A preliminary agreement precedes the final agreement, also referred to as the promised agreement. It can be concluded prior to any kind of contract – e.g. as a preliminary sales agreement or preliminary lease agreement.
Signing such agreements has the purpose of ensuring that the parties will conclude the promised agreement. With regard to that, the preliminary agreement should incorporate all the essential aspects – key provisions that are to be provided for in the final agreement. Examples of these are indication of parties and the subject matter of the agreement as well as the price and the manner of releasing an item in a preliminary sales agreement.
A preliminary agreement can be concluded in any form or manner – written form is kept for evidence purposes. This means that even though a sales agreement of a property does require a notarial deed form, the preliminary agreement does not. However, the effects regarding the potential claiming of damages or demanding conclusion of the final agreement may differ depending on the choice of form.
The date of conclusion of the final agreement should be provided for in the preliminary agreement. In case of lack of such provision, the parties can make adequate statements regarding this date within a year since the conclusion of the preliminary agreement (“first come, first served” principle is applied here). Otherwise, the right to demand the conclusion of the final agreement expires after a year.
Should one of the parties evade concluding the promised agreement, two kinds of claims can be pursued against them. Based on the so-called “weaker effect” the party is entitled to claim damages. The “stronger effect”, on the other hand, empowers the party to demand concluding the final agreement before court, where the judgment issued by court effectively substitutes the other party’s statement. This, however, is only viable provided the preliminary agreement was compliant with statutory provisions and with principles of community life. Moreover, it must have incorporated all the essential aspects and been concluded in the same form as the one statutorily required for the promised agreement (e.g. notarial deed with regard to property sales agreements).
CGO Legal law firm offers services of verifying the correctness and validity of preliminary agreements before being signed by parties. We are also proficient in drafting such agreements from scratch. Morover, our services include representing parties in purchasing property.
To learn more about preliminary agreements please do not hesitate to contact us.