Preliminary contract for buying real estate in Bulgaria – what, why and how?

Preliminary Contract for Real Estate

Buying a property in Bulgaria involves a serious financial investment. In this process, the most undesirable thing is for the Seller to walk away from the deal after you have invested time and money to make it happen.

To prevent this from happening, you need a Bulgarian lawyer experienced in real estate transactions, to review and supervise the deal and safeguard your interests.

This article is intended to present the essence of a pre-agreement as a means by which a Buyer can best secure the purchase of their chosen property.

What is a preliminary contract for buying property in Bulgaria?

A preliminary contract for the purchase and sale of real estate is a contract by which two persons promise to enter into a final agreement.

With it, the parties prepare and plan the conclusion of the transaction that will transfer ownership. It also serves as a guarantee that the promise to enter into a final agreement in front of a notary will be fulfilled, since the property can be transferred despite the opposition of the other party.

Why do we need it?

The procedure of transferring real estate is complicated compared to the conclusion of other types of contracts. In order to carry out this process, it is necessary to obtain certain documents. This necessarily takes time and delays the final transaction.

In addition, buyers do not always have the full sale price in the beginning. They therefore also need time in which to secure the financing of the purchase. This most often happens through a mortgage loan. In most cases, banks require the submission of a preliminary contract as a condition of financing.

The conclusion of a preliminary agreement brings certainty to the relationship between the Buyer and the Seller during this period. This obliges the Seller to stop the property from being offered to other buyers. If there is no binding preliminary contract, the Seller is free to sell the property to anyone else.

What are the requirements?

Since the preliminary contract does not transfer the title of ownership over the property, the seller does not need to own the property at that time.

The property may not even exist yet. This is the case, for example, in real estate under construction transactions where the seller undertakes to build an apartment and then transfer it to the Buyer.

The title of ownership is transferred when the final contract in the form of notary deed is concluded. Because of this, the Seller must already own the property at that point.

The preliminary contract for the purchase of an immovable property must be concluded in writing and does not need to be certified by a notary.

Notary certification is optional, could cost some additional money for notary fees amounting to several hundred leva, but it gives additional certainty between the parties.

Firstly, the authenticity of the signatures can not be disputed, because they are verified by the notary.

Secondly, the creditor under the agreement who has to receive money, the Seller, is entitled to collect his money with the help of the court using an expedited procedure.

Mandatory content of a preliminary contract for buying property in Bulgaria?

In the content of the preliminary contract for the purchase of real estate it must be included:

  • Detailed description of the property as per project documentation or as per previous ownership documents
  • Statement of the price and the terms of payment
  • Terms and Conditions for concluding the final contract
  • Mutual rights and obligations of the parties
  • Termination conditions and consequences

It is important to include some additional clauses such as:

  • First Payment or a Down payment – usually down payment is 10% of the price, which the Buyer pays in the day of the signature of the preliminary contract and it is deducted from the final price. If it is stated in the contract that this amount serves as a deposit, the Seller must return double the amount to the Buyer upon cancellation of the preliminary contract /no separate compensation for damages is due with the deposit unless expressly provided for in the preliminary contract/. However, if it is agreed that this amount serves as an advance payment only, the Seller owes only what he has received on termination of the contract.
  • Contract penalty – there are several types of contract penalties (liquidated damages) that the parties can include in the contract:
  • liquidated damages – payable when the final contract is not concluded within the prescribed time limits.
  • liquidated damages – payable when a final contract is not concluded at all.
  • cancellation penalty – due when the preliminary contract is cancelled due to the other party’s culpable non-performance.

Contract penalties or liquidated damages are agreed upon and payable in order to compensate the other party for any damages resulting from the breach of contract /e.g. costs incurred in connection with a transaction that never takes place/. The idea of contract penalties is that they are payable even where no such costs have been incurred.

Other additional clauses that can be included in a preliminary contract are:

  • the date of handing the possession over the property
  • deletion of inscribed encumbrances over the property e.g. prior mortgage, foreclosure, right of use etc.
  • terms and conditions for the performance of construction or finishing works

Non-performance of a preliminary contract for buying property in Bulgaria?

If the Buyer refuses to buy the property or is unable to pay the agreed purchase price, he will lose his deposit and may be subject to a contract penalty if such has been agreed.

If the Seller refuses to appear before a notary and transfer the ownership of the property within the agreed period, then the Buyer has the following options:

  • to file a lawsuit before the court to declare the preliminary contract final. The court judgement will make the transfer of property legally effective;
  • to claim from the Seller the agreed penalties and/or compensation for the breach of contract or
  • to terminate the preliminary contract for cause and claim any deposit paid, the agreed penalties and/or compensation for the breach of contract.

The Buyer can acquire the property by court decision only if the Seller under the preliminary contract is still the owner of the property. This means:

  • he has already acquired the property if he was not the owner when the preliminary contract was concluded; or
  • the property has remained his, i.e. he has not transferred it to another person after the conclusion of the preliminary contract. If the Seller has transferred the property to another person, the Buyer can attack this transaction under certain legal conditions. Thus, he can reacquire the property under a dedicated court procedure.

In view of the above, it could be summarized that:

  • With the preliminary contract, the parties undertake to enter into a final contract and are liable in case of breach of contract.
  • The contract must be in writing and must contain mandatory information about the property, the price and the terms and conditions for signing a final contract in the form of notary deed.
  • The buyer may acquire ownership of the property by filing a court case if the Seller refuses to perform the contract and transfer the property.
  • The buyer may claim from the seller the agreed penalty and/or compensation for the damages of non-performance without terminating the contract.
  • The buyer can cancel the contract and get back everything he has given to the seller and claim any agreed penalty and/or compensation for damages.

If looking to buy a property in Bulgaria and facing signature of a preliminary contract you can contact our English-speaking lawyers from TechLex Law Firm Sofia. We have extensive experience in drafting, reviewing and checking preliminary contracts for the sale of real estate, and can support you throughout the entire purchase transaction, so that everything goes smooth and risk-free.