A promise to sell is a legal agreement between two parties (the seller and the buyer) in which the seller agrees to sell a specific property to a buyer for an agreed price at a specific time in the future. This agreement is commonly used in real estate transactions and can be considered as a step prior to the signing of the final deed of sale.
The commitment to buy and sell generally includes the following elements
Identification of the parties (prominent seller and prominent buyer):
- Full name, RUT, profession or occupation and domicile of the parties: buyer and seller.
- If they act on behalf of others, the capacity in which they do so and the corresponding powers of attorney must be indicated.
Property Description (Property Background):
- Precise details of the property being sold, including address, area, specific features and any other relevant information.
- The special boundaries that appear in the property registry of the property to be sold are identified.
- It specifies the purchase and sale that was made previously, indicating the Notary, the date and the repertory number.
- Finally, reference is made to the current and previous title of ownership of the property being sold, indicating the page, number and year where it is registered in the Real Estate Registry (Conservador de Bienes Raíces).
- The appraised value of the property is indicated.
Promise to sell, assign and transfer:
- Here the prominent seller promises to sell, assign and transfer the individualized property.
- And the prominent buyer promises to purchase the property at the price and in the manner subsequently expressed in the promise.
Price and Payment Conditions:
- The total sales price is expressed in Chilean pesos.
- The form of payment is indicated: cash, installments, mortgage credit, etc.
- Payment terms and conditions, including due dates and installment amounts.
- It is indicated if there is a price adjustment for CPI (inflation).
- It is indicated whether it is sold with a deposit, that is to say, through an initial deposit as a guarantee of the buyer’s compliance with the agreement or as a reservation of the real estate. This deposit may be non-refundable if the buyer does not comply with the conditions agreed upon in the promise of purchase and sale.
Terms and Conditions:
- The deadline for signing the definitive purchase contract (deed of sale) is stipulated. Extensions can be included if both parties agree.
- It is indicated that the signing of the definitive deed of sale is subject to the title deeds of the property being in order, in accordance with the law and in conformity with the law. For this purpose, the seller will deliver the folder of legal documents to the buyer so that he can carry out a Title Study.
- This includes any other conditions or contingencies that must be met prior to the final transfer of ownership.
Penalty Clause (Penalties in case of non-compliance):
- The parties may agree as a compensatory penalty clause for non-compliance or withdrawal, a fine generally amounting to 10% of the purchase price.
- The parties may grant to the promise the quality of “enforceable title of collection”, that is to say, use the document to make the sale effective in spite of the fact that one of the parties desists.
Material delivery of the property:
- Date and manner in which the property will be delivered to the buyer.
- Condition in which it is to be delivered (occupied, unoccupied, etc.).
Special Clauses:
Additional clauses may be included as deemed necessary by the parties, such as:
- Financing Conditions: Sets forth the conditions related to the buyer obtaining financing to complete the transaction. It may include specific deadlines for obtaining mortgage loan approval and the consequences in the event that financing is not obtained.
- Exclusivity Clause: Guarantees that the seller will not negotiate with other buyers during a specific period while the promise is in force, offering the buyer an exclusive time to complete the transaction.
- Clauses related to inspections, repairs, legal restrictions or other important aspects that both parties wish to specify in the agreement.
- Hidden Defects Clause: Protects the buyer in case of discovery of hidden defects in the property after the signing of the agreement, detailing the procedures for claims and resolutions.
- Termination Clause: Establishes the conditions under which either party may terminate the agreement prior to the final execution of the public deed.
Formalities:
- The promise of purchase and sale must be in writing and signed by both parties.
- It is recommended that it be drafted by an attorney to ensure its legal validity.
Conflict Resolution:
The decision to opt for arbitration or the courts to resolve a dispute depends on several factors, such as the nature of the dispute, the preferences of the parties and the characteristics of the judicial and arbitration system.
- Arbitration: Any difficulties, doubts or conflicts that arise will be resolved by an arbitrator. This process is confidential, the arbitrator may be an expert in the subject in dispute, it is more expensive, but the resolution is usually faster than court proceedings.
- Courts of Justice: through the courts the public process, judges are not necessarily experts in the subject matter in dispute, which may affect the quality of their decision. The process is usually slow, but cheaper than arbitration. Although if you go to trial, the costs can be high. In addition, court decisions can be appealed, which prolongs the process and increases costs.
Additional elements that can be included:
- Guarantees offered by the seller on the good.
- Possibility of withdrawal by the buyer.
- Conflict resolution mechanisms.
- The property will be sold ad-corpus, as specie and corpus certain, that is, in the state in which it is currently found.
The promise of purchase and sale is an important document that formalizes the commitment between the seller and the buyer and establishes the basis for the real estate transaction. Once all the conditions and terms stipulated in the promise of purchase and sale are fulfilled, the final deed of sale is signed, which is the legal document that transfers the property from the seller to the buyer, which is initially notarized and subsequently registered in the respective Real Estate Registry (Conservador de Bienes Raíces).
At Produncan Lands we are experts in drafting promises and deeds of sale of real estate. Contact us if you need advice!
