• Letter of intent

The first document in any real estate transaction is a letter of intent, specifying the basic conditions of the transaction and the exclusivity period for the due diligence and negotiations of the transaction.

• Due diligence report

Once the letter of intent is signed, the buyer or the buyer’s lawyer conducts due diligence concerning the real property to be acquired. This includes title and zoning searches and a review of any leases and surveys of the property. In addition, an independent environmental assessment is often recommended along with a review of the property by an independent engineer. These types of independent reviews are common for properties containing older buildings.

• Preliminary purchase and sale agreement (optional)

The parties may also execute a preliminary purchase and sale agreement which provides that the parties undertake to complete the final purchase and sale agreement in the future.

This preliminary agreement must include the essential elements of the final agreement, such as a description of the property, the purchase price, the advance payment, and any other special terms. It is recommendable that the preliminary agreement specify the closing date. If the closing date (i.e., a deadline to conclude the final sale agreement) is not specified within a year of concluding the preliminary agreement, neither party may demand the conclusion of the final agreement. Typically, preliminary agreements contain conditions to the benefit of the buyer and representations and warranties of the seller. If one party to the preliminary agreement fails to conclude the final agreement, the other party will be entitled to claim compensation for the damage it sustained for this failure. The amount of the compensation may be open-ended or limited in the preliminary agreement (e.g., the parties may agree on contractual penalties). The preliminary agreement may be concluded in any form. However, if the parties conclude the preliminary agreement in the form required by law (notarial deed for real estate), then in the event of one party’s withdrawal, the other party will be entitled to force the conclusion of the final agreement in court. In such a situation, the court’s ruling will substitute the other party’s declaration of will and the definite agreement will be concluded.

• Purchase and sale agreement

This agreement unconditionally transfers the title (ownership or perpetual usufruct) to the real estate. The agreement should contain all necessary business terms for the transaction, including the description of the land, the purchase price, the representations and warranties of the seller and any other special terms. 

A seller usually gives the following warranties:

• The legal title is free from legal defects, is not encumbered and has been acquired in good faith.
• There are no financial liabilities encumbering the property.
• No claims have been filed with respect to real property, including restitution
• There is no pending litigation impacting the value of the property.
• There is no contamination of the property.
• There are no unpaid taxes

The sale becomes binding at the moment of the execution of the purchase and sale agreement. A preliminary agreement may also be enforced if it is prepared in a form of a notarial deed.

The title is transferred upon the execution of the purchase and sale agreement.

In the case of perpetual usufruct right, the title is transferred at the moment when the right is registered in the land and mortgage register by the district court with a retroactive effect as of the date of submitting an application for registration with the district court.

The buyer usually pays for the following:

• Buyer’s agent’s fees
• Buyer’s legal costs
• Due diligence costs for consultants who have prepared the building condition reports, environmental assessments, valuation appraisals and real estate surveys
• Due diligence inquiries made to statutory and government bodies
• Notary fees
• Court registration fees
• Transfer tax if the sale is not subject to VAT

The seller usually pays for the following:

• Listing agent’s fees
• Seller’s legal costs
• Income tax on any profit made on the sale of the real estate