Preliminary Purchase Agreement for a New Build: What to Watch For

An agreement on a future purchase contract (smlouva o smlouvě budoucí kupní) is a commitment that, once the agreed conditions are met, the parties will conclude the actual purchase contract. With a new build it is used most often because the flat is not yet completed or registered in the land registry. Before signing, check above all what exactly has been agreed, when your entitlement to the purchase contract arises, and under what conditions you get back the money you have paid.

What the agreement is for and why it is not the same as a purchase contract

An agreement on a future purchase contract does not transfer ownership. After you sign it, you do not own the flat, and nothing is transferred to you in the land registry. You gain the right to have the seller conclude a purchase contract with you later, and at the same time you take on the obligation to conclude it too.

The developer uses it when construction is still under way or when a permit, such as final approval for occupancy, is missing. For you, this is the period in which you reserve a specific unit on agreed terms. It is also the period when you are most vulnerable in relation to the developer, because you often pay a deposit and have nothing that could be entered in the land registry.

It is therefore worth treating this agreement as a full legal document, not as a formality before the "real" contract. What you sign in it determines the form of the later purchase contract. If you are still comparing offers, start with the new-build buying guide and the project catalogue.

What the agreement should clearly specify

The basis is an exact identification of what you are buying. General wording such as "a flat on the second floor" is not enough. Check the following points:

• The unit: flat number, floor, layout, floor area and accessories, that is, cellar, balcony, terrace, parking space or garden.
• Share in the common parts: how it is described and how it is determined.
• Price: the total price, what it includes and whether it may change. If it may, the conditions must be clear.
• Payment schedule: when each part is paid and what each payment is conditional on.
• Deadlines: by when the purchase contract is to be concluded, and by when the building is to be completed and the flat handed over.
• Specification of finish: a reference to an annex describing materials, flooring, windows, bathroom fittings and other elements.
• Conditions for concluding the purchase contract: for example, final approval for occupancy or the unit coming into existence as a separate property.

If something is promised in a brochure, on the website or verbally by a sales representative, but it is not in the agreement or its annex, expect that it will be hard to rely on later. Ask for important promises to be put in writing.

Deposit, reservation fee and protection of your money

The most sensitive part of the whole agreement concerns money. Distinguish between the reservation fee, which is paid for taking the unit off the market, and the deposit towards the purchase price. They serve different purposes and often have different refund conditions.

Ask specific questions:

• Who is it paid to: the developer, or into escrow, for example with a lawyer or notary?
• Is the deposit included in the purchase price, or is it a separate payment?
• When and under what conditions is it returned, for example if the bank does not approve your mortgage?
• What happens if the developer withdraws from the agreement, and what happens if you do?
• Is the money protected in some way in case the developer does not have enough funds to complete the building?

A better arrangement is one where the money is held outside the developer's ordinary accounts and released only after an agreed step is completed. A lawyer can explain the specific form to you. Compare the amounts of fees and deposits across several developers, especially when they differ significantly. You will find an overview under developers in the catalogue.

Mortgage, deadlines and contractual penalties

Most buyers finance the purchase with a mortgage, so the agreement needs to be aligned with the bank's requirements. Before signing, get a preliminary assessment from a mortgage specialist. Also go through the repayments roughly in the mortgage calculator, so that you know what amount you need to be able to afford.

As regards deadlines, focus on these situations:

• Construction delay: what the agreed completion date is and what happens if it is exceeded. Is there a contractual penalty or a right to withdraw?
• Deadline for concluding the purchase contract: who triggers it and how long it is. A deadline that is too short can be a problem if the bank has not yet had time to prepare the loan.
• Mortgage not approved: whether the agreement anticipates this possibility and how the return of the money is handled.
• Contractual penalties: whether they apply to both sides. When sanctions apply only to the buyer, that is a reason to negotiate.

For a property that is not yet completed, the bank will often want certain documents to be provided. Ask the developer to confirm that it is able to supply them on time.

Risks that are easy to overlook in the text

Besides the basic points, it is worth looking for less conspicuous provisions:

• Change of price or floor area: how the difference between the planned and the actual floor area after completion is handled.
• Changes to the project: whether the developer may change layouts or materials without your consent and to what extent.
• Liens: whether the land or building is encumbered by the developer's loan and how the lien is released when the property is transferred to you.
• Defects and complaints: how handover works, the defects protocol and the deadlines for remedying defects.
• Assignment of rights: whether you can transfer the agreement to someone else, for example if your circumstances change.
• Force majeure and exceptions: which circumstances the developer cites as grounds for extending deadlines.

Before signing, study the status of the land and the permits. You will find information about the area and its surroundings in the section on locations. If you are not sure whether your situation is a common one, you can use the housing inquiry form and have projects that match your requirements suggested to you.

How to proceed before signing

1. Request the draft agreement including all annexes in advance, not only on the day of signing.
2. Have it reviewed by a lawyer, ideally one who specialises in real estate and has no connection to the developer.
3. Verify your financing with a mortgage specialist and compare the bank's conditions with the deadlines in the agreement.
4. Ask for written additions covering everything that was promised to you verbally.
5. Do not sign under pressure of "the last available units". Take time to consider the decision calmly.
6. Keep a complete copy of the signed documents and of the proof of payments.

If the developer refuses any amendments, that tells you something about its approach to buyers. Compare it with other offers.

Frequently asked questions

Can I withdraw from an agreement on a future purchase contract?

It depends on what has been agreed in the contract. Have the withdrawal conditions and their effect on the deposit you have paid explained to you before signing, ideally by a lawyer.

Is the deposit always refundable?

No. Whether it is returned depends on the wording of the agreement and on the reason why the purchase contract is not concluded. Find out whether a refund is expressly provided for if the mortgage is not approved and also if the developer fails to perform.

Do I have to have the agreement signed before a notary or a lawyer?

A lawyer can review the draft agreement regardless of whether the signing takes place at their office. Check with a lawyer whether a special form is required in your particular case. A review before signing is always worthwhile.