Pre-sale agreement | Residential Property & Conveyancing | Parslows Jersey
Why use a pre-sale agreement in Jersey?
Under Jersey law, it is not possible (subject to certain exceptions) to force parties to buy or sell freehold property, or to pass any other contract in the Royal Court. This is because the process of passing a contract in court requires the parties to swear an oath which a person cannot be forced to do against his or her will.
This rule still applies even where the parties to a sale agree to enter into a preliminary agreement of sale or pre-sale agreement. Accordingly, a key feature of a preliminary agreement of sale is an agreed damages clause which, in the event of one party refusing to pass contract, provides for the payment of substantial financial compensation to the other. The damages payable pursuant to such a clause should be set at a level designed to encourage each party not to default, and are usually set at one quarter of the sale price.
Should I enter into a Pre-Sale Agreement?
Before entering into such a pre-Sale Agreement agreement, the following points should be addressed:
- all due diligence on the property (including title checks, obtaining consent from the Population Office and, if applicable, the Agricultural Department) should have been carried out, or there should be a provision dealing with it, making the agreement conditional on obtaining satisfactory responses on it all;
- the agreement should contain a clause providing for the seller to continue maintenance of the property in at least as good a state as at the signing of the agreement;
- the agreement should contain a clause requiring the seller to maintain a valid insurance policy for the property covering, for example, damage by fire and storms, until the completion date; and
- all funding for the purchase should be agreed in final form.
Pre-Sale Agreement are generally only used for high worth properties although, in any case, the appropriateness of such an agreement will depend on the particular circumstances of the transaction. There are many reasons why such an agreement may not be appropriate. For example, funding may not be guaranteed; the time required to negotiate the agreement may detract from the actual purchase of the property; or the costs to negotiate and draft the agreement may outweigh its benefits.
If you decide to enter into a preliminary agreement of sale, it is fundamental to understand that, once you sign it, you are subject to a binding agreement. Whilst you may not be able to enforce the actual sale of the property, any damages clause would be enforceable against you should you decide, for any reason, not to go ahead with the purchase.
Exceptions
There are some exceptions to the rule that it is not possible to force parties to sell or buy freehold property in Jersey. For example, under family law, a spouse can be required by the matrimonial division of the Royal Court to pass contract. Also, it is possible for one party to force the other to a share transfer transaction to complete an agreement, whether formal or informal; it is therefore very important to mark all discussion and correspondence prior to signing a written agreement as being “subject to contract”.
Lindsey Power | Conveyancing Manager| Residential Property Lawyers
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