Before executing the final deed for the purchase and sale of real estate, the buyer and seller may choose to bind themselves through a preliminary agreement for the sale of real estate in Greece. This is a separate contract commonly used when the essential terms of the transaction have been agreed but the final deed cannot yet be executed because, for example, legal or technical due diligence, bank financing, the release of encumbrances or the collection of supporting documents remains outstanding.
A preliminary agreement is not mandatory in every property transaction. When it is used, however, it must comply with the legally prescribed form and accurately record the parties’ obligations, the conditions for executing the final deed and the consequences of any breach.
What Is a Preliminary Real Estate Sale Agreement?
Under Article 166 of the Greek Civil Code, a preliminary agreement is a contract through which the parties undertake to enter into a specified final contract in the future.
In a property transaction, the preliminary agreement creates personal contractual obligations requiring the buyer and seller to execute the final sale deed on the agreed terms. It does not, however, transfer ownership of the property or create a proprietary right in favour of the buyer.
Ownership is transferred through the execution of the final notarial deed and its registration with the competent Greek Land Registry or Cadastral Office.
Why Is a Notarial Instrument Required?
Under Article 166 of the Greek Civil Code, a preliminary agreement is subject to the same legal form as the final contract. Since Articles 369 and 1033 of the Civil Code require a notarial instrument for the transfer of ownership of real estate, the same form is required for a notarial preliminary agreement concerning the sale of real estate.
A private agreement under which the parties bindingly undertake to sell and purchase a specified property is therefore invalid if it has not been executed as a notarial instrument. The invalidity exists from the outset and cannot be cured retroactively. If the parties subsequently execute a valid final deed, they enter into a new and valid transaction; they do not retroactively validate the earlier defective preliminary agreement.
Not every private document signed before a property transaction is necessarily a preliminary agreement. A payment receipt, a non-binding reservation document or a memorandum recording ongoing negotiations must be assessed according to its actual content rather than its title. If, however, the document creates a binding obligation to execute the future property sale, notarial form is required.
A payment made without a valid contractual basis may generally be recovered under the rules on unjust enrichment. The precise claim, including the possible application of pre-contractual liability, depends on the wording of the document and the particular circumstances.
What Should the Preliminary Agreement Contain?
To operate effectively, the preliminary agreement must clearly identify the essential terms of the future sale. In particular, the property and the purchase price must be determined or objectively determinable.
Depending on the transaction, a comprehensive preliminary agreement should address:
- The parties’ complete details, legal capacity and, where relevant, authority to act through a representative.
- An accurate description of the property, including its location, area, title, cadastral number and any horizontal or vertical ownership details.
- The agreed purchase price and the time, method and conditions of payment.
- The deadline or mechanism for determining when the final deed will be executed.
- Existing mortgages, seizures, claims, leases or other third-party rights and how they will be resolved before completion.
- The property’s cadastral, planning and physical status and the obligation to produce the required documentation.
- Conditions precedent or subsequent, including financing approval, the release of a particular encumbrance or the completion of legal and technical due diligence.
- The precise legal nature of any amount paid on signing, including whether it constitutes an advance payment, earnest money or another specifically agreed payment.
- Any penalty clauses, contractual withdrawal or termination rights and the specific conditions governing their exercise.
- The consequences of a party’s culpable refusal or delay in attending the execution of the final deed.
- The allocation of taxes and other transaction expenses in accordance with the law and the parties’ agreement.
- Any obligation imposed on the seller not to dispose of or encumber the property before the final deed is executed.
Not every item above constitutes a separate validity requirement in every case. Their careful regulation nevertheless reduces interpretative disputes and clarifies which party bears each transaction risk.
Mandatory Payment of the Purchase Price Through Banking Channels
For transactions governed by the current rules, payment of the purchase price for Greek real estate in notarial deeds of transfer for consideration, preliminary agreements and payment or discharge deeds must be made exclusively through banking channels.
The notarial instrument must state the method of payment. A document recording an advance, partial payment or full settlement of the purchase price in cash, or failing to record the use of a banking payment method, is automatically invalid, cannot be registered and produces no legal effect between the parties, against the State or against third parties.
The rule has applied since 11 December 2023, subject to a specific transitional exception for final deeds executed pursuant to preliminary agreements concluded before that date. In current transactions, every advance or other payment made towards the purchase price must be made through the required banking channel and accurately recorded in the relevant instrument.
Earnest Money, Advance Payment and Penalty Clause
A buyer may pay an amount to the seller when the preliminary agreement is executed. The legal character of that payment must be expressly defined because earnest money, advance payment and penalty clauses produce materially different consequences.
- Earnest money: Under Articles 402 and 403 of the Greek Civil Code, unless otherwise agreed, earnest money is intended to cover loss resulting from non-performance. The party culpably responsible for non-performance forfeits the earnest money it paid or must return twice the amount it received. Earnest money does not, by itself, grant a free right to withdraw from the contract.
- Advance payment: This constitutes part of the agreed purchase price. If the final contract is not executed and there is no valid legal basis for retaining the payment, it will generally be refundable. Its ultimate treatment depends on the contract, the reason the transaction failed and any resulting damages claims.
- Penalty clause: This is an agreement requiring payment of a specified sum following a defined breach. The relevant breach and its consequences must be precisely stated. A disproportionately excessive penalty may be reduced by the court at the debtor’s request.
Because earnest money and penalty clauses are ancillary to the principal contractual obligation, their validity may depend on the validity of the principal agreement. Where they are connected to an invalid private preliminary agreement for the sale of real estate, the agreed consequences and the rule requiring the return of double the earnest money do not automatically apply.
What Happens if the Other Party Refuses to Execute the Final Deed?
Where a valid notarial preliminary agreement exists, the agreed conditions have been satisfied and one party refuses to make the required declaration of intent, the other party may bring an action for a declaration of intent.
The substantive claim arises from the valid preliminary agreement, while Article 949 of the Greek Code of Civil Procedure provides the mechanism replacing the defaulting party’s declaration. Once the judgment becomes final, the required declaration is deemed to have been made. If the order is conditional on counter-performance, the declaration is deemed made once that counter-performance has been completed or the other party is in default in accepting it.
The judgment replaces only the defendant’s declaration and not the entire transaction. Completion of a property transfer requires the remaining legally prescribed steps, including the beneficiary’s notarial acceptance and registration of the necessary instruments with the competent Land Registry or Cadastral Office.
Depending on the terms and circumstances, damages, enforcement of a penalty clause, the consequences of earnest money or termination of the contractual relationship may be available instead of compulsory completion or alongside other legally compatible remedies. These remedies are not necessarily cumulative and must be evaluated in the context of the particular agreement.
Does the Preliminary Agreement Protect the Buyer Against Third Parties?
A preliminary agreement generally creates personal contractual claims between the parties. It does not transfer ownership and does not, by itself, prevent the property from being transferred to a third party or subjected to a new encumbrance.
Even if the agreement prohibits the seller from disposing of or encumbering the property, that obligation generally binds the seller at a contractual level. Its breach may give rise to contractual remedies but does not automatically create a proprietary right enforceable against every third party.
A preliminary agreement therefore does not replace comprehensive property due diligence in Greece or eliminate the risks arising before final completion. Where there is a specific risk of disposal, seizure or further encumbrance, the appropriate contractual and judicial protective measures should be considered without delay.
Electronic Preliminary Agreements and Lawful Representation
Subject to the applicable legal requirements, a qualified electronic signature has the equivalent effect of a handwritten signature. It does not, however, convert a private electronic document into a notarial instrument.
A privately executed electronic preliminary agreement for the sale of real estate is therefore insufficient to satisfy the notarial-form requirement, even if it bears qualified electronic signatures. The agreement must be incorporated into a lawful notarial instrument in accordance with the notarial procedure applicable at the relevant time.
The contracting party is not necessarily required to appear personally in every case. The agreement may also be executed through a lawfully authorised representative, provided that the power of attorney complies with the required form and grants sufficiently specific authority.
Practical Considerations
- Complete the legal and technical examination of the property before assuming a binding contractual obligation.
- Clearly distinguish a notarial preliminary agreement from a non-binding reservation or negotiation document.
- Make every payment towards the purchase price through the legally required banking method and retain the relevant evidence.
- State expressly whether a payment constitutes an advance, earnest money or is connected to a penalty clause.
- Include clear conditions dealing with financing, the release of encumbrances, planning issues and completion of the required due diligence.
- Set a specific and realistic deadline for the final deed and clearly define the consequences of breach.
- Remember that a preliminary agreement does not transfer ownership or provide complete protection against third parties.
Frequently Asked Questions (FAQ)
Is a preliminary agreement mandatory before purchasing real estate?
No. It is optional and is used where the parties require a binding arrangement before the final deed can be executed. Whether it is appropriate depends on the circumstances of the particular transaction.
Must a preliminary agreement for the sale of real estate be executed before a notary?
Yes, where the document is genuinely a binding preliminary agreement under which the parties undertake to complete the future sale and purchase of real estate. Without notarial form, it is invalid.
Is every private agreement signed before a property sale invalid?
Not automatically. Its actual content is decisive. If it creates a binding obligation to execute the sale, it is a preliminary agreement and requires notarial form. If it merely records negotiations or a non-binding reservation, a different legal assessment is required.
What happens if I have paid money under an invalid private preliminary agreement?
The payment may generally be recovered under the rules on unjust enrichment. The rule requiring the return of double the earnest money does not apply automatically. The precise claim depends on the document, the purpose of the payment and the parties’ conduct.
What is the difference between earnest money and an advance payment?
Unless otherwise agreed, earnest money covers loss resulting from culpable non-performance and may be forfeited or returned at twice its amount. An advance payment forms part of the price, and its treatment depends on the outcome of the transaction and any claims arising if the sale does not proceed.
Does earnest money allow a party simply to change its mind?
Not by itself. Articles 402 and 403 of the Greek Civil Code do not establish a free right to withdraw. Such a right must be specifically provided by the contract or by law.
What can I do if the other party refuses to execute the final deed?
If there is a valid and enforceable notarial preliminary agreement, an action for a declaration of intent may be brought under Article 949 of the Greek Code of Civil Procedure. Depending on the agreement, damages or other contractual remedies may also be available.
Is ownership transferred by the preliminary agreement?
No. It creates an obligation to execute the future sale. Ownership is transferred only after completion and registration of the instruments required by law.
Is a privately signed electronic preliminary agreement valid for real estate?
Not as a substitute for a notarial preliminary agreement. An electronic signature does not replace the required notarial form. A party may, however, act through a lawfully authorised representative under a power of attorney satisfying the applicable legal requirements.
Does a preliminary agreement protect the buyer if the property is sold to a third party?
It does not, by itself, provide complete proprietary protection. It generally creates personal contractual claims against the other party. Protection following a transfer or encumbrance in favour of a third party depends on the particular facts and the specific protective measures taken.
This article is intended solely for informational purposes and does not constitute legal advice. Each case requires an individual assessment based on its specific facts and the applicable legal framework. For specialised legal advice, please contact our law firm.
No comment