If however the buyer is unable to obtain a mortgage approval within the given timeframe, the contract will automatically lapse and have no further legal effect without any party having to compensate the other. This also applies if the buyer is granted a mortgage approval for a lower amount.
The fulfilment of the condition precedent must be sought in good faith. In the event of dispute, the burden of proof lies on the buyer who must prove that a mortgage was applied for, that the application was submitted within reasonable time, and that the seller was informed of the bank's decision within the given timeframe.
What are the consequences if one of the parties refuses to sign the deed of sale after having signed a “compromis de vente”?
If a party refuses to sign the deed of sale despite the conditions precedent being met, in principle, the other party can ask the court to award specific performance of the sales agreement (execution forcée).
Sales agreements can contain termination clauses determining the circumstances under which the agreement can be terminated. In the absence of such a termination clause, the termination of the sales agreement must be requested before court.
A penalty clause is often stipulated in a sales agreement which will apply with regards to the party who does not uphold its contractual obligations. The penalty amount is usually set at 10% of the sales price.
Can a “compromis de vente” be used for all property sales?
It is important to note that a sales agreement can only be used when selling real estate property that is fully built and completed.
When buying real estate property off-plan, the buyer will be required to sign another type of contract called the “reservation contract” (contrat de réservation).
In comparison to a sales agreement, when signing a reservation contract, this does not constitute a sale. However, if the buyer decides not to purchase after having signed a reservation contract, they will be required to pay 2% of the estimated price.
Caution is therefore advised when signing a reservation contract and even more so when signing a sales agreement.