Preliminary agreement for the sale of real estate in Poland – a complete guide to Polish law and practice

A preliminary agreement for the sale of real estate in Poland is one of the most important legal documents in the process of purchasing real estate in Poland. Its main purpose is to secure the legal and factual interests of both parties to the transaction, i.e. the seller and the buyer of the property. The preliminary agreement serves as a formal commitment by the parties to conclude a final agreement (often referred to as the ‘definitive’ agreement) within a specified period of time, after certain conditions have been met.

In most cases in Poland, such a condition will be the need for the buyer to accumulate funds, for example by obtaining financing in the form of a mortgage. Other examples include: a positive result of the buyer’s examination of the legal and factual status of the property, the seller’s acquisition of formal and legal documents, or the settlement of the legal status of the property.

A practical example from Polish case law:

‘The purpose of concluding a preliminary agreement is to create certainty that a specific agreement proposed by the parties will be concluded’ (judgment of the Polish Court of Appeal in Poznań, 1st Civil Division, of 19 November 2019, ref. no. I AGa 76/19).

A preliminary agreement may oblige the parties to conclude any type of agreement, but in this publication we will focus on the conclusion of a property sale agreement.

In this publication, we have attempted to:

• a comprehensive discussion of the institution of a preliminary property sale agreement according to Polish law, with particular emphasis on the obligations of the parties, the form of the agreement, the subject matter and price, and mechanisms securing the performance of the agreement;
• presentation of practical guidelines resulting from case law and the provisions of the Polish Civil Code, including the consequences of non-performance of the agreement, deposit, contractual penalty and limitation of claims.

What is a preliminary agreement for the sale of premises under Polish law?

First, however, it is necessary to clarify what a preliminary agreement for the sale of premises is in accordance with the applicable Polish regulations. The Polish Civil Code defines it in Article 389 § 1 as an agreement by which one or both parties undertake to conclude a specified agreement, and furthermore, this agreement should specify the essential provisions of the promised agreement. A preliminary agreement therefore constitutes a contractual obligation of the parties to conclude a specified agreement in the future, in a situation where, at the time of concluding the preliminary agreement, the conclusion of the final agreement is not possible for specific reasons.

According to the Polish regulations, a preliminary agreement must contain only the most important elements of the future final agreement (agreement on the transfer of ownership of the premises), i.e. provisions without which it would not be possible to clearly determine what agreement is to be actually concluded by the parties. This requirement must be met because without these elements it would not be clear to the parties what legal obligations the obligated party has to fulfil. In the event of a dispute between the parties, the court would not be able to resolve the case.

In practice, this means that specifying the essential provisions of the final agreement in the preliminary agreement simply consists in determining what performance the debtor undertakes to provide. At the same time, this does not always have to be done in great detail. The parties may agree that in the preliminary agreement itself they will only indicate the rules or manner in which the most important provisions of the future agreement will be determined later, as long as this is within the limits of freedom of contract.

In the case of a preliminary contract for the sale of real estate, these will be:

• the designation of the subject of the sale, i.e. the specific real estate, and
• the determination of the sale price.

The provision may therefore take the following form under Polish law:

“The Seller undertakes to sell, and the Buyer undertakes to purchase, residential premises No. 1, located in Warsaw, at 10 Contractual Street, for which the District Court for Warsaw-Mokotów, 8th Land and Mortgage Register Division, maintains land and mortgage register No. KW 123, together with a share in the common property associated with the ownership of the premises. The parties agree on the sale price of the premises in the amount of PLN 1,000,000.”

Of course, there is nothing to prevent (and this is often the case in practice) the preliminary agreement for the sale of real estate from also containing further provisions of the final agreement. For example, the parties may specify in it:

• the manner and date of payment of the price,
• the dates of transfer of the property,
• the conditions for transfer of ownership of the property,
• the method of settling utility costs, or
• the obligations regarding the maintenance of the property until the transfer.

Parties to the preliminary agreement according to Polish law

In a preliminary agreement entered into in Poland, it is essential to clearly and precisely identify the parties to the agreement, i.e. to specify who exactly undertakes to conclude the future final agreement. This identification is of fundamental practical and legal importance. This eliminates any doubts as to the identity of the obligated party, which is particularly important in the case of real estate, where the parties may be different (e.g. a developer, a natural person, a company).

It is also necessary to precisely identify the parties in a situation where the final contract is not concluded. In such a case, the person indicated in the preliminary contract as the obligated party will be the party against whom claims provided for by law may be brought, e.g. a demand to conclude the final contract or compensation for non-performance of the obligation, as discussed below. Failure to precisely identify the parties could lead to disputes as to who is actually liable, which makes it difficult to pursue claims and may delay the resolution of a possible dispute in court.

In practice, this means that the preliminary agreement should specify the identification details of all parties, such as: name and surname, company name, PESEL or NIP number, address of the registered office or place of residence, so that, if necessary, it is possible to clearly identify the obligated party and effectively enforce any rights arising from the agreement.

Subject matter of the preliminary real estate sale agreement in Poland

The preliminary agreement should also identify the subject matter of the sale very precisely. In the case of real estate, this means specifying not only the current owners and their form of ownership (e.g. joint marital property), but also the identification details and specific information about the property, such as:

• land and mortgage register number,
• premises number,
• address,
• area,
• description of the premises
• description and appurtenances.

The preliminary agreement should also indicate the legal basis on which the current owners acquired the property. This designation makes it possible to unequivocally determine that these persons have the right to dispose of the property and may sell it, which increases the security of the transaction and facilitates the pursuit of claims arising from the preliminary agreement, if necessary.

Mortgage and mortgage loan of the sellers

If a mortgage has been registered on the property covered by the preliminary agreement, it is also important to disclose this encumbrance in the preliminary agreement. Consequently, in Poland, the preliminary sale agreement should, in particular:

• specify the bank, loan agreement number and scope of the mortgage,
• refer to a current certificate from the bank confirming the amount of debt (the certificate itself may be attached to the preliminary agreement),
• specify the method of full repayment of the loan from the buyers’ funds,
• provide for direct repayment of the mortgage creditor by the buyers.

In addition, in order to secure the buyer’s position, sellers should undertake to:

• covering any difference if the amount paid by the buyers proves insufficient to repay the loan,
• obtaining the bank’s consent to delete the mortgage after the debt has been repaid,
• transferring funds to the buyers to cover the court fee associated with deleting the mortgage.

Additionally, in order to secure the buyer’s position, sellers should undertake to:

• covering any difference if the amount paid by the buyers proves insufficient to repay the loan,
• obtaining the bank’s consent to delete the mortgage after the debt has been repaid,
• transferring funds to the buyers to cover the court fee associated with deleting the mortgage.

Such provisions should ensure the security of the transaction for buyers and protect them against the risk of purchasing a property encumbered with a mortgage liability.

Representations of the parties to the preliminary agreement in Poland

The purpose of the representations made by the parties in the preliminary agreement for the sale of real estate is to accurately present the factual and legal status of the property. The statements should primarily:

• disclose any encumbrances and restrictions on the property, e.g. a mortgage,
• confirm that the entries in the land and mortgage register correspond to the actual legal status,
• ensure the security of the transaction by indicating that there are no third-party rights or claims, tax arrears or other public law levies,
• determine the current status of the property, for example in terms of ownership, possible tenants, business activities, tax obligations related to the sale, etc.,
• disclose specific legal and factual information such as the absence of a revitalisation area, the status of the building as a multi-family residential building.

It will also be important for the seller that the buyer makes the appropriate representations. These may include, among others:

• familiarisation with the land and mortgage registers, i.e. confirmation that the buyer is aware of the legal status of the property,
• familiarisation with the physical and technical condition of the premises and, for example, the standard of finish of the premises, the architectural design of the building,
• no objections to the actual and legal condition of the premises.

In many cases, these representations may have significant legal implications, as they limit the possibility of subsequent claims by the buyer arising from ignorance of the actual or legal status of the property. Thanks to these statements, the seller gains greater transaction security and certainty that the buyer consciously accepts both the legal and technical condition of the premises, especially in a situation where it is not new and may have certain technical wear and tear or defects resulting from its age and previous use.

Representations of the parties to a preliminary agreement in a commercial property transaction in Poland

Of course, declarations may be more extensive in commercial real estate transactions and cover additional issues, such as the technical condition of the building, obligations towards the housing community, terms of the current lease agreement, obligations under agreements concluded with third parties, or other legal risks relevant to the buyer.

In commercial transactions, these representations are not only informative in nature, but also serve to allocate risk between the parties. Their breach may result in far-reaching liability on the part of the seller, including the obligation to pay contractual penalties or even the right of the buyer to withdraw from the agreement.

Date of conclusion of the final contract

The key issue for possible claims in the event of non-performance of the preliminary contract is the date of its performance. This date should be understood as the exact time when the parties should conclude the final contract, for example:

‘The seller and the buyer agree that the final contract of sale will be concluded by 1 January 2026.’

For the parties, precisely determining the date of conclusion of the final agreement has fundamental consequences, as it allows them to:

• determine the moment from which it is possible to speak of a delay or non-performance of an obligation,
• establish the basis for pursuing claims, such as a demand for the conclusion of the final contract or compensation,
• avoid doubts as to when the parties’ obligations should be fulfilled,
• enable the court to determine unequivocally whether there has been a failure to perform an obligation and what legal measures may be applied.

A practical example from Polish case law:

“The deadline for concluding the final contract specified in the preliminary contract is not a final deadline, but only a deadline for performance, the expiry of which does not result in the expiry of the obligation to conclude the final contract. On the contrary, the expiry of this date results in the claim for the conclusion of the agreement becoming due (…)” (judgment of the Polish Supreme Court of 16 December 2005, file ref. no. III CK 344/05).

Form of a preliminary agreement for the purchase of real estate according to Polish law

The provisions of the Polish Civil Code do not require that a preliminary agreement for the purchase of real estate be concluded in the form of a notarial deed, which is a necessary requirement for the conclusion of a final agreement for the sale of real estate. A preliminary agreement may therefore be concluded in the so-called ‘ordinary written form’ (or even orally), which in practice means that it may be drawn up by the parties themselves and signed without the participation of a notary public.

A practical example from Polish case law:

“The failure to draw up a preliminary sales agreement in writing did not mean that it did not exist. No provision of law requires a specific form for a preliminary agreement, even if it concerns a future agreement for the sale of real estate (…)” (judgment of the Polish Court of Appeal in Szczecin, 1st Civil Division, of 2 July 2020, ref. no. I ACa 139/19).

However, the conclusion of a preliminary agreement for the sale of real estate in ordinary written form has an impact on the possibility of enforcing claims by the entitled party, as discussed below.

Furthermore, the conclusion of a preliminary agreement in the form of a notarial deed allows the buyer’s claim for transfer of ownership of the property under the preliminary agreement to be disclosed in the land and mortgage register. The disclosure of such a claim in section III of the Polish land and mortgage register has significant protective significance, as it makes the claim effective against third parties. In practice, this means that the possible sale of the property to another buyer after the entry has been made does not deprive the buyer of the rights arising from the preliminary agreement. As a result, the buyer gains a real tool to secure their legal interests.

Claims arising on the part of the buyer of the property

As described above, the conclusion of a preliminary property sale agreement by the parties entails an obligation to conclude a promised sale agreement in the (specified) future.

In practice, however, it often happens that the final contract is not concluded due to the fault of the seller. In such a case, the buyer (the so-called ‘entitled party’) has two claims:

• to conclude the final contract, i.e. the so-called ‘stronger effect’,
• for compensation for damage caused to them by the obligated party as a result of non-performance (i.e. failure to conclude the final contract within the time limit specified in the preliminary contract), i.e. the so-called ‘weaker effect’.

This is confirmed by the provisions of law. Pursuant to Article 390 § 1 of the Polish Civil Code, if the party obliged to conclude the final contract evades its conclusion, the other party may demand compensation for the damage it has suffered as a result of counting on the conclusion of the final contract. However, if the preliminary agreement meets the requirements on which the validity of the final agreement depends, in particular the requirements as to form, the entitled party may demand the conclusion of the final agreement (Article 390 § 2 of the Polish Civil Code). In practice, this means that if the preliminary agreement was concluded in the form of a notarial deed, the entitled party is not limited to claiming damages, but may effectively seek the conclusion of the final agreement in court.

In practice, ‘stronger effect’ under Polish law means a situation where the court issues a judgment that replaces the declaration of will of the obligated party (the seller) and leads to the ‘compulsory’ completion of the transaction, regardless of the seller’s will. Of course, this type of action for a declaration of intent can only be upheld by the court if the deadline for concluding the promised contract, as specified in the preliminary contract (and not earlier), has passed. If the action is upheld, the court’s judgment confirms the conclusion of the agreement and ‘replaces’ the entire final agreement, i.e. the declarations of intent of both parties. Importantly, it is not even necessary to call on the debtor to conclude the final agreement for the claim to be enforceable.

On the other hand, a ‘weaker effect’ under Polish law should be understood as a comparison of the financial situation that would have existed if the entitled party had not counted on the conclusion of the promised contract at all, with the financial situation in which they found themselves as a result of concluding the preliminary contract and acting in reliance on its performance. However, this type of compensation does not cover what the party could theoretically obtain if the final contract had been concluded.

A practical example from Polish case law:

“Such compensation therefore covers losses such as: the costs of concluding the contract, expenses related to one’s own performance, unnecessary expenditure incurred in connection with one’s own performance or acceptance of the other party’s performance, whenever restoration of the previous state is not possible or costs arise as a result, or other components of material damage, expressed in the incurrence of specific losses.” (judgment of the Polish Court of Appeal in Białystok, 1st Civil Division, of 14 March 2018, ref. no. I AGa 49/18)

However, the parties may, in a preliminary contract for the sale of real estate in Poland, define the scope of liability for damages differently, in particular by stipulating a contractual penalty in the event of failure to perform the obligation to conclude the final contract. In such a situation, the entitled party does not have to prove either the fact of damage or its amount, because the contractual penalty is due regardless of the actual financial loss. An example provision may read as follows:

‘The parties agree that in the event of failure by either party to conclude the final contract within the time limit and under the conditions specified in this agreement, the party in breach shall pay the other party a contractual penalty of PLN 100,000.’

Deposit in a preliminary contract for the sale of premises and its legal effects

In practice, most preliminary agreements in Poland contain a provision on a deposit. A deposit is an additional contractual reservation that strengthens the contractual relationship between the parties and also serves a motivating, disciplining and securing function.

The institution of a deposit is regulated by Article 394 of the Polish Civil Code. According to this provision, unless the parties agree otherwise or it results from custom, a deposit paid upon conclusion of a contract serves to secure its performance. This means that in the event of non-performance of the contract by one of the parties, the other party may, without setting an additional deadline, withdraw from the contract and:

• retain the deposit received, or
• if it has paid the deposit itself, demand its return in double the amount.

Therefore, if the contract is not performed due to the fault of the seller, the buyer is entitled to withdraw from the preliminary contract and demand the return of the deposit in double the amount. On the other hand, if the contract is not performed for reasons attributable to the buyer, the seller may withdraw from the contract and retain the deposit received.

The deposit therefore serves as a substitute for compensation for non-performance of the contract, simplifying settlements between the parties. It is also important that the party entitled to demand double the deposit does not have to prove the amount of damage suffered. Pursuant to Article 6 of the Polish Civil Code, its burden of proof is limited to demonstrating that a specific amount or item was handed over as a deposit and that the other party failed to perform the agreement.

On the other hand, the party that evades payment or refund of the deposit bears the burden of proving that the non-performance of the contract was due to reasons for which it is not responsible, that both parties are responsible, or that the contract was terminated in another legally permissible manner.

A practical example from Polish case law:

“A high deposit amount does not change its legal nature and the effects of the contractual reservation accepted by the parties. The relationship between the amount of the deposit and the value of the subject of the contractual performance is not regulated by law and is therefore left to the contractual freedom of the parties (Article 3531 of the Polish Civil Code). Usually, it is a small part of the monetary performance to be fulfilled by the obligated party; however, it is permissible and depends solely on the will of the parties to set this amount at a different level, including stipulating a deposit whose value is much higher, for example, exceeding half of the value of the entire performance” (judgment of the Polish Supreme Court of 31 May 2019, ref. no. IV CSK 163/18).

Limitation period for claims under a preliminary agreement in Poland

The provisions of the Polish Civil Code in Article 390 § 3 introduce a one-year limitation period for claims under a preliminary agreement in Poland. This period runs from the date on which the final contract was to be concluded, and in a situation where the court dismisses the request to conclude the final contract – from the date on which the ruling became final.

In practice, this means that the one-year limitation period covers:

• claims for the conclusion of a final contract,
• claims for damages resulting from non-performance or improper performance of obligations under the preliminary contract,
• claims for the return of a deposit reserved in the preliminary contract.

A practical example from Polish case law:

“According to the established position of the judiciary, the one-year limitation period specified in this provision covers all claims arising from the obligations imposed on the parties in the preliminary contract, i.e. both claims for the conclusion of the final contract and claims for damages arising from the non-performance or improper performance of obligations under the preliminary contract, as well as claims for the return of the deposit stipulated in that contract” (judgment of the Polish Court of Appeal in Szczecin, 1st Civil Division, of 28 July 2016, ref. no. I ACa 405/16).

Summary

A preliminary agreement for the sale of a residential property plays a key role in the process of purchasing real estate, securing the interests of both the seller and the buyer. Its main purpose is to formally commit the parties to conclude a final agreement within a specified period and to define the conditions on which the effectiveness of that agreement depends.

An analysis of the provisions of the Polish Civil Code and case law shows that a properly drafted preliminary agreement is an effective tool for limiting the risk to the parties, increasing the certainty of legal transactions and ensuring the possibility of enforcing rights in the event of non-performance of obligations. In practice, this means that careful preparation of a preliminary agreement is crucial for the safe and efficient execution of a real estate transaction.