One of the most widely used agreements (contract) in real estate is the Promissory Agreement for Purchase and Sale, also referred to as a Preliminary Agreement, or an Option Agreement, among others.
As such, it is of the utmost importance we inform our readers of the essential elements for this type of agreement, as well as its elements for validity and its characteristics. DEFINITION
The Promise is an agreement whereby one or both parties agree to be legally bound to enter into an agreement at a specific time in the future, being unable or unwilling for the moment to enter into said agreement.
Therefore, their purpose is for entering into a final agreement at some point in the future, namely, it creates an obligation to do a particular thing (an affirmative covenant), and not to surrender/turn over a particular thing.KINDS (of Agreements/Contracts)
This kind of Agreement is also referred to as Promise to Sell (Sales Contract) or Offer to Purchase. Only one of the parties agrees to be legally bound thereby. For example, the Promissory Transferor (i.e., Seller) commits to sell a house to Promissory Acquirer (i.e., Buyer), but the latter does not agree to be legally bound to buy same. Bilateral.
This kind of Agreement is also referred to as a Promise for Purchase and Sale. Both parties agree to be legally bound thereby, in other words, the Promissory Transferor (i.e., the Seller) agrees to be legally bound to the sale, transfer or otherwise disposal of (sell) and the Promissory Acquirer (Buyer) agrees to be legally bound to the acquisition (purchase). For example, when Promissory Transferor (Seller) commits to selling a house to Promissory Acquirer (Buyer) and the latter agrees to be legally bound to acquire same. ESSENTIAL ELEMENTS AND ELEMENTS FOR VALIDITY
In order for the Promise to be valid:
I. Pursuant to Article 1394 and 1395 of the Civil Code of the State of Yucatán:
a) It should be in writing;
b) It should be signed before a Notary Public;
c) It should contain the characteristic elements of a final agreement, i.e., what is to be sold, transferred or otherwise disposed of, as well as the price, etc. should be specified;
d) It should be limited to a specific time, in other words, the final agreement is to be executed by the parties within a certain, specific time term; and
e) It should be registered in the Registry of Property, when it affects real estate or In rem rights established with regard to same, in order [for it] to take effect and be legally valid vis-à-vis third parties. Should it not be registered, another buyer may acquire same, with no liability whatsoever.
II. Competence/Faculty. The contracting parties should be qualified and competent to enter into the agreement and exercise the obligations therein, in other words, they should be of legal age (18 years old) and of sound mind. In the event of a sale, transfer or otherwise disposal of real estate to a foreigner, and the real property is in the so-called Restricted Zone (a strip of national territory that encompasses all land 100 kilometers wide along the Mexican borders and 50 kilometers wide along the Mexican coast), upon signing the Promise for Purchase and Sale, said foreigner may not have the ability to acquire said real property; as such, we recommend setting forth in a Clause or in the Recitals Section [of the Agreement] that the foreigner commits to establish one of the legal figures as set forth in the Foreign Investment Law in order to be able to acquire said real property.
III. Consent. Both parties, by mutual agreement, should execute the agreement. As to this point, our recommendation is that you seriously consider verifying that the person signing as Promissory Transferor (or Seller) is the owner or, in the alternative, has the authority of a power of attorney or that of a legal representative to be able to sign the Promissory Agreement.
IV. Purpose. The Promissory Agreement should specify (i) the particular thing to be surrendered/turned over; or (ii) whatever the obligor (in this case, the promisor) should or should not do. ARE THE PROMISSORY AGREEMENTS FOR PURCHASE AND SALE THAT WE SIGNED BEFORE ACQUIRING THE REAL PROPERTY CONSIDERED PROMISSORY CONTRACTS FOR PURCHASE AND SALE?
In the Promissory Agreements there is neither a transfer of nor profiting from wealth (advance, guarantee deposit, etc.).
IF in perusing the Precedent Conditions and the Clauses of the Agreement, one finds that:
A) A period of forty-five days was set in order to execute the final Agreement;
B) The facts and acts agreed upon by the contracting parties are noted and advised, implying a consensus relative to the term and condition as referred to in a Clause for said transaction;
C) The text [of the Agreement] stipulates that the "Promissory Buyer” commits to pay “Promissory Seller” a certain price, in money, by means of an advance; and
D) The Agreement itself advises that the "Promissory Seller" received from the “Promissory Buyer” payment of the advance which the “Promissory Seller” admitted having received on account of said Agreement;
THEN, it is clear that it dealt with entering into an informal sales agreement and not a preliminary purchase-sale agreement, the two promises concurring to the purchase and sales, as well as determining the purpose and price; a consensus thereby existing which, as previously noted and by having the constituent elements thereof, leads to executing a purchase and sale, thereby giving rise for either of the Contracting Parties to demand satisfaction of the relative solemnities (formalities) in order for the Agreement to be perfect as to form.
Therefore, the so-called Promise to Sell (Sales Contract) that does not exclusively contain an obligation to do a particular thing, but rather an obligation to surrender/turn over a particular thing, or the thing is surrendered/turned over and there is a price paid, either in its totality or in part, satisfies the elements deemed necessary for the existence of the purchase-sale, regardless of the defective terminology the parties have used. WHAT CLAUSES SHOULD BE IN THE PROMISSORY AGREEMENTS?
Every Agreement (or Contract) has three kinds of clauses, the essential, the intrinsic and the incidental, it being vital that at least the first ones be set forth in the Agreement, given that failure to comply with this provision produces the absence of the promise. The essential clauses are: Consent, the substantive Purpose of the Agreement (or Contract), and the stipulated Term.
The clauses that should be included in a Promissory Agreement for real property are:
1. Purpose. To establish the obligation (unilateral or bilateral) for the purchase and sale of a specific parcel of real property. It will suffice to identify the real property with a description of same that does not give rise to questioning what real property it deals with. It is advisable to include recording and cadastral number information.
2. Price. States the price set for the real property. There is no money disbursement provision. The price is set by the property. There is no delivery of money. Citing that a price should be paid may also be stipulated, although it does not need to be set accurately.
3. Term. Term is understood to mean the date in which a natural or voluntary event will surely take place. It may be that the day, month and year, (date) for formalizing the transaction are not agreed on, since in compliance with the will of the parties, the term should end when an obligation precedent is met, namely, end with a future and uncertain event.
4. Form and Location of Payment.
5. Penalty Clause. We advise specifying the penalties that would be incurred by the parties should they fail to comply with the terms and conditions of the Agreement.
6. Domiciles of the Contracting Parties.
7. Warranty of Title and Right of Possession.
8. Expenses and Professional Fees. Agreement for their payment.
9. Submission. In case of dispute, establish which courts will have competent jurisdiction on the matter.
10. Translator. In the event one or both parties do not speak Spanish, and the Agreement is drawn up in this language.
What should be included in the promissory contract?
The promissory contract should clearly set forth the specifications
that will eventually be continued in the purchase sales contract. It
CAN A PROMISE FOR PURCHASE AND SALE BE CARRIED OUT ON REAL ESTATE THAT BELONGS TO A MINOR?
- Name and personal information of the buyer
- Name and personal information of the seller
- The seller’s promise to sell
- The buyer’s promise to acquire
- A full legal description of the property
- Outlines purchase price, deposit and payment schedule
- Delivery date for possession and transfer of the title
- Responsibilities of both parties
- Terms and conditions
- Penalty clauses in the event of default
- Signature of both parties and witnesses
If there is a Promise to Sell (Sales Contract) relative to property belonging to minors, without judicial authorization, such action (the Promise) is null and void, creating provisional (legal) effects and giving rise to obligations that should be met, until such time as a competent judicial authority has declared it not being null and void. CONCLUSION
In view of the foregoing, it is of vital importance to be able to distinguish the type of Agreement that is being carried out - a promise for purchase and sale, an informal purchase-sale, or an installment sale - since the rules to demand specific performance** thereof before a judicial authority are modified (or amended) according to the type of Agreement concerned.
Furthermore, in drawing up the Promissory Agreement it is very important to define the meaning of those words that are ambiguous in order to avoid any controversy or misunderstanding as to the terms and conditions the parties wanted to agree on.
**A legal action in which the court requires a party to a Contract to perform the Terms of the contract when he has refused to fulfill his obligations