Don't drop a potential buyer for another - a bigger profit can become a loss
Updated: Oct 25, 2022
"After all, this is simply a framework agreement." Forget it. This is NOT just a framework agreement. It is a contract that allows you to avoid the main contract but does not exempt you from pre-contractual liability. This was once again confirmed by the Supreme Court of Lithuania in a ruling passed this month*.
The ruling emphasized the seller‘s responsibility for dishonestly selling a real estate item to a new buyer, i.e., to a person other than the one with whom the framework agreement was previously concluded.
As the price indices in the real estate sector do not go down, sellers are often faced with the possibility of transferring the property, which has already been promised to one person/entity, to another more profitably. The price difference usually allows one to manage the financial liability risk related to the termination/non-fulfillment of the framework agreement: the seller can quickly return the advance payment to the other party of the framework agreement, pay the fine and still be satisfied with the remaining part. However, the Supreme Court of Lithuania reminded us that sometimes an expected more profitable transaction can even cause losses.
The primary buyer, who lost the opportunity to purchase the property due to the seller's unfair choice to sell it to someone else, has the right to claim the price difference from the seller (not only the direct costs incurred in pre-contractual relations and the advance payment). Therefore, the benefit sought by the seller may eventually go to the preliminary buyer who has been unfairly exchanged.
A pre-contractual relationship is not just a non-binding negotiation. It is a relationship in which the parties acquire reasonable trust and specific expectations. The party that has destroyed them dishonestly becomes responsible not only in the sense of moral responsibility but also in civil liability (sometimes quite financially painfully).
TIPS FOR SELLERS:
Do not underestimate the stage of negotiations, especially when it comes to framework agreements. Terminating the preliminary agreement without objective and justifiable reasons will result in your financial obligation to the primary buyer.
Do not rush to replace a potential buyer with a more profitable one. You risk not receiving the price difference, which instead may be given to the buyer whose reasonable expectations were breached.
TIPS FOR BUYERS:
Don't underestimate your reasonable expectations when negotiating a property purchase. The buyer, who has lost the opportunity to purchase the promised property due to the seller's dishonest actions, often has the right to recover more than just the advance payment.
Find out whether the property promised to be sold to you has not been sold to someone else. Changing you as a primary buyer to another one may oblige the seller to pay the price difference to you.
*The ruling of the Supreme Court of Lithuania adopted on the 12th of September 2022 in a civil case No e3K-3-188-1075/2022.