Future Purchase Contract
When a purchaser needs to secure funding
Written by Richard Gürlich
of GÜRLICH & Co.
Future Purchase Contract
This is mainly used when the purchaser needs to secure funding(mortgage). This is accepted by the majority of banks as evidence of purchase. This also stipulates the conditions in the event that the purchaser cannot complete the purchase. This may be , for example, where the purchaser is limited by foreign exchange regulations.
This can be resolved by a contract that proves the authority of the purchaser and the assignment rights and duties to the other third parties that there is authority to complete the purchase. An example of this could be the use of a newly established company.
What should be included in Future Purchase Contract and what should be its form?
The main purpose is the written commitment of the participants to conclude the purchase contract within an agreed period, following conditions set in the original future purchase contract.
The law dictates that a substantial part of the ultimate purchase contract should be in the future purchase contract. This will ensure the success of future negotiations about future contract conditions.
It is important to ensure that the purchase contract is concluded within the specified timescale, to avoid any problems. However, if this is not the case, based upon the Civil Code, it is possible to obtain a court decision on the outcome.
The written contract should stipulate the parties to the contract, express obligations for the conclusion of the contract and the period during which the contract must be concluded. It is standard to stipulate the obligation of the seller to transfer the ownership rights and the obligation of the buyer to pay the seller the agreed price. It is imperative that the purchase price is clear, or the method by which the price will be determined.Generally, the transfer of ownership of real estate is governed by the Civil Code, future purchase contracts are governed by the Commercial Code- even if the contract refers to real estate. Although generally the system of Future Purchase Contract concerns transfer of ownership.
Recommended contractual clauses in Future Purchase Contract
Besides the necessary contractual clauses it is necessary to point out further clauses that should be included in the contract for your protection and safety.
Firstly, the Future Purchase Contract usually stipulates the method of payment of the purchase price. The buyer is obliged to pay a certain amount of money. This is then deposited in an escrow account( with a notary or lawyer). This is set off against the full purchase price.
However, this money may also serve to pay the vendor a contractual penalty, as per the contract conditions, for failure to meet obligations or withdrawal from the contract.
The important part of the contract is undoubtedly the specific reference to contractual penalties for breaching obligations within the Future Purchase contract. Further sanctions would arise in the event that the buyer fails to obtain the finance for completion or if statements made by the participants to the contract are deemed to be invalid.
It is possible to agree conditions for withdrawal that are in favour of both parties.
Clauses frequently state that the subject of the real estate in question(during the period stipulated in the contract) cannot be sold, assigned or encumbered in any way by the vendor.
The contractual freedom of the participants to a Future Purchase Contract allows parties to adapt the contract to suit both sides of the deal. Therefore, it is not possible to list all possible variations and possibilities of such contracts. Due to the wide range of possible contract wordings, it is important to take the advice of an experienced lawyer.
More complete information on this subject can be found at www.akrg.cz
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