Termination of Preliminary agreements for sale-purchase of real estate in process of construction
Many Bulgarian and foreign investors are signed Preliminary agreements for off-plan purchase of real estates. The subjects of the agreements are usually properties in process of construction but sometimes the constructions are not realized and completed as per the agreed terms. As result the buildings remain unfinished on stage Act 14 or Act15 (for more information about these acts see our article “Acts and protocols issued during the construction process” published on our web site: www.nyd-law.com) and the developers could not confirm when they will be able (financially and technically) to finish the buildings, resp. refuse signing of annexes with new completion dates or/and paying of penalties for the delay; they could be even announced in insolvency procedure by the banks-creditors.
Please see in short the procedure for termination of the Preliminary agreement under the Bulgarian legislation:
According to Art. 87 of the Obligations and Contracts Act the preliminary agreements must be terminated out of the court. It is usually done with sending of a Notary verified demand with explicit statement for termination of the agreement and asking for returning the money paid within specified deadline. The agreement shall be treated terminated with receiving of the Notary invitation by the seller (developer).
If the seller does not proceed with returning the money paid under the Preliminary agreement and the deadline set out in the Notary invitation is expired, the buyer must start immediately a court case for returning the money and paying of compensation, penalty as well as for recovering of the paid state fees, attorney fee, etc. There is a risk because the developer could dispose with his assets and finally the buyer will not have chance to receive his money back.
In the the court case for termination of the Preliminary agreement and returning the money back, it is recommendable to use some of the seller` s properties or other assets as secure of the claim. It could be done even before bringing the claim in the court. Usually the court is determining a monetary guarantee of 10% over the price of the claim which shall cover the damages of the seller if the claim is disallowed.
Once a final judgement of the last court instance is issued in favor of the buyer, the buyer (through the bailiff) could start a public sale of the burdened property in order to receive the money subject of the claim. It is the longest way for collecting the money but it is sure that the buyer has any guarantee to receive his money.
Please note that the court procedure is moving slowly and it could take a place several years until a final court decision is issued.
After finishing of the court case an executive procedure is usually initiated. The procedure is carried out by the bailiff (private or public). The aim of the procedure is to collect the money due to the creditor. All kinds of assets could be subject of the executive procedure – bank accounts, immovable property, takings, stocks, etc. If some property is used as secure of the claim before bringing the claim into the court, the bailiff is using this property. At the end the bailiff prepares a final distribution of the collected money between all creditors joined to the executive procedure. It is important to be noticed that some creditors are treated as privileged creditors by law (the state, the banks, the creditors with mortgages, pledges, etc.). The state is treated always as joined first creditor. Respectively, the privileged creditors receive firstly the money collected during the executive procedure; the other, non privileged creditors receive money if any remain finally. That ` s why it is important some debtor` s assets to be used as secure of the claim initially.
This article is provided by “Valova & Angelova” Law firm