PROMISE OF SALE

Promise of Sale In Malta


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What is a Promise of Sale (POS)

Promise of Sale In MaltaIn Malta, a Promise of Sale is also known as a ‘Konvenju’. It is essentially an agreement whereby the Seller is bound to sell to the prospective buyer and in the same manner, the buyer is committing to purchase the property. This doesn’t exist in other countries, for example, the UK, however here in Malta it serves to protect the Buyer - wherein the Seller cannot simply sell it to someone else who may offer a higher price, and the Seller - whereby the Buyer cannot easily back out of a sale unless a valid reason at law exists. 

What happens before signing a Promise of Sale

A Buyer would usually go to the bank first to ensure that they’re eligible for a home loan. Once you find a property you wish to buy, then an offer needs to be made and accepted by the Seller, after which a Promise of Sale takes place. The usual order of things would be as follows:

  • An Architect may be brought in to verify the plans of the property. 
  • An offer is made/ accepted by the Seller. 
  • A Notary is selected (the Buyer is allowed to select their own Notary)
  • A Date/ Time is set for when the POS is to take place
  • A POS is drafted with the addition of any special terms wanted and agreed to by both parties (for example, the duration of the POS, if the purchase is subject to bank loans or permits, any works to be finalised by the Seller etc.)
  • Upon signing, standard practice dictates that a deposit of 10% is paid. This amount is not fixed at law and the parties may agree to a different sum, though due to the banks only providing 90% of the loan, a 10% deposit has now become the ‘norm’.  The deposit can be transferred to the Seller right away, or held at the Notary to be released either once the bank’s sanction letter is published or once there is confirmation of the legal title. Either way, it is advisable that the deposit is held at the Notary until the Final Deed. 

The property is then taken off the market until the research and checks on the property are completed. This norm in Malta is that a Promise of Sale is usually set for 3 to 6 months. Due to Covid-19, the banks are requesting 10-12 weeks for a sanction letter to be issued (compared to the pre-Covid 8 weeks). 

What happens if a Promise of Sale isn’t honoured?

This depends entirely on the reason as to why it cannot be honoured. If the Buyer wants to back out of the sale for no valid reason, then they may lose the entire deposit. It is crucial that the POS stipulates that the Buyer will not lose the deposit in the case of certain events occurring, such as:

  • If they are not given the bank loan
  • If the searches show that there is no legal title to the property from the Seller or if there is an issue which can be detrimental to the Buyer
  • If the building and its relevant permits are not in order
  • Any issues that the parties both agree to include 

Ensuring that these specific clauses are included will protect the deposit if any of these examples arise.

Can the Seller back out of the Promise of Sale?

The Seller simply cannot decide to change their mind. They are obliged to sell and should they refuse to appear on the Final Contract of Sale, then the Buyer will have every right to force the Seller to make the sale at the agreed price via a court action. 

What happens during a Promise of Sale

During the timeframe agreed upon, whether it’s 3 months or 6 months, the Buyer, Seller and Notary are duty bound to fulfil the obligations outlined on the POS. The Buyer must obtain the bank loan (if needed) and perhaps bring in an architect to ensure the plans and building measurements are in order, the Seller must ensure that the EPC is provided and any other aspects mentioned in the POS and the Notary must carry out the searches. The Notary must conduct searches as far back as when the property was just land. They research all the historical documentation about the property in order to confirm ownership of the current Seller to ensure that the Buyer will eventually be able to take over ownership smoothly and without any hassles. 

the Notary will conduct searches involving the gathering of many historical documents about the property. The main motive for this is to confirm ownership of the vendor, but this process will also unearth any other liabilities on the property such as outstanding ground rent. The Notary can also provide a title report.

Why can a Promise of Sale take up to 6 months?

A POS is often done for 3 months when it is a relatively straightforward process, such as when it’s a new block that’s been recently built. Where a bank loan is required, a sanction letter takes between 6-8 weeks (pre-Covid, but currently expect for it to take up to 12 weeks) to be issued.  Researches on the property may be readily available through a previous notary, for example, but when it comes down to an old property (for example, an unconverted house of character which has been within the family for years and is the subject of an inheritance, an on-plan property or land with pending permits for building) then the process could get a lot more complicated. The ultimate goal for the Buyer (and what the notary aims to achieve) is to purchase the property as ‘free and unencumbered’. So the period between the POS and the Final Deed allows the notary to check the background and history of the property and there is nothing that will impede the sale from proceeding. 

Should any impediment be found to stop the sale from proceeding, the notary will call both owner/seller and buyer to discuss and terminate the agreement

What is the Deed of Sale?

At the end of the Promise of Sale, a Final Deed or Final Contract of Sale is signed, where the property officially becomes owned by the Buyer and the keys are handed over. As of the date on the Final Deed, the ownership is transferred over to the Buyer. 

The following questions are just a sample of the different enquiries that Buyers might have, such as the ones which can be found here. However, to always err on the side of caution, go directly to your notary when something isn’t clear!

FAQ

A draft is usually sent prior to the signing of the POS so that both parties can go through them and add/ remove anything that is or isn’t incorrect. However, we are all human and it doesn’t mean that mistakes can’t happen. If yourself or the Seller notice a mistake after the signing of the POS, the notary is the first point of contact. He/ she will liaise with the parties to amend it, or if the mistake is a determining factor, then the POS is terminated and the sale falls through.
From the Buyer’s side, the first step is to ensure that all is in order if a bank loan is required. Once the POS is signed, these documents (including the plans and any other documentation requested by the bank) are taken immediately to the bank so that they can start the process for the issuance of the sanction letter.
So long as there is a valid reason for the extension (such as it being subject to permits which are still pending), the date of the Final Deed of Sale can be extended. It’s a fairly easy process whereby the notary will send out an extension letter to be signed by both parties, with a new date for the Final Deed of Sale being stated.

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