Preliminary Agreement

A preliminary agreement is one by which the parties undertake to conclude a contract in the future. Under TCO Article 29, contracts to conclude a contract in the future are valid and, subject to statutory exceptions, the validity of a preliminary agreement depends on the form of the future contract.

Elements

• The essential terms of the main contract (e.g. the asset and price in a sale) are determined or determinable
• The parties intend to undertake an obligation to conclude the main contract
• The form required for the main contract is observed

Promise to Sell Real Estate

The most common type. A sale of real estate is made in official form at the land registry, while a promise to sell must be executed in notarial form. If annotated in the land register, the promise can be asserted against subsequent owners and right holders. A promise in simple written form is void.

Performance

If one party refuses to conclude the main contract, the other may:

• Sue for conclusion of the main contract; for a promise to sell real estate, bring an action for cancellation of title and registration,
• Claim damages where applicable.

Difference from Similar Documents

Letters of intent and memoranda of understanding generally do not create an obligation to conclude the main contract. Term sheets in investment transactions also mostly contain non-binding provisions. A preliminary agreement is binding. What matters is whether the document contains the essential terms and the parties’ intent, not its title. See Form of Contract.