The Preliminary Contract for the Sale and Purchase of Real Estate: What It Is, When It Is Needed and What It Should Include

In most real estate transactions, some time passes between the moment the buyer and seller agree on the main terms and the final transfer of ownership before a notary.

The buyer may need bank financing. The seller may need to obtain documents, repay an existing mortgage or vacate the property. The parties may need to clarify the payment structure, the completion deadline, the transfer of possession and a number of other practical matters.

This interim stage is most commonly regulated through a preliminary contract for the sale and purchase of real estate.

However, a preliminary contract is not simply a “reservation of the property”.

It is a binding contract under which the parties undertake to conclude the final agreement in the future on already agreed key terms.

A properly drafted preliminary contract is not a formality. It defines the framework of the entire transaction and can become particularly important if one of the parties later refuses to perform.

The preliminary contract is regulated by Article 19 of the Bulgarian Obligations and Contracts Act.

Through it, the buyer and seller agree that, subject to certain conditions, they will conclude a final contract for the sale of a specific property in the future.

It is important to understand the distinction:

The preliminary contract creates an obligation to transfer ownership in the future.

It does not itself transfer ownership.

In a standard sale of real estate, ownership is transferred by means of a notarial deed.

Therefore, even if the buyer has:

• signed a preliminary contract;
• paid a deposit;
• paid a substantial part of the purchase price;
• received the keys;
• started using the property,

this does not in itself mean that the buyer has become the owner.

Until the final transfer takes place, a clear distinction must be made between:

a contractual right to acquire the property

and

an already acquired right of ownership over the property.

This distinction is fundamental.

No.

Bulgarian law does not require every sale of real estate to be preceded by a preliminary contract.

If the buyer and seller are ready to complete the transaction, all documents are available, financing has been secured and all terms have been agreed, the parties may proceed directly to the notarial transfer.

In practice, a preliminary contract is most useful when there is a period between agreeing the transaction and final completion during which one or both parties must take certain actions.

For example:

• the buyer needs to obtain mortgage financing;
• the bank needs to carry out a valuation of the property;
• the seller needs to obtain additional documents;
• an existing mortgage needs to be repaid;
• an encumbrance needs to be removed;
• the property is still under construction;
• the seller needs time to vacate the property;
• the buyer needs to arrange the remaining purchase price;
• another agreed condition needs to be fulfilled.

In these situations, the preliminary contract provides structure for the period between reaching an agreement and completing the final transfer.

Its main function is to turn an agreement between the parties into a legally binding relationship.

A verbal understanding such as:

“We have agreed on €180,000 and we will go to the notary in one month.”

leaves many important questions unanswered.

A properly drafted preliminary contract determines:

• who is selling;
• who is buying;
• exactly which property is being sold;
• the agreed purchase price;
• how and when the price will be paid;
• when the final contract must be concluded;
• in what condition the property must be delivered;
• which documents the seller must provide;
• what happens if there is a mortgage or another encumbrance;
• when possession and the keys will be handed over;
• who bears the individual transaction costs;
• what happens if either party fails to perform.

In other words, the preliminary contract does not simply “reserve the property”.

It allocates the rights, obligations and risks between the parties until completion of the transaction.

For the sale of real estate, the preliminary contract must be in writing.

The reason is that the final contract transferring ownership of real estate must be concluded in the form of a notarial deed.

Bulgarian law therefore requires the preliminary contract for such a final agreement to be in written form.

No.

A standard preliminary contract for the sale and purchase of real estate does not require notarisation of the parties’ signatures in order to be valid.

The parties may voluntarily notarise their signatures where there is a particular reason to do so, but this:

does not turn the preliminary contract into a notarial deed and does not transfer ownership.

In certain situations, notarisation may have additional evidentiary or procedural consequences. It should therefore not be used automatically, but only after considering the specific transaction.

The law requires the preliminary contract to contain the agreements relating to the essential terms of the future final contract.

In a real estate transaction, the most important elements are:

The buyer and seller must be clearly identified.

If the seller is a legal entity, it should be verified who is authorised to represent it.

If a representative acts under a power of attorney, the power of attorney and the scope of authority should be checked.

The property must be identified with sufficient precision.

Depending on the type of property, this would normally include:

• address;
• cadastral identifier;
• area;
• floor;
• number of the independent unit;
• designated use;
• ancillary premises;
• ideal shares;
• parking space or garage, if included in the transaction;
• other relevant characteristics.

The more clearly the property is described, the lower the risk of a later dispute over what exactly was agreed to be sold.

The purchase price must be agreed, or there must at least be a clear mechanism through which it can be determined.

In a standard sale, the best approach is to state the agreed price clearly.

However, a good preliminary contract should not stop at these minimum elements.

From a practical perspective, the preliminary contract should answer almost all material questions that may arise before completion.

The contract should clearly specify:

• a specific date; or
• a final deadline; or
• an objectively determinable mechanism for fixing the date.

Wording such as:

“The transaction will be completed at a later date.”

is significantly weaker than:

“No later than 30 November 2026.”

or another clearly determinable deadline.

It should be clear:

• what amount is paid upon signing;
• what amount is paid before completion;
• what amount is paid at the notary;
• whether bank financing is involved;
• to which bank account payments are made;
• whether part of the purchase price is paid directly to a bank in order to repay an existing mortgage;
• when payment is deemed to have been completed.

For transactions involving significant amounts, the payment mechanism is one of the most important parts of the contract.

This is one of the areas in which terminology is most frequently used imprecisely.

In Bulgarian practice, the word “kaparo” is often used for almost any amount paid in advance.

Legally, however, it is necessary to establish what function the payment actually has under the contract.

An advance payment is an early payment of part of the purchase price.

For example:

Purchase price: €200,000.

Upon signing the preliminary contract, the buyer pays:

€20,000 as an advance payment.

The amount remaining for completion is:

€180,000.

The fact that a payment is described as an advance does not automatically mean that it will be forfeited or returned in double if the transaction does not proceed.

That depends on the contractual terms and on the reason why the transaction failed to complete.

Earnest money is regulated by Article 93 of the Bulgarian Obligations and Contracts Act.

It has both:

• an evidentiary function;
• a security function.

If the party that has given the earnest money fails to perform, the innocent party may, under the statutory conditions, withdraw from the contract and retain the amount.

If the failure is caused by the party that received the earnest money, the other party may, upon withdrawal from the agreement, claim double the amount.

For this reason, the contract should clearly state whether the payment represents:

an advance payment

or

earnest money within the meaning of Article 93 of the Bulgarian Obligations and Contracts Act.

“Kaparo” is a widely used everyday term, but the legal consequences should not be determined solely by the word used.

The legal effect depends on the substance of the contract and on the function assigned to the payment by the parties.

No.

These are different legal mechanisms.

Earnest money is an amount actually paid and performs the functions determined by law and the contract.

A contractual penalty is a pre-agreed consequence of a specific breach.

For example, the parties may agree on:

a contractual penalty of €5,000 if the buyer wrongfully refuses to appear for completion of the final contract.

In principle, a contract may contain both earnest money and a contractual penalty.

However, it should then clearly specify:

• when the earnest money provisions apply;
• when the contractual penalty applies;
• whether both may be claimed at the same time;
• how any additional damages are dealt with.

Adding several different sanctions without clarity does not necessarily make a contract safer.

It may instead make a future dispute more complicated.

There is no universal statutory percentage that must be paid under a preliminary contract.

The amount is a matter of negotiation.

It may be:

• a fixed amount;
• a percentage of the purchase price;
• a significant part of the price;
• in certain transactions, practically the entire purchase price.

However, the amount should always be assessed in relation to the risk.

When the buyer pays a significant part of the price before acquiring ownership, the buyer is transferring substantial financial resources to the seller without yet owning the property.

This does not mean that a large advance payment is always inappropriate.

It does mean that before making such a payment, particular attention should be paid to:

• ownership;
• encumbrances;
• the seller’s legal capacity and authority;
• the conditions for repayment;
• available security;
• the payment mechanism;
• the reason why a substantial part of the price is being paid in advance.

No.

This is one of the most important practical conclusions.

The preliminary contract creates contractual obligations between the parties, but it does not itself transfer ownership.

After the contract is signed, the seller remains the legal owner.

For this reason, the buyer should never treat the preliminary contract as the equivalent of a notarial deed.

The fact that a preliminary contract has been signed does not make it physically impossible for the seller to carry out another disposal of the property.

Such conduct may constitute a breach of the seller’s contractual obligations, but the preliminary contract itself does not provide the buyer with the same proprietary protection as actual ownership.

This risk is one of the reasons why preliminary legal due diligence is so important.

There is also an important procedural mechanism.

If the buyer needs to bring a claim requesting the court to declare the preliminary contract final, the claim relating to real estate is subject to registration.

That registration can provide protection against certain subsequently acquired rights of third parties.

However, this does not mean that simply signing the preliminary contract automatically places the property under a legal “block”.

Therefore, between:

signing the preliminary contract

and

the final transfer of ownership

there is a genuine period of contractual risk that must be managed.

This is where one of the strongest legal effects of the preliminary contract becomes important.

Under Article 19(3) of the Bulgarian Obligations and Contracts Act, either party may ask the court to declare the preliminary contract final, provided the legal requirements are satisfied.

This means that if the seller refuses without proper grounds to transfer the property, the buyer is not necessarily limited to requesting repayment of amounts already paid.

Under certain circumstances, the buyer may seek:

the acquisition of the property itself.

The court judgment may replace the final agreement.

The same mechanism is, in principle, also available to the seller against the buyer.

The fact that the buyer has not paid the entire purchase price before bringing a claim does not automatically mean that the buyer loses the possibility of requesting that the preliminary contract be declared final.

Bulgarian civil procedure provides a mechanism under which the court may issue a judgment replacing the final contract on the condition that the buyer performs the corresponding payment obligation within the statutory period.

The Bulgarian Supreme Court of Cassation has also considered situations in which the preliminary contract stated that the final agreement would be concluded only after full payment of the purchase price.

This illustrates why the preliminary contract should not be viewed merely as a commercial understanding.

It can serve as the basis for a judicial transfer of ownership.

One of the poorest practices is to begin legal due diligence after the preliminary contract has already been signed and a substantial amount has been paid.

Logically, the due diligence should precede the assumption of significant contractual obligations.

Depending on the transaction, at least the following should be reviewed:

It should be established:

• who owns the property;
• on what legal basis the property was acquired;
• whether there are co-owners;
• whether there are heirs;
• whether the matrimonial property regime is relevant;
• whether another person must participate or provide consent.

Particular attention is required where the property was acquired during marriage.

The preliminary contract does not transfer ownership, but when the final transfer takes place, the ownership regime and participation of all required persons may become decisive.

The following should be checked:

• mortgages;
• attachments or prohibitions on disposal;
• registered court claims;
• property rights of third parties;
• other registrations that may affect the transaction.

The existence of a mortgage does not necessarily mean that the property cannot be sold.

However, the mechanism for repayment and release of the mortgage must be clearly structured.

The following should be compared:

• title document;
• cadastral plan or cadastral scheme;
• address;
• area;
• cadastral identifier;
• ancillary parts;
• actual physical condition.

For buildings and new developments, it may be necessary to verify:

• construction documents;
• building permit;
• stage of construction;
• Act 14;
• Act 15;
• occupancy permit or commissioning certificate;
• conformity between the approved project and the property being offered.

A property with an existing mortgage may still be sold.

However, the payment structure must be organised much more carefully.

The preliminary contract should address at least the following questions:

• what is the outstanding amount of the loan;
• which bank is the mortgage lender;
• what amount is necessary to repay the loan;
• whether part of the purchase price will be paid directly to the bank;
• when the bank will issue the necessary documents;
• when and how the mortgage will be released;
• what happens if the outstanding loan amount turns out to be higher than expected.

A provision stating only:

“The seller shall repay the mortgage.”

is often insufficient for a transaction involving a substantial amount.

A practically workable mechanism is required.

This is one of the most important points from the buyer’s perspective.

If the transaction depends on bank financing, the contract should regulate:

• the expected financing amount;
• the deadline for loan approval;
• the need for a bank valuation;
• the deadline for the seller to provide the required documents;
• what happens if the bank valuation is lower than the agreed price;
• what happens if the bank refuses financing;
• whether the buyer must fund any shortfall from own resources;
• when the financing condition is considered fulfilled.

It should not automatically be assumed that:

“If the bank refuses my mortgage, the contract simply terminates.”

That is only the case if the legal structure and contractual provisions lead to such a result.

The financing risk should be allocated before signing, rather than after the bank has rejected the loan.

This should also be agreed in advance.

Possession is most commonly transferred:

• at the time of the notarial transaction;
• after receipt of the full purchase price;
• on a specific later date.

If the seller is to remain in the property temporarily after completion, this should be expressly regulated.

It is advisable to provide for:

• a specific deadline;
• an obligation to vacate;
• the required condition of the property;
• the handover procedure;
• a handover protocol;
• meter readings;
• transfer of keys and documents;
• consequences of delayed vacation.

Not necessarily.

In practice, documents such as the following are often used:

• reservation deposit;
• stop-deposit;
• reservation agreement;
• deposit agreement.

They may have different content and different parties.

For example, a reservation agreement may be concluded:

• between buyer and seller;
• between buyer and developer;
• between buyer and real estate agency.

Its purpose may simply be to remove the property from the market temporarily while due diligence is performed and the preliminary contract is prepared.

Therefore:

a reservation agreement should not automatically be regarded as equivalent to a preliminary contract.

At the same time, the legal effect of a document depends on its content, not merely on its title.

A document entitled “reservation agreement”, but containing a binding commitment to conclude a specific future transaction on sufficiently determined terms, may have a much more significant legal effect than a simple reservation.

For this reason, every amount paid before the main contract should have a clearly defined function.

When purchasing a property under construction, the preliminary contract is usually considerably more complex.

The buyer may be agreeing to purchase an asset that:

• is not yet completed;
• may not yet exist as an independent cadastral unit;
• will be paid for in stages;
• must be constructed in accordance with an agreed project and specification.

In such cases, the contract should regulate not only the future sale, but also matters such as:

• the specific apartment;
• the floor area and how it is determined;
• common areas;
• ideal shares of the land or building rights;
• parking space or garage;
• completion standard;
• technical specifications;
• deadlines;
• Act 14;
• Act 15;
• commissioning;
• payment schedule;
• construction delays;
• project changes;
• permitted variations in floor area;
• price indexation, if agreed;
• warranties and liability.

In new-build transactions, the title “preliminary contract” may conceal a document containing dozens of pages of complex commercial and construction provisions.

It should therefore never be treated as a standard template.

The buyer becomes contractually bound and pays a significant amount before the property has been properly checked.

The contract simply states:

“The buyer pays a deposit of €10,000.”

without making clear:

• whether it is an advance payment;
• whether it is earnest money;
• when it is refundable;
• when it may be retained;
• under what circumstances double repayment may apply.

Wording such as:

“after the documents have been obtained”

without a final deadline can create significant uncertainty.

Everyone knows that the property is mortgaged, but the contract does not specify who pays the bank, when or how.

The buyer assumes that if financing is refused, the money will be returned.

The seller assumes the opposite.

The buyer pays a large part of the purchase price without acquiring ownership and without sufficient contractual protection in the event of non-performance.

For example:

“The party in default shall compensate all damages.”

Such wording may be legally permissible, but often does not provide sufficient clarity as to what will actually happen in a particular situation.

A properly structured contract generally follows a clear sequence:

First: who the parties are.

Second: exactly which property is being sold.

Third: what the purchase price is.

Fourth: how the price will be paid.

Fifth: what the legal and physical status of the property is.

Sixth: what each party must do before completion.

Seventh: when and under what conditions the parties will complete the transaction before the notary.

Eighth: when possession and the keys will be transferred.

Ninth: who bears the transaction costs.

Tenth: what happens in the event of non-performance.

Where this logic is missing, the preliminary contract may create more problems than it solves.

No.

Length alone is not a measure of quality.

In a simple transaction between two private individuals involving:

• an unencumbered property;
• ready documentation;
• own funds;
• a short period until completion,

the contract may be relatively concise.

In a transaction involving:

• mortgage financing;
• an existing mortgage;
• several owners;
• inherited property;
• construction;
• deferred payment;
• corporate parties;
• multiple conditions,

the contract should logically be considerably more detailed.

The aim is not for the contract to be “long”.

The aim is for:

the real risks of the particular transaction to be allocated in advance.

The parties should not rely on this.

The notary has important statutory functions during the final transfer and performs the checks required within the notarial procedure.

However, the preliminary contract is signed before the final transaction.

And it is precisely when signing the preliminary contract that the parties often:

• undertake significant obligations;
• make payments;
• agree deadlines;
• assume risks in the event of non-performance.

For this reason, due diligence and transaction structuring should begin sufficiently early.

It is not a sound strategy to first sign a contract and pay a substantial amount, and only afterwards ask:

“Does this property actually have a problem?”

A professional real estate agent should not replace the lawyer or the notary.

The role is different.

In a properly organised transaction, the agent should:

• collect the necessary information;
• coordinate the parties;
• monitor the agreed commercial terms;
• organise the documents;
• identify matters that need to be checked;
• coordinate communication with the bank, lawyer and notary;
• monitor deadlines;
• ensure that the practical organisation of the transaction corresponds to what has been agreed.

Legal due diligence and the drafting of more complex legal clauses should be handled by an appropriate legal professional.

A successful transaction is not the result of one document.

It is the result of a properly organised process.

Before signing a preliminary contract, you should be able to answer at least the following questions clearly:

1. Who owns the property?
2. Are there other persons whose participation or consent is required?
3. How was the property acquired?
4. Is there a mortgage, attachment or another encumbrance?
5. Does the property described in the documents correspond to the property being purchased?
6. What is the final purchase price?
7. What amount is paid in advance?
8. Is this amount an advance payment or earnest money?
9. Under what conditions is it refundable?
10. What happens if the seller refuses to complete?
11. What happens if the buyer refuses to complete?
12. What happens if the bank refuses financing?
13. Is there a final deadline for completion?
14. Who selects the notary?
15. How is the remaining purchase price paid?
16. If there is an existing mortgage, how exactly will it be discharged?
17. When will the keys be handed over?
18. In what condition must the property be delivered?
19. Who bears the transaction costs?
20. What are the consequences if either party fails to perform?

If the answer to several of these questions is:

“We will clarify that later.”

the contract is probably being signed too early.

A preliminary contract is not a mandatory stage of every real estate transaction.

However, when there is a period between reaching an agreement and the final notarial transfer during which financial, documentary or other conditions need to be fulfilled, it can be one of the most important instruments for protecting both parties.

Its value does not lie simply in having a signed document.

Its value lies in turning the commercial agreement into clear, structured and enforceable obligations.

A properly drafted preliminary contract should answer three fundamental questions:

What exactly have we agreed?

How do we get from the agreement to final completion?

What happens if something along the way does not happen as agreed?

And perhaps most importantly:

the preliminary contract should not be the first moment at which the transaction begins to be checked.

It should be the result of the necessary due diligence having already been carried out and of both buyer and seller having a clear understanding of the relevant risks.

Preliminary contracts are primarily regulated by Article 19 of the Bulgarian Obligations and Contracts Act, while the transfer of ownership of real estate by notarial deed is regulated by Article 18 of the same Act.

The legal consequences of earnest money are regulated by Article 93 of the Bulgarian Obligations and Contracts Act.

Court proceedings seeking to have a preliminary contract declared final are regulated by the Bulgarian Civil Procedure Code, including the rules concerning performance of a corresponding obligation by the claimant.

The legal assessment of a specific case depends on the wording of the particular contract and the factual circumstances of the transaction.

This material is intended for general informational purposes only and does not constitute individual legal advice.