What should be included in a property purchase contract

Real estate agents, but also some sellers often postpone negotiations on the purchase contract until the last minute. Then they present a document written in several fonts, with terrible formatting and spelling mistakes. And they insist on signing immediately, because time is short and the obligations of the future contract must be met. The form does not matter so much, of course, but it often goes hand in hand with the content of the agreement, and thus the factual correctness. On the other hand, even a seemingly perfect and multi-page agreement on letterhead may not be free from fundamental defects.

Basic points of the sales contract

When buying a property, the written form of the contract must be observed. It must contain at least the following information, which we have summarised for you in five simple points:

1. Parties to the contract – Clearly defining the seller and buyer is an absolute must. The seller must of course be the owner of the property registered in the Land Registry. Ideally, he should be identified not only by name and address, but also by his birth number. If there are more than one owner, they must all be listed.

2. Property – Most mistakes are made when specifying the property. It must be identified exactly as it is defined in the Land Registry. Otherwise, there is a risk that the Land Registry will reject the entire purchase and not transfer the property to the new owner. It is sufficient, for example, if the contract omits the ownership interest in the building or land.

3. Purchase price – Determining the amount of the purchase price is always an essential point in the contract. However, the purchase contract must also specify exactly how the money will be paid. And also when. Usually escrow is used, in fact we always recommend this to our clients. Negotiate the terms and any contractual penalties if something is not realised on time.

4. Taking over the property – The contract also states who will make the application for registration in the Land Registry and by when, who will pay the fee, when exactly the apartment or house will be handed over or when the original owner will move out. Here too, it is advisable to negotiate penalties for non-compliance with the agreed terms.

5. Signatures – In any case, have the signatures verified, just at the post office or Czech Point. However, the parties do not have to sign at the same time in the same place. It is common for the buyer to sign the contract in Žižkov and the seller in Beroun.

An example from our practice

Mr. Tomáš, a marketing consultant from Brno, was buying an apartment without a real estate agent. However, the seller presented him with such a complicated and unclear contract that Tomáš did not know how to deal with it himself. As if that were not enough, the seller also failed to mention in the contract that the apartment was subject to a mortgage and a lien. Once it got to the bank, where Tomas was promised a loan, the whole transfer almost fell through. The bank clerk was furious and no one knew exactly how to modify the contract.

What else should the purchase contract contain?

From the buyer’s point of view, it is therefore more than advisable to insist that the seller explicitly declare in the purchase contract that the flat or other property being transferred is free from any legal or factual defects. This may be, for example, rent to “unacknowledged” tenants or broken built-in appliances.

The seller should also declare that there is no bankruptcy or foreclosure on his property or that no one has declared permanent residence in the apartment.

On the other hand, the seller should insist on a declaration that the buyer has familiarised himself with the apartment, has seen everything, knows everything and has been everywhere, so to speak, three times (i.e. everywhere – we mean in the apartment and its surroundings). Ideally, the buyer should expressly declare that he waives any defects that might appear later on.

The seller then wants to have the purchase price secured in advance through escrow so that he does not lose the apartment and the money. An escrow is a special account that a notary, lawyer or bank opens for you. The buyer will transfer the money corresponding to the purchase price into this account and once the property has been transferred, this money will be paid to the seller. Both parties are thus assured that nothing will happen to their money.

To protect both the buyer and the seller, it is advisable to add a contractual penalty to the contract, which could be applied in the event that any of the statements made by either party prove to be false. We recommend insisting on such a contractual penalty. A seller or buyer who has a ‘clear conscience’ should not object to a penalty.

However, in addition to the contractual penalty, we recommend insisting on the obligation to compensate for any actual damages in the event of a breach of contract, for example by one of the parties giving false information, and to provide for the possibility to withdraw from the contract. All of this can be described in a simple, sober and understandable way, and it is not necessary to describe stacks of papers. There is strength in simplicity, so keep this in mind when drafting a purchase agreement.

A well-written purchase contract will prevent many problems that can arise. If everything goes well, we don’t even have the opportunity to appreciate its quality. However, when a situation arises that the contract does not address, the law is followed and litigation may result.

It is appropriate to collect evidence and other supporting documents for this case. For example, keep email communications with the estate agent, seller or buyer, but also with your own solicitor. So it is definitely better to put everything in writing, even though it may be a more time-consuming journey. You also need to check that you have copies of all necessary contracts and that all signatures are on them.

We prepared this article for the Lidové noviny series “Law & Housing”. See also other articles from the series:

1. What to watch out for when buying a property
2. How to get a mortgage
3. What to check before buying a property
4. Who pays the property transfer tax and how?
5. What should be included in the property purchase contract
6. The most common mistakes when drafting a proposal to the Land Registry
7. Buying a property from a developer
8. Keeping the purchase price when buying a property
9. The difference between a condominium and a freehold
10. What is an annuity?
11. How to properly gift a property
12. What is the purpose of an easement or servitude?
13. Making a will and settling an estate
14. What is a collation
15. What shouldn’t be missing from a lease agreement
16. When rent increases can be made
17. Termination of the lease
18. Agreement to end the tenancy
19. How to draw up a work contract with a tradesman
20. Hidden defects and cancellation of a works contract
21. When do you need planning permission to renovate a property?
22. Home Rules
23. What does serving on a condominium board entail?
24. Why not underestimate the bylaws in a condominium
25. Common areas in a block of flats
26. What is involved in refurbishing a block of flats
27. Can a condominium or housing association go into debt?
28. How to renovate a house or cottage
29. What to watch out for when dealing with a construction “company”?
30. Building a house on a “green field”
31. How to remove land from the agricultural fund