Real Estate Guide 2016: Property purchase in Estonia / Part 2
Concluding a reservation agreement
After successfully examining through the relevant information and documents, the next step is to conclude a reservation agreement, which shall reserve the potential buyer’s right to purchase the apartment e.g. when the buyer is unable to be physically present in Estonia. A reservation agreement itself does not oblige the buyer to purchase or seller to sell the apartment, but the seller becomes prevented from selling the apartment to a third party during the agreement’s period of validity. Upon the exhaustion of a reservation agreement, may the seller choose freely again to whom sell the apartment.
To secure the property by a way of a reservation agreement, a reservation fee must be paid, and such an agreement should be concluded when the buyer is not absolutely sure about the purchase and wishes to preserve the freedom to look for other options available. Making a reservation agreement may be skipped altogether and replaced by a pre-purchase agreement instead, if the buyer is fully certain about purchasing the given asset.
Concluding a pre-purchase agreement
A pre-purchase agreement is usually concluded when a reason restricting the immediate conclusion of the purchase agreement exists. It is contracted between the seller and the buyer in the presence of a notary, and it must be notarized in order to become a legally binding document.
A pre-purchase agreement shall set out all the terms and conditions of sale, including the amount of deposit and the price due upon the completion. A deposit of around 10-20% of the purchase price (less than the Reservation Fee) is payable upon concluding a pre-purchase agreement. In the case where the buyer or seller withdraws from the sale and a pre-purchase agreement has duly been concluded, financial compensation shall be mandatory.
Concluding a purchase agreement
A purchase agreement as the main contract for the purchase of an apartment is concluded between the seller and the buyer in the presence of a notary, and it must thereby be notarized to become effective. This contract contains all the relevant terms and conditions, and the rights and obligations of the contracting parties as agreed. Furthermore, the notary shall ensure that the transfer of ownership occurs duly and fully in accordance with the Estonian law.
Once approved by the notary, the documents are signed in the notary's office. As notary's role is merely neutral, the parties at this point shall be provided with advises in relation to the title, searches or burdens that their property may incur. The conclusion of the contract does not, however, equal to the transfer of the ownership over the apartment, which is effected through a respective entry in the Land Register.
To be continued.
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