Features of the preliminary contract for sale of property

Hristo Hristov
Hristo Hristov

Each of the parties can claim conclusion of the final contract

The preliminary purchase and sale contract is a contract, by which the parties agree to enter into a new one, which can be conditionally called “final”. The reasons for signing preliminary contracts are different – from the lack of readiness for a final contract at that time to the existence of burdens that the parties want to be removed (which takes some time).

From preliminary to final contract

In the Bulgarian doctrine the preliminary contract is primarily seen in connection with the transfer of properties and property rights of them (for example the right to build, or the right to use a property, etc.).

According to art.19, para.3 of the Law of Obligations and Contracts (LOC) each party of the preliminary contract is entitled to bring an action for conclusion of the final contract. In this case the contract shall be considered as concluded from the moment when the court’s decision takes effect. The statement of claim should be filed before the court at the location of the property. Again, the registering of the statement of claim is done at the location of the property, in the respective registry agency according to the order, regulated under the Law for the ownership (LO). For the registering, an appeal must be filed, and there must be attached a certified copy of the filed before the court statement of claim with court’s stamp and reference number. There must be also attached: a covering letter, issued by the reporting judge in the case; current certificate of tax assessment of the respective property (which is issued within the last six months prior to the entry) and a sketch of the property. Registering shall be made by the registry judge’s order within the working day and if all the necessary documents are presented.

Registering the statement of claim

Why should we register the statement of claim for declaring the preliminary contract as final? Failure of its registering is not an obstacle for registering it further, but the acquired by the third parties rights of the property – subject of dispute in this case, are preserved if the acquisition of the rights by third parties is prior to the mentioned subsequent registering. In practice, there are cases of resale of the property by the transferor – defendant of the statement of claim under art.19, para.3. It is considered that the re-transfer, registered in the order, provided in the LO, is subsequent and is not enforceable against the person, who originally made the registering.

Therefore the subsequent transfer of the ownership of the property has no effect. The promised to be transferred property remains in the patrimony of the defendant, who owes the actual performance of the preliminary contract, because the rights of the claimant, who registered the statement of claim before the subsequent transfer of the relevant property is reserved by the made registering.

On the other hand, the registered statement of claim for declaring the preliminary contract as final can be enforced against third parties, having previously obtained the same property or property right, but who have not registered the acquiring act.

Multiple preliminary contracts

The importance of the registration of the statement of claim under art.19, para.3 of the LOC, is expressed in multiple preliminary contracts. There can competition between the multiple preliminary contracts, when two or more preliminary contracts have been concluded about the same final contract with the same subject. The question, which arises is – who should be given preference? The answer is that the buyer, who firstly claimed and registered the claim for declaring the preliminary contract as final, will be able to oppose the registering of any other third parties, acquiring the property after the mentioned registering. The rule is that about the constitutive registering and registering, providing enforceability against third parties, the one who will be preferred is that one, who made the registering.

The registering publicizes that for the property, respectively for the property right over the property, there is a pending legal dispute, expressing the importance of the registration of the statement of claim under art.19, para.3 of the LOC. The registering publicizes to third parties not just the existence of any dispute, but of a court dispute.

Through the claim, the party of the preliminary contract exercises the right to require the other party to fulfill its obligation under it. Under the statutory fiction the final contract is considered as concluded with the enforcement of the court decision.

The claim is between the parties of the preliminary contract, as third parties cannot principally want to declare the preliminary contract as final. The right under art.19, para.3 can be transferred; therefore parties to the proceedings can be both universal and private successors of the parties.

In order the claim to be upheld under art.19, para.3 of the LOC, the defendant must be the owner of the rights, which will be transferred by the court decision and therefore the claim will be rejected as unfounded if the defendant is not the owner of the property.

In case of transfer of the right of ownership of the property, the court checks whether the prerequisites for transferring the ownership by notary are there, including whether the transferor is the owner of the property. This obligation of the court is the same as the obligation of the notary who upon the transfer of the right of ownership or upon establishment, transfer, modification or termination of other property right over a property, is obliged to check whether the grantor owns the property.

At the finish line

If the claim is upheld, the court decision replaces the final contract. In its decision, the court states the clauses of the final contract and a description of its subject matter. The date of signing the contract shall be the date of entry of the court’s decision into force.

When subject of the case is a property, the law requires the claimant to pay the transfer fees and the public state and municipal obligations of the grantor if they are not paid. For claims against the grantor the state can direct the performance to the property acquired by the applicant, provided that such obligations have been payable on the date of the transfer, so that the claimant is able to intercept their payment on the due price.

The article has been published in Bulgarian, in Capital Daily.