The preliminary contract as a business tool in the investment process
The preliminary contract for the purchase of a real estate is not a legal necessity. In practice this contract is part of the “customs“ the real estate business. As it was mentioned the written form is necessary for the validity of this contract. What is important that this contract does not have a translative effect, the contract does not make you owner of the property. Only the notarial deed have that effect. So You could ask yourself why bother with this preliminary contract. The answer is complex. But consider you need time to make a due diligence investigation of the property and the seller, or you just need the time to gather all the money or finally you choose to bye a house which is not fully constructed yet. So that is why the business practice use this preliminary contract to manage all the modalities of the deal which can be quite complex. And all those modalities are subject to negotiation. That is why you need a professional advice from the very beginning of the process. Because when you need a court pleadings things could be very complicated. A barrister cannot help with a bad investment choice. Every negotiation would need a lot of compromises that could occasionally unacceptable. This is a small briefing another posts would normally follow. But take this as a tip. Every preliminary contract has a business case who governs his logic. The task of the solicitor, ar the barrister acting as a solicitor is to provide with the best legal protection available. But it should be emphasysed the best protection is the reputation of the seller.
Advice in the investment process!
It is if paramount importance to consult an independent lawyer at the first steps of the investment process. It is known that the real estate brokers advertise the quality of their legal services that are often (but not always) included in their fees.
Reason 1. You need an independent and qualified advice
The reason is that you need to have a solicitor (barrister) who will defend your owns interests and will offer you the solution tailored specially for you. Sometimes the risks of the investment are so obvious that the lawyer would recommend not to proceed with any further payments.
Advice: ask if the lawyer is admitted to the bar or if it is a solicitor if he has passed the state legal examination.
Reason 2. Professional analysis
You need someone who will keep a vigilant eye on the documents that you would sign.
It may strange to happen but I have a real story involving English citizens who have signed a contract with a very well established company. The legal analysis showed that the preliminary contract was not signed by the seller, but the money has been paid.
Reason 1. You need an independent and qualified advice
The reason is that you need to have a solicitor (barrister) who will defend your owns interests and will offer you the solution tailored specially for you. Sometimes the risks of the investment are so obvious that the lawyer would recommend not to proceed with any further payments.
Advice: ask if the lawyer is admitted to the bar or if it is a solicitor if he has passed the state legal examination.
Reason 2. Professional analysis
You need someone who will keep a vigilant eye on the documents that you would sign.
It may strange to happen but I have a real story involving English citizens who have signed a contract with a very well established company. The legal analysis showed that the preliminary contract was not signed by the seller, but the money has been paid.
How to buy real estate in Bulgaria?
The five steps of the real estate investment process in Bulgaria for foreign citizens
The process is relatively straightforward. If the intentions are serious it is needed as a prerequisite to start a company in Bulgaria (1). In the same time it is necessary to make a due diligence investigation of the proposed estate (2). After that a preliminary contract (3) is signed. The process is terminated by notary deed (4). After the deal the buyer has to comply with the bulgarian legislation (5)
1. Company Formation
The choice in the most of the cases is between OOD and EOOD. The OOD is a limited liability company with shareholders. The EOOD is very similar limited liability company but it has only one shareholder. The decisions at this step are very important because they can have very remote consequences. For example in a case of divorce, under the bulgarian law if the husband has a EOOD it is considered as a commercial propery not icluded in the family property.
2. Due diligence report
The due diligence investigation will assure as far as reasonably possible that your busines transaction is secure.
3. Preliminary contract
The preliminary contract obliges the parties to sign a final contract for the tranfer of the property. The preliminary contract has to be in written and signed by the both parties. It is a good practice to sign it before a Notary public.
4. Notary Deed
The transfer of the propery under the Bulgarian law is by a Notary Deed. The preliminary contract has the offect to oblige the seller and the buyer to sign a the Notary Deed. If one of the parties refuses to do so, the other can enforce the preliminary contract in court, in this case the court decision will replace the notary deed.
5. Tax obligations of the buyer
Under the bulgarian law it is not possible for foreign physical person to own directly a plot of land. The legal solution is to incorporate a company in Bulgaria, so the company as incorporated in Bulgaria is a bulgarian company who has the right to own a real estate. This is a legal fiction but it is useful, on the other hand every company has multple obligations to comply with. The most important are the tax obligations of the buyer.
The process is relatively straightforward. If the intentions are serious it is needed as a prerequisite to start a company in Bulgaria (1). In the same time it is necessary to make a due diligence investigation of the proposed estate (2). After that a preliminary contract (3) is signed. The process is terminated by notary deed (4). After the deal the buyer has to comply with the bulgarian legislation (5)
1. Company Formation
The choice in the most of the cases is between OOD and EOOD. The OOD is a limited liability company with shareholders. The EOOD is very similar limited liability company but it has only one shareholder. The decisions at this step are very important because they can have very remote consequences. For example in a case of divorce, under the bulgarian law if the husband has a EOOD it is considered as a commercial propery not icluded in the family property.
2. Due diligence report
The due diligence investigation will assure as far as reasonably possible that your busines transaction is secure.
3. Preliminary contract
The preliminary contract obliges the parties to sign a final contract for the tranfer of the property. The preliminary contract has to be in written and signed by the both parties. It is a good practice to sign it before a Notary public.
4. Notary Deed
The transfer of the propery under the Bulgarian law is by a Notary Deed. The preliminary contract has the offect to oblige the seller and the buyer to sign a the Notary Deed. If one of the parties refuses to do so, the other can enforce the preliminary contract in court, in this case the court decision will replace the notary deed.
5. Tax obligations of the buyer
Under the bulgarian law it is not possible for foreign physical person to own directly a plot of land. The legal solution is to incorporate a company in Bulgaria, so the company as incorporated in Bulgaria is a bulgarian company who has the right to own a real estate. This is a legal fiction but it is useful, on the other hand every company has multple obligations to comply with. The most important are the tax obligations of the buyer.
This blog is created to give advices for the english speaking investors in Bulgaria. The redactors of the blog have to be Bulgarian barristers who wants to share their information and knowledge.
My name is Theodor Sheykov, as an english speaking lawyer I have experience with foreign clients investing in Bulgaria. I can say that the building boom is over but the problems remain. Very often the legal situation of the english investors is incertain.
Here all the stories are real and often a solution has not been discovered. For a publication the expressed autorisation of the concerned party is needed. In most of the cases the real names of the parties will not be revealed.
My name is Theodor Sheykov, as an english speaking lawyer I have experience with foreign clients investing in Bulgaria. I can say that the building boom is over but the problems remain. Very often the legal situation of the english investors is incertain.
Here all the stories are real and often a solution has not been discovered. For a publication the expressed autorisation of the concerned party is needed. In most of the cases the real names of the parties will not be revealed.