23/07/2019 0 Comments
Compromis de vente V Promesse unilaterale de vente
When two parties intend to enter into an agreement for a property transaction, they first sign a sale agreement to agree on the price and the terms and conditions of the sale. Whether you have an Estate agent or Notaire preparing the contract, they will both have to explain to the parties that this contract can take the form of a unilateral promise of sale (promesse unilaterale de vente), or that of a binding contract (compromis de vente).
The question will be the opportunity for the parties to choose the form best suited for their transaction. Indeed, under different circumstances, the parties may prefer one form rather than the other.
When two parties intend to enter into an agreement for a property transaction, they first sign a sale agreement to agree on the price and the terms and conditions of the sale. Whether you have an Estate agent or Notaire preparing the contract, they will both have to explain to the parties that this contract can take the form of a unilateral promise of sale (promesse unilaterale de vente), or that of a binding contract (compromis de vente). The question will be the opportunity for the parties to choose the form best suited for their transaction. Indeed, under different circumstances, the parties may prefer one form rather than the other.
If both contracts prepare the sale of the property, they each have advantages and most of the time, the form of the contract that you sign depends on the conviction of the estate agent or Notaire to use one or the other. We all know that estate agents will only use the compromis de vente, mainly with a standard document already available. The particularity of the promesse unilaterale de vente is that it is an authentic deed, and thus, can only be completed by a Notaire.
1 – The characteristics of each contract:
I recently experienced clients having to sign a promesse unilaterale de vente drafted by Notaires without knowing it or thinking that it was the standard compromis de vente. I am not afraid to say that the promesse unilaterale is quite unknown in England and British investors are probably more familiar with the compromis de vente, since there are so many articles online about it.
La promesse unilatérale de vente
The order of 10th February 2016, reforming the law of obligations and contracts in France has given a new definition to the unilateral promise of sale in its article 1124 defining it as “a contract by which one party, the promisor, grants another, the beneficiary, a right to have the option to conclude a contract whose essential elements are determined, and for the formation of which only the consent of the beneficiary is missing”.
The promisor means the vendor and the grantor the purchaser. In the promesse unilaterale de vente, the wording is different and the parties are not called vendor and purchaser. The promise is called unilateral in that only the promisor makes an unambiguous commitment to sell.
The Grantor, on his side, is also committed, but his commitment is optional. The Grantor may opt to buy or renounce, his renunciation leading to the payment of the deposit only (indemnite d’immobilisation) to the promisor. Like the compromis de vente, the parties can include suspensive conditions in the contract. The main difference will be the outcome of the contract if one of the parties fails to complete after all the conditions are fulfilled, which we will review in point (2).
The sale is not yet complete, the deadline is provided in the contract, during which the promisor is required to maintain their commitment to sell to the grantor and not sell to a third party.
The Grantor benefits from an option, called “levee d’option”, which corresponds to the deadline given in the contract to opt to purchase, to definitely form the contract. Until the option is exercised, the sale is not complete. In practice, the “levee d’option” usually coincides with the completion at the
The consequences of the parties' failure to sign must also be included in the contract. If the Grantor decides not to exercise the option, there is no breach of contract. He will only be liable to pay the deposit to the Promisor. There is still a financial consequence for not completing but no further action or judicial proceeding can be undertaken by the promisor.
On the contrary, if the promisor refuses to complete after signing the promesse unilaterale, the sale is complete and the seller can no longer refuse to
sign. This is the major change brought by the order dated 10th February 2016. Prior to it, the promisor, who in theory was committed to selling, could still walk away from the transaction by having to pay damages only. The high court of Justice considered that the sale was not complete and the promisor could not be compelled to sell. With the new order, this is not possible anymore and the purchaser is protected meaning that his option will seal the sale.
Le compromis de vente:
The order did not provide an article governing the compromis de vente. Only Article 1589 of the Civil Code refers to it. For the high jurisdiction (Cour de Cassation), the contract is a binding sale and the parties are committed from the signing of it, unless they wished to postpone their final commitment
to the fulfilment of a condition, suspensive conditions in practice. If the conditions are not fulfilled by the agreed date, the parties may decide to extend the validity of the contract by means of a mutual agreement until the fulfilment of all the conditions. Otherwise, the compromis becomes void and the parties are free from any commitment if a term "extinctive" has been provided in the contract.
The contract will often not provide an “extinctive” clause but to the contrary, a clause to start legal proceedings to force the other party to sign.
The contract will provide the formalities to start the proceedings, mainly notice given to the faulty party to complete. If one party refuses to sign, the other party may wish to terminate the contract or request enforcement and claim damages. This requires a judicial process. The requirement of a judge can only be avoided if the parties reach an agreement on the termination of the contract.
What matters most when signing a contract is its outcome. If the conditions are fulfilled and the parties agree to sign, the Notaire will organise the completion. Problems arise when one of the parties refuses to sign or to show up. This is where the importance of the nature of the contract can influence the outcome of the transaction.
2 –Refusal by the parties to complete
Refusal by the purchaser:
Let’s take the first case where the purchaser refuses to sign: According to the English law, it is common to have a purchaser who withdraws a few days, if not a few hours before the exchange. In this case, the buyer is not bound to the transaction. It is common to see English purchasers being confused with the exchange and completion in France and assimilating both as the same. Indeed, the exchange is identical to the signing of the contract (promesse unilaterale or compromis de vente) and a late withdrawal after all the conditions are fulfilled can be extremely damaging for them.
In a compromis de vente, the sale is already formed, a judicial proceeding is necessary to assess the purchaser’s failure and unbind the vendors from the contract. Once assessed, the recourses for the vendors are: a penalty clause, enforcement, all these options are usually set out in the compromis de vente.
In terms of the penalty clause, we know that the judge could revise it, often reducing it upon the real inconvenience that the vendor caused. As far as enforcement is concerned, it wil really depend upon the purchaser’s solvency. If he is insolvent, the vendor will be at a dead-end. It should not be forgotten that during the procedure the property will remain unavailable, making it impossible for the seller to retrieve his property for sale until he has obtained a judicial decision to undo the contract.
In the promesse unilaterale de vente, the purchaser must opt to acquire; failing that, it is not a default on his part, but an intention not to conclude, resulting in the payment of the deposit to the benefit of the seller. The only consequence for the purchaser will be to lose his deposit rather than being compelled to purchase or being sued for more compensation, and entering into a long and costly judicial proceeding. Contrary to the compromis de vente, the deposit is not revisable, and the vendor is free to remarket his property without a Court order.
Refusal by the vendor:
In the compromis de vente, the penalty clause applies to the seller who refuses to sign. It is also possible for the purchaser to cumulate the penalty clause with an enforcement of the sale. Again, it will require a judicial process with the deadlines that we know.
In the promesse unilaterale de vente, the 2016 reform changed the definition of the contract, as seen above. The promisor can no longer withdraw. The withdrawal of the promisor during the period given by the grantor to opt does not prevent the formation of the sale. It was suggested, at the recent Notaire’s annual conference, that the vendor would not need to be present for the completion and that a Notaire would only need to require the purchaser’s signature.
We know that in practice we are far from that option, notaires and parties prefer meeting and signing together. The fact is that a reluctant vendor who would argue that he is abroad and unavailable to sign, just to dissuade his purchaser from carrying on with the sale, would not be able to get away with such an excuse. A Notaire would be allowed to draft the final deed, refer to the promesse unilaterale de vente, which I remind you is also an authentic deed, complete and register the deed at the land registry.
The comparison between the two contracts would have been different before the 2016 reform. Indeed, the promisor, in a promesse unilaterale de vente, would only bear the payment of a compensation to the grantor. Since the reform, the sale is complete and the grantor is secured to have the keys of his dream property. The result would probably be the same with a compromis de vente, but at what cost? Notifications, bailiff, solicitors, legal proceedings and months or years of court hearings.
No wonder now I see more Notaires switching to the promesse unilaterale de vente to offer their clients better legal visibility for their commitments.