Do you want to conclude a purchase contract for your dream apartment, but you do not have the necessary documents yet? Or a contract for work, but you don’t know the exact scope of work yet? In such a situation, a contract for a future contract comes into play. In our article, you will learn what such a contract should look like and how to withdraw from it if necessary.
A forward contract is a commitment to enter into another specific contract in the future, either within a time limit to be specified in the contract or within one year if no time limit is specified. The specific contract to be concluded in the future can be any type of contract, but the most common type is a contract of sale.
Tip: Read what should be included in a contract of sale of movable property.
This type of contract must contain the classic elements of a contract, plus an undertaking to enter into a specific future contract and a basic outline of its content.
As the name implies, we enter into a contract of sale and purchase agreement when we cannot or do not want to conclude the contract itself immediately, but wait for various reasons. For example, we want to have the subject of the purchase examined or inspected by an expert, or to consult a lawyer to avoid possible problems and unexpected pitfalls. Alternatively, we may not be able to fulfil the obligations of the contract immediately.
A forward contract has the advantage of committing to enter into, for example, a non-disclosure agreement (NDA) or other contract without negotiating all of the essential terms of that contract. In order to specify the terms, at least in outline, the PPA may refer to terms and conditions that do not need to be part of the PPA. In the contract, we can agree on the exact date by which the future contract will be concluded and penalties or liquidated damages can be agreed in case one party fails to fulfil its obligation on time. In such a case, we must first invite the inactive party to conclude the contract and if even then the other party does not show interest in concluding the contract, it is possible to apply to the court to determine the content of the contract.
Tip: Have a professional draw up a non-disclosure agreement.
TheFramework Agreement does not create rights or obligations for the parties. In the event that the parties envisage a longer-term business relationship, they shall set out the basic rules to which all future contracts concluded under it shall be subject. The framework agreement on a future contract therefore only determines the content of those future contracts. For example, it may be a major artist with whom we have agreed framework terms for future contracts relating to his future sculptures, paintings or even songs.
An alternative to a contract of future sale is a reservation contract. It is used before the purchase of a property and is an obligation of the seller not to continue to offer the property for sale or sell it to someone else (even if he offers a better price), but to reserve it for sale to the buyer with whom he signs the contract. In return, the interested party pays the reservation fee, which would be forfeited to the seller if the purchase contract is not concluded. This fee usually amounts to 3-5% of the purchase price of the property.
Tip: Read the story of our client who entered into a reservation contract for an apartment. The real estate agency promised him something that it could not deliver.
A booking contract does not have a statutory content, but there are parts that should always be included. These are:
Another common type of forward contract is an employment contract. This is a kind of guarantee that the employer will actually hire the employee in the future. It is worth concluding such a contract if, for example, the employee has to stay in his or her current job during the notice period but also wants to secure his or her future employment.
However, the contract can also protect the employer by obliging the future employee to start work after a given period.
Tip: If you are planning to enter into a contract of sale, an employment contract or a contract for work, it is worth contacting our lawyers to draw up the contract for you and avoid unnecessary mistakes that could lead to its invalidity.
In the event of a change of circumstances, the validity of the Future Contract remains unchanged. But what if there is an unexpected event, such as a flood or house fire, do we still have to respect the future contract? According to the Civil Code, if there is such a change of circumstances and the obliged party cannot reasonably be required to enter into the contract, the obligation ceases.
Let us help you
Are you planning to enter into a future contract or reservation agreement? Then be sure not to go it alone. These contracts can have many pitfalls and the templates downloaded from the internet are often full of errors. Instead, get help from a professional who can prepare or check the contract you are about to sign.
Withdrawal from the contract may be considered if one of the parties has breached or is likely to breach its obligation. For example, if I enter into a contract for a future sale and I find out from the Land Registry that the other party has sold the property to someone else in the meantime.
The possibility of termination of a future contract can be negotiated, but then the question arises as to what is the purpose of such a contract if unilateral termination is possible. Perhaps only if the termination is accompanied by a contractual penalty.
When negotiating a forward contract, one should pay attention to its provisions on penalties for non-performance and default and other possible pitfalls, as it is possible to negotiate almost anything in the contract. It is therefore advisable to consult a professional who will eliminate the risk of potential problems and insert all your requirements into the contract so that they are legally sound.
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Ondřej is the attorney who came up with the idea of providing legal services online. He's been earning his living through legal services for more than 10 years. He especially likes to help clients who may have given up hope in solving their legal issues at work, for example with real estate transfers or copyright licenses.
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