Transfer of Immovable Property in Malta
What is a Preliminary Agreement or Promise of Sale (Konvenju)?
Once you have chosen a property which you would like to purchase and the price and conditions are agreed upon, a preliminary agreement is drawn up by your Notary or legal advisor. The Preliminary Agreement or a Promise of Sale (in Maltese called the Konvenju) for the transfer of immovables is the first and possibly most important step towards acquiring or selling a property. the Vendor promises (jipprometti li jitrasferixxi/iċedi/ibiegħ), whilst the Buyer to acquire (jixtri).
The Preliminary Agreement sets out the specific conditions under which the sale is to be made and guides the seller and buyer to conclude the sale within a certain time and under those same conditions. It needs to be done in the form of a written instrument, otherwise the juridical negotia becomes null and cannot be confirmed or executed. A promise of sale is two-sided and binding on both parties, as the seller is committing himself to sell and the buyer is committing himself to buy. Both Parties must appear on the final deed of transfer and any conditions must be met before the publication of the final deed. The preliminary agreement is a normal contract so the usual elements, general conditions and requirements regulating the Law of Contract will apply just the same.
The Effect of a Preliminary Agreement is that it creates an obligation on the parties to carry out the sale. Moreover, our law provides for compensation in case a promise of sale is not executed, but only if it is impossible for the party to fulfil their promise.
What is the difference between a Promise of Sale and a Sale?
The promise of sale of an immovable can be distinguished from a sale because in the former case the Seller remains the owner of the item and they are still imposed with the element of risk (Periculum Rei). The promise of sale does not create a right In Rem, but it creates a personal right against the prospective seller to execute their obligations or for damages, should the case arise.
Therefore, a promise of sale:
- Is the promise to sell a thing at a fixed price (to be fixed by one or more persons.)
- Is not equivalent to a sale yet, thus no transfer of ownership or pericolum rei.
- Shall create an obligation on behalf of the promisor to carry out the sale, if it is accepted
- If not the promisor is subject to make good for damages.
How Long is the Preliminary Agreement valid for?
The buyer and seller can choose to stipulate a time limit in the preliminary agreement or they can not do so and have the three-month time limit stipulated in the law become effective. The time period starts from the day the agreement is signed. The effect of the Preliminary Agreement and all obligations arising will end after the expiration of the time limit unless an extension is signed or a judicial letter is sent or the sale is finalised.
If the preliminary agreement includes a suspensive condition or if certain procedures have to be made, then the term begins to run from the verification of these situations, or from the date of completion of the procedures.
Funds needed at Promise of Sale stage
The buyer is normally required to pay:
- A deposit or Earnest; as well as
- Provisional stamp duty, where applicable.
What is the Difference between the Price Paid in Earnest and a Deposit?
On the promise of sale agreement, the buyer or the promiser normally pays a sum which may either be part of the final price – that is a deposit (akkont tal-prezz), or in earnest (kappara). The deposit normally constitutes 10% of the selling price – however a deposit may be smaller or larger than this.
Even if the deposit has been paid in the promise of sale, it does not mean that the execution of the sale has started. Moreover, Section 1359 of the Civil Code states that if a sum is paid in Earnest, none of the parties are obliged to appear on the final promise of sale. However, if this happens, there are certain consequences:
- If a promisee withdraws, he automatically loses the deposit;
- If the promisor withdraws, he must give the promisee double deposit.
However, if the phrase ‘on account of ‘is mentioned in the contract, the sum paid is considered to be a deposit on the final sum which must be paid upon the finalisation of the sale. In this case both parties are obliged to appear on the final contract.
If in a sum was paid as a deposit and the timescale for the sale elapsed without the either party having done anything, then according to case law, the parties return to their previous position – the status quo ante contractum.
Provisional Stamp Duty
A Provisional stamp duty of 20% of the total duty payable is required for the promise of sale to be registered with the Commissioner of Inland Revenue. The Law requires that the duty is paid on the final deed of acquisition at the promise of sale stage.
Can a party withdraw from a Promise of Sale?
The requisites of Price, Capacity, Consent, Object and Causa (which also apply for contracts in general) are applicable to the preliminary agreement. When such requisites are not in the contract, the contract may be invalidated (ab initio) or one of the parties may opt out of the agreement. The promise of sale can also be cancelled if there is:
- A mistake in the description of the immovable
- Grounds of Fraud
- no guarantee of peaceful possession
- A defect in the private writing or deed- for example, the promise of sale is not written down
Once the promise of sale has been completed, the Vendor cannot sell the property to anyone else.
What does a Deed of Sale consist of?
The requisites of Sale are:
- The capacity of the parties – There are specific groups of people who cannot enter into a contract of sale against each other, such as Spouses between themselves, tutors or curators (with respect to property of those whom they represent) and Judges or magistrates cannot buy or sell anything which is subject to their decision-making.
- Double object of sale – The thing sold must be lawful and must belong to the vendor.
- Form of contract – The Contract must contain the requisites required by law.
Tax Due by Vendor
The following exemptions apply:
1. Transfer of own residence (if owned and occupied for at least 3 years preceding date of transfer) Unless own residence is transferred before the lapse of 3 years ; then the applicable rate is 2%.
2. Assignment of property between spouses following a separation or divorce, or following the dissolution of the community of acquests or the partition of property between a spouse and the heirs of his/her deceased spouse.
3. Donations made by a person to his spouse, to his descendant or ascendant in the direct line, or to the spouse of any such descendant or ascendant, or, in the absence of any descendants in the direct line, to his brother or sister or to a descendant of his brother or sister, or to a philanthropic institution.
4. Transfer of property from one company to another forming part of the same group.
5. The transfer of property upon the incorporation of a business or a partnership en nom collectif as a going concern into a limited liability company.
6. A Transfer of property by a company to its shareholder or to an individual related to its shareholder in the course of winding up or in the course of distribution of assets pursuant to a scheme of distribution.
7. The settlement of property on trust, or the distribution or reversion of property settled on trust, or the transfer of all the property of a trust involving only a change in the trustee of a trust and where there is no change in the beneficiaries or in the beneficial interest.
Duty Levied on the Purchaser
What are the Obligations of the Seller?
1. To deliver the object
The immovable property is handed over when the deed of sale is published. Movable property is either handed over to the buyer itself, or its key is given or the documents of right of ownership.
2. Warranty against latent (hidden) defects
Warranty of latent defects is that warranty which arises when the item bought is found to be damaged and/or unsuitable for its intended use, reducing its value. The defect must be serious, hidden and existent at the time of the sale.
The obligation of warranty of latent defects has a limited time period and can end in two ways:
- By the seller agreeing to the contrary – the effects were unknown to the seller – if they were known, he would be committing fraud by stipulating such agreement.
- By extinctive prescription – a defence where claims made against them cannot be enforced.
In this case, the buyer has two options; the actio redhibitoria (where the parties can return to the status quo ante) and the actio aestimatoria (the sale takes place anyway only subject to a reduction in the price).
3. Peaceful Possession
Possession is free from any inconveniences by both the vendor and third parties. It is also called the warranty against eviction. The duties in this case may not necessarily entail a failure of the part of the seller to fulfil his obligations.
What are the Obligations of the Buyer?
- To Pay the Price (and in some cases, the interest on the price)
- To receive the thing bought – the buyer must present himself at the time and place where the sale is to be effected and pay the stipulated price, unless the sale is on credit.
- To pay the expenses of the sale
What happens After the Sale?
After the deed of sale is published, Ownership of the item is transferred onto the purchaser and the Notary registers the deed in the Public and land Registries accordingly. The relative taxes are also paid within the time limits stipulated by law.