The compromis de vente is a document that seals a property sale. In Luxembourg, this document is equivalent to a sale: it is not a simple commitment that can be withdrawn. The regulations clearly state that an agreement to sell is equivalent to a sale. The compromis is therefore to be taken very seriously.

In order to ensure optimal legal certainty for both parties, the compromise should contain a number of clauses.

Here are the 8 main clauses of a provisional sale agreement in Luxembourg:

• the qualities of the two signatories (surnames, first names and addresses);
• a description of the building (location, cadastral references, size, etc.);
• the existence of any easements;
• the sale price and the terms of payment;
• the name of the notary who will receive the notarial deed and the date of signature of the notarial deed;
• the planned date of entry into use (date of handover of the keys);
• a suspensive clause concerning the obtaining of a bank loan;
• a penalty clause providing for compensation in the event of termination of the agreement without cause by one of the parties.

The last two clauses merit a closer look at their definition, content and consequences.

Sales agreement: the penalty clause

Compromises of sale often include such a clause, the principle of which is provided for in the Civil Code.

A penalty clause is a contractual and lump-sum assessment of the contractual damages that may be due to the creditor of an obligation in case of non-performance of that obligation.

It is intended to avoid difficulties in assessing the damage suffered by the creditor by fixing a lump sum of money, which in principle eliminates any discussion between the parties on the reality and extent of the damage. In principle, this sum cannot be modified by a court, unless it was manifestly excessive.

In general, the parties provide that the defaulting party will have to pay the other party an indemnity equivalent to 10% of the sale price. This clause may be invoked whenever a party unilaterally terminates the compromis de vente.

However, this clause will not be applied if one of the parties can validly claim the non-fulfilment of a suspensive clause provided for in the sales agreement.

Sales agreement: suspensive clauses

- Most homebuyers use a bank loan.

It is therefore essential that the preliminary sales agreement include a condition precedent that a bank loan be obtained.

A suspensive condition is one on which the creation of a legal relationship depends: as long as the condition is not fulfilled, the obligation does not yet exist and is suspended. If the condition fails, the right does not arise and the contract is not effective.

If the preliminary sales agreement includes such a suspensive clause, which generally provides for a deadline by which the buyer undertakes to send the seller the bank's reply, and if the bank does not grant the loan to the buyer, the preliminary sales agreement will not be effective. Thus, the parties will be released from any commitment, without the acquiring party being obliged to pay any compensation to the other party.

If the parties to the contract fail to include such a clause and the bank refuses to grant the loan, the buyer will in principle be obliged to pay the amount of the penalty clause to the seller, as he will have unilaterally terminated the compromis de vente.

It is essential to include a condition precedent of obtaining a bank loan in the preliminary sales agreement.

If one of the parties withdraws from the sale, i.e. unilaterally terminates the compromis, without being able to claim the non-fulfilment of a suspensive clause, and a penalty clause was provided for in the contract, it must pay the amount of the penalty clause provided for to the other party.

It has been ruled that the expiry of the time limit within which the event had to occur, i.e. within which the response from the bank had to be obtained, does not cause the sale agreement to lapse and it can therefore be fully effective (Court of Appeal - 4^e Chamber, 14 March 2012).

- In the same way, and following the same legal principles, a provisional sale agreement may sometimes be concluded under the suspensive condition of obtaining a building permit (e.g. for the acquisition of land under the suspensive condition of obtaining permission to build a residential project on the acquired plot of land).

Mention of the rental of the property sold

The seller should inform the potential buyer that a tenant occupies the property sold and that the lease contract should be taken over. In this respect, it is advisable to clearly mention the existence of a lease contract, both in the preliminary sales agreement and in the notarised deed.

The new purchaser will be bound by the terms of the lease agreement. If the new buyer wishes to terminate the lease, he or she will have to comply with the relevant legal provisions.

Note that :

- the preliminary sales agreement must be drawn up in as many original copies as there are parties to the contract, i.e. in principle in two originals (one for each party).

- In principle, the preliminary sales agreements for a building must be registered to theRegistration and Domain Administration.

In practice, many sales agreements are not registered. Failure to register the agreement does not affect its validity as between the parties, but renders it unenforceable against third parties to the contract (persons who are not parties to the contract).

The notarial deed

A notarial deed, as opposed to a private deed, is a deed received (and often drawn up) by a competent public officer, according to a number of formalities required by law.

In some cases the law obliges the parties to a contract to have it drawn up in an authenticated notarial act in order for it to be valid.
This is the case for real estate sales for which the compulsory notarial deed is in principle a mere formality, as the sale is already complete when the preliminary sales agreement is signed

The role of the real estate agent

The real estate agent's task is to bring the seller and buyer together and to handle the negotiations.

He is often also in charge of drafting the preliminary sales agreement which will be signed by the seller and the buyer or by the real estate agent in the name and on behalf of the seller.

Attorney Claudia THIRION
Lawyer at the Court
THIRION study
Tel: 20.60.03.05
Email : claudia.thirion@thirion-avocat.lu