The Promise of Sale better known as the “konvenju”, is a concept that has been used consistently in Malta, with the Civil Code making a firm distinction between the konvenju itself and the final contract of sale.
Based on the divide of deposit and “kapparra” (the sum paid in earnest of the sell), our Civil Code emphasizes that ‘a promise to sell a thing for a fixed price shall not be equivalent to the sale itself’ as, while a promise of sale is a unilateral contract, an actual sale is a bilateral agreement by virtue of both parties taking part. In a promise of sale or “konvenju”, the buyer and seller are brought together and a reciprocal obligation is created. Thus, if the sale can no longer be carried out, there is an obligation to make good on the damages the aggrieved party may have suffered as a result.
Why is the Deposit (or Earnest) Paid?
Contrary to popular belief, there is no legal requirement for money to be paid at the signing of a “konvenju”.
However, there are legal consequences for both parties should such a sum be paid. This sum can be part of the final price, known as a deposit – usually around 10% of the final price
When a sum is paid in earnest, or as “kapparra”, neither of the parties is legally bound to appear at the final contract of sale; both parties are however bound by a penalty clause. Should the promisee withdraw from the agreement and fail to appear on the final contract of sale, he or she loses the sum paid in earnest to the promisor; conversely, should the promisor withdraw, they would then be liable to repay the promisee double the sum which he or she had deposited in earnest.
In the case of Brands International Ltd vs Tas-Sellum Development Co Ltd, Mecca Investments Limited signed a promise of sale with Tas-Sellum Development Co Ltd on the 8th June 2005. The promise of sale itself was signed in relation to the purchase of Apartment 23, in Block 9, at Tas-Sellum, Mellieħa where a deposit of €28,185.42 was paid for the purchase of a €121,000 apartment. A mere two years later, Mecca Investments Ltd changed its name to Brands International Ltd.
Despite the fact that the “konvenju” had been made, Tas-Sellum Development Co Ltd never contacted Brands International Ltd to conclude the sale, thus lapsing the promise of sale.
In December 2012, in an effort to regain the money paid, Brands International Ltd sent a judicial letter asking to be reimbursed the deposit they had paid seven years previously. This follow up request was also ignored and it was at this point that Brands International Ltd filed a civil suit demanding the return of the deposit paid with interest.
The First Hall of the Civil Court ordered Tas-Sellum Development Co. Ltd to reimburse Brands International Ltd the sum of €28,185.42, together with interest, dating from 8 June 2005 till the actual date of payment, after presiding judge Mr Justice Mark Chetcuti ruled that since Tas-Sellum Developers did not uphold their right to call on the buyers to complete the purchase, they had no legal right to hold on to the deposit effected specifically for a sale which had never taken place.
In the end, the buyer was reimbursed to the tune of €28,185.42, as well as the interest from 2005 until the date of payment.
What is a valid reason at law to reimburse a deposit?
In another case last year, Gerit Company Ltd (buyer) vs A.M. Developments Ltd (seller), the deposit was paid back even though the buyer was unable to find the necessary funds to conclude the sale and therefore it had a ‘valid reason at law’.
The two parties drew up a promise of sale agreement for the purchase of a property in Ħal Qormi. A deposit of €23,293 was paid ‘on account of the price’ of the immovable property.
When the phrase ‘on account of’ is mentioned in the contract, it means the sum paid is a deposit on the final sum to be paid when finalising of the sale. Both parties are obliged to appear on the final contract and if any of the signatories don’t, it might be justified only so long as there’s a valid reason at law.
The promise of sale expired and both buyer and seller called upon each other. However, the sale fell through and the case was taken to the First Hall Civil Court. The main issue was whether there was a valid reason at law for the buyer not to appear on the final deed of sale.
This came in the form of a warrant personally issued by the director’s spouse from the buying company. This prohibited financing the sale and the sale fell through and the buyer was not responsible. This was justified as a valid reason at law and all parties had to go back to the status quo ante.
Drawing up a promise of sale in Malta
Promises of sale in Malta, though commonplace, can also be a pitfall for inexperienced parties. That is why a good notary is needed; so as to act in the best interest of the parties while navigating the quagmires of the law.
Veronica Mizzi Young is a Notary Public who specialises in the transfer of property and promise of sale in Malta. She has great expertise in acting on behalf of both the buyer and the seller. You can call upon Veronica at her office in Rabat, where she would gladly offer you a helping hand and personalised legal assistance, or contact her here.