The old rule of trade says that when both parties act with the best of intentions, they do not need any agreement. A handshake is enough. But if you plan to sell or buy the property, you should think about better protection of your own interests.
In the case that certain principles shall be fixed as being final stipulations, even if an agreement about details would still require some time, a preliminary agreement seems to be a good solution, as it has an expressed binding effect. The preliminary agreement is usually a legally binding contract whereby the parties agree enter into a future contract of transaction upon or following the happening of a certain event. A common event can be for example contracting a credit, obtaining special permissions, fulfilling additional conditions, etc. Such agreement does not yet contain all conditions of the main contract, however, it has to include as much as possible of the content of the final contract (essential provisions of the promised contract) to enable the contractual partners to legally pursue the conclusion of the final contract, if necessary.
The preliminary agreement may oblige both parties, but it is also possible to sign the preliminary agreement obligating only one party to conclude final agreement and then the other party is only entitled to demand the conclusion of the final agreement (but is not obliged to do it).
The preliminary agreement, that is governed by relevant provisions of the Polish Civil Code, should envisage among other things a time limit (deadline) to sign the final agreement. According to the statutory regulation, if the time limit within which a promised agreement is to be concluded has not been specified, it can be specified by the party entitled to demand that the promised agreement be concluded. In a case when both parties are entitled to demand that the final contract be concluded and each of them has specified a different deadline, the parties are bound by the time limit specified by the party which has made a suitable declaration first. Unfortunately law envisages a deadline for the parties to demand the conclusion of final agreement. If the time limit to conclude final contract is not specified within one year of the date of concluding the preliminary agreement, it is not possible to demand conclusion of this contract.
It is very important to conclude the preliminary agreement in appropriate form because the form of such agreement can entail different legal consequences when one party obliged to conclude final contract evades its conclusion.
The agreement transferring the ownership of property (e.g. the agreement of sale of real estate) has to be concluded in the form of a notary deed under pain of nullity but the preliminary agreement can be generally concluded in any form. Therefore if the preliminary agreement preceding the final agreement transferring the ownership of property is signed in the form of a notary deed (the same form that is required by law for the final agreement) the entitled party can demand before the court the conclusion of the final agreement. There are some nuisances involved in signing the agreement in the form of notary deed – it is definitely more expensive and usually takes more time than sign such agreement in writing but it also gives both parties much better protection.
When the preliminary agreement preceding the final agreement of sale of real estate is signed in writing, if the one party evades conclusion of the final agreement, the other party can only demand redress the damage sustained as a result of counting on conclusion of the final contract. Conclusion the preliminary agreement concerning real estate in writing ensures much more smaller protection because the party keeping up the will to conclude promised contract cannot demand its conclusion before the court but can only demand to redress the damage (if this party incurs the damage at all). It is also possible to specify differently a scope of compensation in the preliminary contract.
The claims under the preliminary agreement (e.g. conclusion of the final contract or redressing the damage) shall be barred by limitation of one year form the day on which the final agreement was to be concluded. If a court dismisses the demand for the conclusion of the final contract, the other claims under the preliminary agreement can be barred by limitation of one year form the day in which the decision became valid. After elapse of the limitation periods mentioned above the contracting party can effectively avoid to satisfy the claims. However the claim for reimbursement of sums paid as the earnest or advance payment shall be barred by limitation according to the general rules.
If you intend to buy a property and plan to pay any sum as the up-front payment and conclude preliminary agreement, you should remember about the protection of your interests. Before conclusion of the preliminary agreement all conditions and requirements of planned transactions ought to be determined and indicated in the content of this agreement. It should minimize the risk involved in signing such agreement.
