Agreement for the reservation of property

Reservation fees are not refundable if the interested party backs out of the purchase

A property owner may take a reservation fee from an interested purchaser in exchange for taking the property off the market for a period and under terms provided in an agreement, holding the property for said purchaser. The agreement may sometimes create problems to the parties due to its wording if it does not meet its purpose.

Agreements are usually prepared by a real estate agent, who is not a legal practitioner and, in some cases, constitutes a sale contract. The reservation fee, payable simultaneously with the signing of the reservation agreement, is relatively small and in the case the interested purchaser does not sign a sale contract for the purchase of the property or refuses to proceed with the purchase, the reservation fee is not refundable and is retained by the owner. If the owner does not comply with their obligation to reserve or sell the property to the interested purchaser, the owner is obliged to return the reservation fee and may be liable for damages.

The agreement, in addition to the inclusion of the the parties’ names, refers to the property and its details mentioned on the title deed. Moreover, it includes a clause that the interested purchaser is interested in purchasing the property from the owner and that the property will not be promoted or advertised for sale during the reservation period. It also states the price of the property, the reservation fee, the reservation period and that its payment does not constitute a payment for the purchase price of the property. The agreement also has a clause saying it does not constitute a sale contract and it cannot be deposited at the land registry.

In the event that a sale contract is signed between the parties, at the price specified, and the property is sold and registered in the name of the purchaser within the reservation period, the reservation fee will be considered as payment towards the purchase price of the property, subject to the terms of the sale contract.

The reservation agreement is terminated automatically either upon expiry of the reservation period, the transfer of the property into the name of the purchaser or the signing of a sale contract, in which case it is cancelled through a relevant provision in the sale contract.

It must also include a provision that the agreement is and shall be governed by the laws of the Republic of Cyprus and that the courts of Cyprus shall have sole jurisdiction to decide on any dispute arising between the parties on the basis of the agreement or the interpretation of any of its provisions and that local jurisdiction shall be vested in the district court where the property is located.

Each party states it has not relied on any commitment, representation or warranty not included in the agreement. The entire agreement of the parties must be recorded therein and any prior agreement between the parties for any reason whatsoever, is terminated outright and replaced by the agreement with immediate effect. Any communication in connection with the agreement shall be in writing in the language of the parties sent either via email.

Moreover, the reservation agreement must include a clause that no person signing the agreement on behalf of others in his capacity as authorised representative pursuant to a power of attorney shall bear any personal liability and no claim shall inhere or be raised against them in their personal capacity by any of the parties for any reason at any time.

George Coucounis is a lawyer practicing in Larnaca and the founder of GEORGE COUCOUNIS LLC, Advocates & Legal Consultants, www.coucounis.law, [email protected]