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How to proceed when withdrawing from a property purchase contract?

We were recently contacted by a client who had to demolish a house he bought two years ago because of rotten beams. We advised him to withdraw from the contract due to a latent defect. If you are dealing with a similar problem, read on to find out how to proceed and what you are entitled to.

Dva muži podepisují odstoupení od kupní smlouvy nemovitosti
7 minutes of reading

Generally, if a party breaches a contract in a material way, the other party may withdraw from the contract without undue delay. A material breach is a breach of an obligation which, in the case of real estate, the seller knew at the time of conclusion of the contract or must have known that the buyer would not have concluded the contract if he had foreseen the breach. In other cases, the breach is not deemed to be material.

A material breach of contract is also a situation where the seller assures the buyer that he can build on the land according to an already approved project, but then it is found that in fact the project is stopped, the land is not suitable for building and is useless to the buyer.

Tip: The parties can agree that in a specific foreseen situation it is possible to withdraw from the contract and include this directly in the contract of sale.

In the case of material breach of duty, the most common defects in real estate purchase contracts are defects in the real estate.

What is meant by defects in the property?

It is the actual condition of the property which does not correspond to its agreed characteristics or to its usual characteristics, taking into account its age and normal wear and tear. Material or factual defects are divided into obvious and hidden defects.

1) Obvious defects

These are defects that the buyer must have recognised during a normal inspection of the property. A typical example is an obvious crack in a wall or a broken window. In such a case, we recommend that these are stated directly in the contract of sale.

If the obvious defects were only discovered when the property was handed over, the solution is to include them in the handover report together with the date or method of their removal.

Tip: Get guidance on how to claim a property.

2) Hidden defects in immovable property

If we are talking about hidden defects, then these are defects that were not known to the buyer despite the exercise of due diligence and thus appeared only with the passage of time after the purchase of the property and its handover.

Tip: Whether the defect already existed when the property was taken over, or whether it only became apparent afterwards, is taken into account.

In practice, we often encounter not only the rotten beams we mentioned in the introduction, but also, for example, mould on walls covered with plasterboard, cracking of floors covered with floating floors, structural defects or leaks in the property. In any case, the buyer is entitled to have the hidden defect removed or the purchase price reduced. However, if the defect is irremovable and the property cannot be used properly, the buyer is entitled to withdraw from the purchase contract.

An available lawyer advises:

Even if the seller adds to the contract of sale wording such as “the buyer accepts the property as it stands and lies” or “the buyer has familiarised himself with the condition of the property before signing the contract”, this does not relieve him of liability for hidden defects in the property. This is true even if he proves that he did not know about the defect.

Tip: You must report a hidden defect within 5 years of acquiring ownership.

Muž u notebooku přemýšlející o následcích odstoupení od kupní smlouvy na nemovitost
Muž u notebooku přemýšlející o následcích odstoupení od kupní smlouvy na nemovitost

Legal defects in the property are also a reason for withdrawal

While it is the sellers’ responsibility to ensure that the property is in perfect legal condition, in practice we often encounter that many of them have no idea that their property is burdened with any legal defect until the moment of sale. And we are talking about the more responsible ones who have a thorough legal check done before the sale.

In the case of properties with legal defects, we most often encounter:

Tip: Most of this information can be obtained from the title deed. An informative extract is available free of charge on the Land Registry website.

You can resign not only for legal reasons

The agreed reasons in the purchase contract play a crucial role. In order to be sure and not to deal with complications and the possible loss of a large sum of money after the transfer of the property, have the contract drafted by lawyers.

From law practice: Liability for ruin – the buyer was informed in advance about the defects of the property

Our client, Mr Martin, was selling a house that was in a truly dilapidated state. Although he gave the buyer several tours of the property and made him aware of the poor condition of the old house, he was still concerned. What if the buyer suddenly wanted a discount or made a claim arising from one of the many potential hidden defects? What if he even withdrew from the contract? According to the Civil Code, a purchase contract can indeed be rescinded if the thing sold is defective and the defective performance constitutes a material breach of contract.

We therefore advised Mr Martin to add a clause to the contract waiving any rights of defective performance in advance, and his assurance that he was aware that the property was in a state of disrepair and would need to be repaired. Everything was resolved simply and elegantly thanks to our advice.

Tip: Discover 9 things to look out for when selling your old house.

How to formulate a withdrawal from a real estate contract?

Withdrawal is made in writing – by letter. It must be clear from its text who is making the withdrawal, to whom, from which specific contract, and for what specific reasons. It is advisable to elaborate on these reasons so that they can be well defined by the court. Thus, if the court were to be seised because the other party has challenged them in this way.

Always send the withdrawal by registered post with a delivery note. It takes effect as soon as it reaches the other party. It does not even matter whether the other party takes delivery, it is sufficient if he or she has the opportunity to do so.

What are the consequences of withdrawal?

Beware that once you have withdrawn from a property purchase contract, you cannot unilaterally reverse your decision. This cancels the contract from the outset, so-called ex tunc. It is as if it had never been. And the parties to the contract have to settle all their mutual obligations.

According to Section 457 of the Civil Code, each party is obliged to return to the other everything he has received under the contract. In the case of a contract of sale for real estate, the buyer returns the real estate to the seller, including providing assistance to register the seller as the owner of the real estate in the land register. The seller, on the other hand, must return the full amount received for the property.

Beware that the settlement of mutual obligations may not apply to the right to contractual penalties, damages for breach of contractual obligation or other arrangements – for example, on how to resolve disputes. These rights may survive the termination of the contract.

Avoid potential problems with rescission of the property purchase contract

A properly drafted purchase contract prevents a number of inconveniences. You can specify the seller’s and buyer’s responsibilities in it, as well as delineate breaches of contract. We can provide you with a complete contractual and legal service related to the purchase or sale of real estate. We can do it within 48 hours – online, flawlessly and professionally.

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Author of the article

JUDr. Ondřej Preuss, Ph.D.

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.

Education
  • Law, Ph.D, Pf UK in Prague
  • Law, L’université Nancy-II, Nancy
  • Law, Master’s degree (Mgr.), Pf UK in Prague
  • International Territorial Studies (Bc.), FSV UK in Prague

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