Termination of a Real Estate Purchase Agreement
Wondering how to terminate a real estate purchase agreement? Need answers on how to exit an unfavourable contractual relationship you entered into by acquiring or selling a property? You can find answers to these and other questions in this article.
The Real Estate Purchase Agreement in General
A real estate purchase agreement is a bilateral contract under which the seller undertakes to transfer ownership of a specific property to the buyer and hand over possession of it, and the buyer undertakes to pay the entire agreed purchase price. A purchase agreement must always be in writing and must contain all details of the property that is the subject of the agreement. The act of concluding a real estate purchase agreement does not in itself transfer ownership of the property; registration in the land registry is also required. Under the principle of land registry registration, ownership of real estate is acquired only upon registration in the land registry, not by concluding the purchase agreement, as many people believe. Registration in the land registry is carried out on the basis of a tabular instrument (tabularna isprava). A tabular instrument is a document containing the property owner's declaration by which the seller, after receiving the full purchase price, permits the buyer to be registered as the owner of the property. The tabular declaration is often included in the purchase agreement itself, meaning that in such cases the real estate purchase agreement also serves as the tabular instrument. The real estate purchase agreement should also contain details of the contracting parties, namely their first and last name, OIB (personal identification number), residential address, or, for a legal entity, its name and registered office.
Concluding a Preliminary Agreement for the Purchase of Real Estate
When concluding a real estate purchase agreement, it is common practice to first conclude a preliminary agreement. The subject of a preliminary real estate purchase agreement is the obligation to conclude a real estate purchase agreement in the future. It contains details of the property in question, land registry data, a description of the property, the price, the deadline for signing the agreement, a deposit agreement, and so on.
Termination of a Real Estate Purchase Agreement
A real estate purchase agreement can be terminated in the same way it was made: by mutual consent, that is, by concluding an agreement to terminate the property purchase contract. The other option is termination for non-performance. If one party fails to fulfil an obligation under the contract, the other party may terminate the contract by simply declaring that it is terminating it, and may also claim compensation for damages.
A real estate purchase agreement can also be terminated due to changed circumstances. If, after the contract has been concluded, performance of an obligation becomes excessively difficult for one party or would cause it excessively large losses, and this could not have been foreseen when the contract was concluded, that party may request that the contract be terminated. If a deadline set for performance is an essential element of the contract and the party bound by that deadline fails to perform, the contract terminates by operation of law. There is also the option for the creditor to expressly demand performance from the debtor in order to keep the contract in force. If the debtor still fails to perform, the creditor may declare the contract terminated and claim compensation for damages.
Effects of terminating a real estate purchase agreement
The effect of terminating a real estate purchase agreement is that the contracting parties are released from the obligations they assumed under the contract. There is also an obligation to return whatever has been received. Sometimes one party must also bear liability for damages. Since buying a property is a considerable expense, it is very important to draw up the purchase agreement carefully. For this reason, we recommend using the services of a professional lawyer to conclude and terminate a real estate purchase agreement.