Buying or selling real estate is one of the most significant legal and financial transactions that most people encounter during their lifetime. Whether you are purchasing an apartment, house, holiday property or plot of land, a properly drafted real estate purchase agreement is essential for clearly defining the rights and obligations of both the buyer and the seller.
In practice, parties often agree on the purchase price, deadlines and payment arrangements before downloading a contract template and adapting it to their transaction. However, an agreement that appears straightforward at first glance may not accurately reflect the property's legal status or adequately protect the interests of both parties.
Particular attention should be paid to the payment of the purchase price, existing encumbrances, property handover, the seller's consent to registration of ownership, and the requirements for registering ownership in the Croatian land register.
Below, we outline seven important contractual clauses that should be carefully considered when drafting or reviewing a real estate purchase agreement.
1. Clause Identifying the Property and Establishing Ownership
One of the first steps in drafting a purchase agreement is to identify the property being sold precisely.
The agreement should contain sufficient information to identify the property unambiguously, including the relevant land registry details, cadastral municipality, land parcel number and, where a separate part of a property is being sold, the information necessary to identify that unit.
When purchasing an apartment, it is important to verify that its description, designation and associated parts correspond to the land registry records and condominium subdivision documentation.
It is also necessary to establish who is registered as the owner and whether there are co-owners whose rights are relevant to the transaction.
Discrepancies between the agreement and the land registry records, or an insufficiently precise property description, may create difficulties when registering ownership.
For this reason, the land registry status should be checked before the agreement is signed, and its contents should be consistent with the relevant documentation.
2. Clause on the Purchase Price and Payment Terms
The purchase price is one of the fundamental provisions of the agreement. In addition to specifying the amount, the agreement should clearly define the payment deadlines, method and conditions.
For example, the parties may agree to pay the purchase price in instalments, with individual amounts becoming payable on specified dates or once agreed conditions have been satisfied.
In such cases, the amounts, deadlines, payment method and conditions applicable to each payment should be stated precisely.
Particular care is required when purchasing a property encumbered by a mortgage in favour of the seller's bank. The agreement should clearly establish how the outstanding debt will be settled, which documents are required to discharge the mortgage, and how the purchase price will be allocated and paid.
If the buyer intends to finance part of the purchase through a mortgage loan, the bank's requirements, loan approval deadlines and documentation necessary for the release of funds must also be taken into account.
Unclear payment provisions may lead to disputes, particularly where one party believes that the other was already required to fulfil a particular obligation.
3. Clause on the Deposit and the Consequences of Non-Performance
A deposit is commonly agreed upon when entering into a preliminary real estate purchase agreement. Among other purposes, it serves as evidence that the agreement has been concluded and provides security for its performance, subject to the contractual terms and applicable law.
However, paying a deposit does not automatically give either party the right to withdraw from the agreement.
If the parties wish to provide for a right to withdraw in exchange for forfeiting the deposit or repaying twice its amount, they should carefully consider and expressly regulate a contractual withdrawal payment (odustatnina) and the conditions under which that right may be exercised.
If no such right has been agreed, the consequences of non-performance must be assessed under the applicable provisions of the Croatian Obligations Act and the circumstances of the particular case.
It is especially important to address situations in which the buyer intends to finance the purchase with a bank loan. If loan approval is essential to completing the transaction, the parties should consider in advance what will happen if the bank rejects the application or fails to approve the loan within the agreed period.
These matters should be resolved before the deposit is paid, rather than after a dispute arises between the buyer and the seller.
4. Clause on Existing Mortgages and Other Encumbrances
A property being sold may be subject to a mortgage, easement or other third-party rights. The land register may also contain entries and notices that require legal assessment before the agreement is concluded.
The existence of an encumbrance does not necessarily prevent a property from being sold. However, the buyer should understand its legal implications and how it will be addressed as part of the transaction.
For example, if a mortgage in favour of the seller's bank is registered against the property, it is necessary to establish the outstanding debt, identify the documents required to discharge the mortgage, and determine how payment will be carried out.
The agreement should clearly define the seller's obligations, the deadlines for obtaining the relevant documents, and the procedure to follow if the agreed conditions are not met.
Depending on the circumstances, payment of the purchase price may need to be coordinated with repayment of the debt and the acquisition of documents required to remove the encumbrance.
It should not be assumed that a mortgage or other registered encumbrance will automatically be removed merely because the purchase price has been paid or the purchase agreement has been signed.
5. Clause on Handover and Possession of the Property
The agreement should clearly specify when and under what conditions the seller must hand over possession of the property to the buyer.
Handover does not necessarily have to take place when the agreement is signed or when the entire purchase price is paid. The parties may agree on a different schedule depending on their needs and the circumstances of the transaction.
The agreement should ideally specify:
- the exact date or deadline for handover;
- the conditions that must be satisfied before handover;
- the obligation to deliver the keys and relevant documentation;
- how the property's condition will be recorded at handover;
- responsibility for utility bills and other property-related expenses;
- the consequences of a delay in handing over the property.
If the property is rented out or occupied by a third party, the existing rights and the conditions under which the buyer will take possession should be addressed separately.
Clear handover provisions reduce the risk of misunderstandings after payment and help both parties understand their respective obligations in advance.
6. Clause on the Seller's Consent to Registration and Registration of Ownership
Signing a real estate purchase agreement does not, by itself, mean that the buyer has become the registered owner of the property.
When ownership is acquired through a legal transaction, the appropriate entry in the land register is generally required, subject to the applicable statutory conditions.
A particularly important document in this process is the seller's declaration consenting to the registration of ownership in the buyer's name, commonly referred to in Croatia as a tabularna izjava or clausula intabulandi. It may be included in the purchase agreement or issued as a separate document, depending on how the transaction is structured.
The agreement should clearly establish the conditions under which the seller must provide this consent. In practice, this is often linked to payment of the purchase price, although the appropriate arrangement depends on the circumstances of the transaction.
It is important to verify that the agreement contains all information and declarations required for registration and that the relevant documents comply with the applicable formal requirements.
The relationship between payment of the purchase price, issuance of the seller's consent to registration and handover of the property should be carefully coordinated in advance. Poorly drafted provisions may leave one party having fulfilled its obligations while the conditions for completing the transfer have not yet been secured.
7. Clause on Liability for Defects and Failure to Perform Contractual Obligations
Another important part of the agreement concerns the parties' liability and the consequences of a failure to perform their contractual obligations.
The agreement should appropriately address legal defects and material defects in the property, in accordance with the applicable legal rules and the circumstances of the transaction.
Legal defects may include third-party rights that restrict or exclude the buyer's rights. Material defects concern deficiencies in the property's condition or characteristics that are relevant to its agreed or ordinary use.
It is important to distinguish the seller's statutory liability from any additional warranties, representations or obligations expressly agreed by the parties.
If the seller makes statements about the property's condition, documentation or the absence of third-party rights, those statements should be sufficiently precise to establish what they cover.
The agreement may also regulate the consequences of delays, failure to perform specific obligations and the procedure to be followed if a dispute arises. Such provisions must comply with applicable law and be assessed in the context of the agreement as a whole.
Why Should a Real Estate Purchase Agreement Be Tailored to the Particular Property?
The clauses outlined above represent only some of the matters that should be considered when drafting a real estate purchase agreement.
An agreement for a newly built apartment may require different provisions from an agreement for a family house, building plot or property encumbered by a mortgage. The appropriate terms may also vary depending on the financing arrangements, ownership status, documentation and the parties' agreement.
For this reason, relying exclusively on a generic contract template without checking whether it reflects the specific legal and factual circumstances is not advisable.
Before signing, it is important to review the land registry status, relevant documentation, third-party rights and any circumstances that could affect the performance of the contractual obligations.
Legal Assistance with Drafting or Reviewing a Real Estate Purchase Agreement
Professional legal review or drafting can help identify legal risks at an early stage, clearly define the parties' respective rights and obligations, and ensure that the agreement is consistent with the documentation and circumstances of the particular transaction.
Luka Mrkić Law Office provides legal assistance in real estate matters, including document reviews, the drafting and review of preliminary agreements and real estate purchase agreements, and matters relating to the registration of ownership in the land register.
If you are buying or selling an apartment, house, holiday property or plot of land, it is advisable to arrange a legal review and prepare the agreement before signing or paying a deposit.
For information about legal assistance, please contact Luka Mrkić Law Office using the contact details provided on the firm's website.
Author: Luka Mrkić, Attorney-at-Law
