Preliminary agreement

Preliminary Agreement - A preliminary agreement is a contractual arrangement whereby the parties commit to entering into a main contract at a later date. In real estate transactions, the preliminary agreement is subject to the same formal requirements as the purchase contract itself and must therefore be notarized.

Legal Basis and Binding Effect

The preliminary contract establishes an obligation for both parties to conclude the actual purchase contract at an agreed-upon time or under certain conditions. This binding effect fundamentally distinguishes it from non-binding letters of intent or reservation agreements. If one party fails to fulfill its obligation, the other party may sue for the conclusion of the main contract or claim damages.

Since a real estate purchase agreement requires notarization under Section 311b(1) of the German Civil Code (BGB), the preliminary agreement must also be notarized. A private preliminary contract for the purchase of real estate is invalid as to form and does not create any rights or obligations. This strict formal requirement serves to protect both parties from hasty decisions and ensures that independent legal advice is provided by the notary.

The preliminary contract must already contain the essential terms of the subsequent main contract, i.e., at a minimum, the description of the property being purchased, the purchase price, and the contracting parties. The more detailed the preliminary contract is, the lower the risk of disputes when the main contract is concluded. Additionally, a specific timeframe for concluding the main contract should be established, as the preliminary contract may otherwise lose its legal enforceability.

Contents of a Legally Valid Preliminary Contract

A notarized preliminary contract for the purchase of real estate should at least address the following points: the exact description of the property being purchased (land registry details, location, size), the agreed-upon purchase price and payment terms, a deadline for concluding the main contract, conditions (e.g., financing commitment, building permit), as well as provisions regarding the allocation of costs and contractual penalties in the event of non-performance. In addition, the preliminary contract may provide for a down payment or security deposit-this is permissible but must be clearly stipulated and notarized.

It is also important to address rights of withdrawal: Under what conditions may a party withdraw from the preliminary contract? What are the consequences of withdrawal for a down payment already made? If such provisions are missing, the general statutory rights of withdrawal apply-which can lead to disputes. We recommend clearly defining these points in the preliminary contract.

Distinction from a Reservation Agreement

In real estate practice, the preliminary contract is used rather rarely. Buyers and sellers encounter reservation agreements much more frequently; these are concluded in private writing and generally do not create a binding obligation to conclude a purchase contract. A reservation agreement merely assures the prospective buyer that the seller will not offer the property to others for a certain period of time.

Reservation agreements are not subject to any formal requirements and are less expensive, but they also offer less security. If a reservation fee is agreed upon, case law stipulates that it must not be unreasonably high. Amounts exceeding ten to fifteen percent of the standard real estate agent’s commission are regularly deemed invalid by courts. We recommend that buyers fully understand the difference between a binding preliminary contract and a non-binding reservation in order to accurately assess their legal position.

Practical Tip for Nuremberg and the Metropolitan Region

A preliminary contract can be useful in the Nuremberg metropolitan region if there is a significant time gap between the agreement to purchase and the actual signing of the contract. Typical scenarios include purchase plans where the bank’s financing commitment is still pending, official approvals must be obtained, or the buyer must first sell their existing property. In such cases, a notarized preliminary contract provides planning security for both parties.

In Nuremberg, we see preliminary agreement scenarios particularly frequently in new construction projects where the developer has not yet transferred ownership of the land but wishes to bind prospective buyers with a binding commitment. A preliminary agreement is also a suitable instrument for properties with upcoming renovation work that is to be factored into the purchase price only after its completion. We advise sellers and buyers on whether a preliminary contract is the right choice in their specific situation or whether another form of protection would be more effective.

Frequently Asked Questions About the Preliminary Contract

How much does a preliminary contract cost at the notary’s office?

Notary fees for a preliminary contract are governed by the Court Costs Act (GNotKG) and are calculated based on the purchase price of the property. As a rule, a full notarization fee applies, which is, however, credited against the fee for the subsequent main contract. For a purchase price of 350,000 euros, the costs for the preliminary contract amount to several hundred euros. We recommend clarifying the costs with the notary’s office in advance.

Can you withdraw from a preliminary contract?

Unilateral withdrawal from the preliminary contract is only possible if a contractual right of withdrawal has been agreed upon or if there is a statutory ground for withdrawal. Otherwise, the party that does not wish to conclude the main contract is liable to the other party for damages. These may include lost profits, financing costs, and other provable damages.

When is a preliminary contract preferable to a reservation agreement?

A preliminary contract makes sense when both parties desire a binding safeguard and are willing to bear the notary fees. Particularly for high-priced properties where a failed transaction would have significant financial consequences, the preliminary contract offers significantly more security than a simple reservation. For standard transactions with a short timeframe until notarization, a reservation agreement is usually sufficient.

Is it possible to include a priority notice of conveyance in the preliminary contract?

Yes. Even within the framework of a preliminary contract, a priority notice of conveyance can be entered in the land register, securing the buyer’s claim to a subsequent transfer of ownership. This provides additional protection in the event that the seller becomes insolvent or wishes to sell the property to a third party. The notary applies for the priority notice at the land registry office immediately after the preliminary contract is notarized.

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