If you buy real estate there is a good chance that you will have to pay the purchase price in parts. There are numerous reasons for that which are the followings (non exhaustive list):
1. If you buy a real estate which is under construction and you pay the purchase price in parts per development stages.
2. If you finance your buy with a bank loan, according to the lending practices your own funds have to be paid before the bank grants you the loan. The loan is typically granted within 60-90 days dated from the signing of your sale & purchase agreement.
3. If your money is deposited somewhere for fixed term, but you’d prefer not to give away an opportunity to buy, and you pay a certain % of the purchase price as deposit for the real estate, and you make a deal with the seller that you will pay the rest of the purchase price after the expiration of your fixed term.
4. If you make a deal with the seller that she will perform some kind of undertaking before the handover of the real estate and if it is recommended to reserve a part of the purchase price until such undertaking is performed (i.e. renovation, conduct public services on a plot of land, acquiring permission for further existence, or registration transformation of plots).
5. If there are encumbrances on the title deed of the real estate to be bought which are securing the claims of the seller’s creditors, until such claims are not paid it is not recommended to pay the entire purchase price. However, it is recommended for you to pay these claims as first parts of the purchase price instead of the seller especially when these claims exceed the amount of deposit. Thus you can ensure that the payment of the first parts of the purchase price will result the deletion of the registered encumbrances. The seller’s creditor (typically her bank) have to issue a “permission to delete” after the payment of the debt which has the necessary formalities resulting deletion of the encumbrances from the title deed. Until the seller did not handed over these documents for deletion it is not recommended to pay the entire purchase price to the seller. Therefore, payment for making the title deed encumbrance-free comes first, and payment of the rest of the purchase price comes later.
According to the above it can be seen that cases when you have to or it is worth to pay the purchase price of the real estate in parts are diverse. The fact that you pay different parts of the purchase price at different times raises the question regarding your registration of your ownership that which legal solution should be applied for your case. It is always required to examine your special case in order to answer that question, however there are a few “compasses” helping to choose.
In their pre-agreement the parties define the substantial conditions of their agreement and they undertake to conclude the agreement at a later date. According to this rule and the well-written text of the pre-agreement the pre-agreement’s content is the minimum content of the agreement to be concluded: stipulations of the pre-agreement has to be incorporated in the final agreement, except when the parties mutually prefer the deviate from the pre-agreement’s stipulation.
However, the real estate sale & purchase pre-agreement cannot be submitted to the land registry and your request to register your ownership will not be indicated as a note on the title deed, thus it will not protect you from double sell, or will not keep the seller from encumbering the real estate after the signing of the sale & purchase pre-agreement. Arising from the above I only advise to conclude a pre-agreement if other solutions are excluded (i.e. the sellers are not the owners yet because inheritance proceedings has to be finished). If bigger volume of money is being transferred simultaneously to the signing of the sale & purchase pre-agreement (i.e. paying deposit), in order to avoid disputes it is recommended to consider using the attorney’s escrow account.
Summary: I only advise to conclude pre-agreement if your buy depends on a condition or undertaking on the seller’s side and without the seller’s performance you wouldn’t buy the real estate.
The most popular solution for paying real estate purchase price in parts is rightly the most used: it grants the highest level of security both for the buyer and the seller. The seller reserves ownership for the pending term without deletion from the title deed. Meanwhile the request of your ownership will be indicated as a note on the title deed which results that the seller is unable sell or encumber the real estate during the pending term.
The only disadvantage of the pending registration is that it can only take a maximum of 6 months. After expiration the land registry deletes the note on the request of your ownership. The 6 months-term can be restarted by a new request referring to the already submitted documents, however, because of unnecessary administration and costs and because of that between deleting and restarting the seller will be able to sell or encumber the real estate, restarting is not 100% safe.
Summary: if you know in advance that you will pay all parts of the purchase price within 6 months pending registration should be applied.
Reservation of title and pending registration have similarities, but also have important differences. Reservation of title can be applied for more than 6 months (term is determined by the parties), therefore it can be a proper alternative in cases when it is obvious that all parts of the purchase price will not be paid within 6 months. However, reservation of title is registered on the third part of the title deed where encumbrances are registered instead of indicating a note on the request of your ownership.
Reservation of title does not protect you from judicial execution agencies encumbering the real estate. If the seller has debt which has to be executed by an official agency the executor can encumber the real estate to be bought notwithstanding the registration of reservation of title. Therefore, further guarantees (i.e. for termination) should be stipulated along with using reservation of title and for the same reason in case of any transfer of money it should be considered to use the attorney’s escrow account.
Summary: if you know in advance that you will not pay all parts of the purchase price within 6 months, reservation of title should be applied with stipulating further guarantees.
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