First, the most important
A reservation payment in a real estate purchase is generally refundable if the planned sale does not take place. A forfeiture in favor of the seller or a cancellation flat-rate fee is not enforceable in such a reservation agreement. Only actual, itemized costs remain deductible if this is stated in the agreement.
From our practice, this is where most misunderstandings arise. Many buyers sign a reservation agreement assuming they have already secured the deal, although the legal effect often looks different.
What is a reservation contract in real estate purchase?
A reservation contract is a pre-contract, i.e., a written declaration of intent by buyer and seller to conclude the transaction together. It typically regulates property details, purchase price, payment modalities, the reservation amount, the time of entry in the land register, and possession start.
In real estate purchases, such preliminary contracts or reservation agreements are often concluded in ordinary written form. This does not meet the applicable formal requirements and one should not confuse these agreements with a full-fledged purchase contract.
Why is the reservation payment legally delicate?
Since the legally required form is not observed, a reservation agreement is, in practice, more like a gentlemen’s agreement. It is commonplace in the real estate industry and widespread, but it does not replace legal diligence.
- The contract is quickly obtainable and can be drawn up without consulting a third party.
- The owner can check the seriousness of the buyer.
- Both parties gain a certain moral security that the sale will be pursued.
When must the reservation payment be refunded?
If the planned sale does not come about for any reason, the agreed reservation payment must be refunded. Agreements stating that the down payment forfeits to the seller or a flat-rate cancellation compensation are invalid and unenforceable in court.
| Situation | Legal consequence | Note |
|---|---|---|
| Sale does not take place | Reservation payment must be refunded | Forfeiture in favor of the seller is not enforceable. |
| Actual costs for completion proven | Deduction may be permissible | Only if the reservation agreement indicates so. |
| Flat-rate cancellation compensation agreed | Invalid | Not enforceable in court. |
However, deductible are actual costs that can be itemized in connection with efforts to complete the transaction where completion is hindered. This compensation obligation does not derive from the statutory provisions on the real estate purchase contract, but from mandate law.
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What should buyers and sellers clarify now?
It is important that private sellers or brokers communicate openly about the reservation contract and correctly assess its legal meaning. Anyone who is to make a reservation payment should before signing carefully check what consequences a withdrawal actually has and whether the agreement even meets the formal requirements.
If a private seller or broker does not communicate openly about the reservation contract, address them and require that the legal meaning is applied correctly.
Frequently asked questions
Can the seller simply keep the reservation payment if I back out?
May a flat-rate cancellation compensation be included in the agreement?
Which costs can still be deducted?
Is a reservation contract the same as a purchase contract?
Those who sign the reservation payment for real estate purchase should not overestimate its legal effect. Especially because the agreement is often created quickly in practice, a careful look at form, content, and possible deductions is worthwhile.
At Immo10 AG in St. Gallen we accompany property questions with advisory, sales and marketing and help to correctly classify such agreements. This helps you avoid unnecessary risks and know earlier what really matters in a real estate purchase.
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Immo10 AG, St. Gallen