Preliminary agreements in real estate transactions in the Baltics
In real estate transactions sellers are tempted to let the parties conclude preliminary agreements, or so-called booking agreements, immediately after the decision to purchase has been made. In a way this protects the interests of both parties of the transaction during the period of drafting the actual sale agreement or construction of the building. However, pre-agreements are not without problems. Especially when a portion of the sale price is paid and the return of that money is not secured for cases when the actual sale agreement is not signed.
Problems involved with pre-agreements in the three Baltic states are very different, arising from the diversities in the property law legislation in each country. The basic distinction is that in Estonia all agreements for the sale of real estate (including pre-agreements) have to be notarised, otherwise they are invalid.
In Estonia, compiling notarised pre-agreements takes a lot of time, effort and some additional notary fees. Thus, notarised pre-agreements are seldom made. The way to have something non-notarised with binding effect is to require exclusivity for both buyer and seller for a certain time period with the threat of penalty for the breach of exclusivity.
However, given that Estonian property law requires a two-step agreement for the transfer of real estate, parties often conclude notarised conditional sale agreement instead of a pre-agreement. In principle, pre-agreements are only required if the conditions of the sale agreement are not clear yet or to provide exclusivity.
Pre-agreements in Estonia do not have the same function as in Latvia. In Latvia, sale agreements in development projects are not usually concluded prior to completion of the new building. Developers conclude pre-agreements. Pre-agreements are valid and effective in Latvia. However, they usually lack detailed description of the purchase property, including quality.
In Lithuania, pre-agreements in written form are valid. There are separate regulations for the consumer: when the purchaser is an individual, then he/she shall have the right of withdrawal within 10 days as of the signing of the preliminary agreement.
In Estonia and Latvia, if the pre-agreement (notarised in Estonia) is concluded, the parties may claim the conclusion of the actual sale agreement. In Lithuania, if a party refuses to conclude the actual sale agreement, the party of the pre-agreement cannot sue the other party for conclusion the sale agreement but only claim damages.
To conclude, in Estonia it is advisable to sign the sale agreement immediately. If the party still needs time to think, then we suggest signing an exclusivity agreement. In Latvia, instead of the pre-agreement it is advisable to sign the sale agreement with a detailed description of purchase property. In Lithuania, the parties should bear in mind that the natural person signing the preliminary agreement with a company for an apartment purchase has the right of withdrawal within 10 days.
