What is the difference between a preliminary sales agreement and a promise to sell in real estate in France?
What is the Difference Between a Sales Agreement and a Promise to Sell?
Although the terms preliminary sales agreement (“promesse unilatérale de vente“) and promise to sell (“compromis de vente“) are often used interchangeably, they differ in the nature of the commitment they impose on the parties.
Strictly speaking, a promise to sell is a “bilateral promise of sale” (promesse synallagmatique de vente, where “synallagmatic” means reciprocal), while a preliminary sales agreement is a “unilateral promise of sale” (promesse unilatérale de vente). As their legal names indicate:
- The promise to sell is a mutual commitment by both parties.
- The preliminary sales agreement is a commitment only from the seller, with an option to purchase for the buyer.
Although the preliminary sales agreement may seem more advantageous for the buyer (and therefore less advantageous for the seller), in practice, the legal implications are more balanced, which is why notaries and their clients often prefer this option.
Key Differences Between a Preliminary Sales Agreement and a Promise to Sell
Commitment of the Buyer and Seller
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- In a preliminary sales agreement, the buyer is not legally obligated to purchase the property, which is a significant advantage. However, the seller is not bound if the buyer does not sign the final deed within the agreed timeframe. This means that if the buyer defaults, the seller is immediately released from their obligation and can put the property back on the market. Additionally, the seller retains the reservation fee as compensation.
- In a promise to sell, both parties are equally committed. If one party defaults, they must compensate the other.
Deposit and Financial Consequences
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- In a promise to sell, if one party fails to fulfill their obligation, they must pay a penalty to the other. To ensure payment, the buyer deposits a guarantee with the notary. This amount is freely determined by the parties but is usually set at 5% of the sale price.
- In a preliminary sales agreement, only the buyer is required to pay a reservation fee (“indemnité d’immobilisation”) in case of default. This fee is also freely agreed upon but is typically set at 10% of the sale price, to compensate for the fact that the buyer is not legally bound to complete the purchase
Legal Action in Case of Breach
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- In a promise to sell, if one party fails to comply (e.g., the seller or the buyer refuses to sign the final sale deed), the other party can initiate legal action for forced execution to compel the completion of the sale. However, this type of lawsuit is time-consuming, costly, and dependent on the judge’s decision. Additionally, beyond the forced execution, the defaulting party must also compensate the other party.
- In apreliminary sales agreement, only the buyer can initiate legal action for forced execution. However, if the buyer defaults, the seller is immediately released from their obligations and can freely sell the property to another buyer while keeping the reservation fee as compensation.
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