Reservation Agreements in Property Transactions under Cyprus Law
Introduction
When it comes to property transactions, reservation agreements are a vital first step before diving into detailed due diligence and contract drafting. This article aims to outline the key considerations and drafting challenges associated with reservation agreements within the context of Cyprus law.
Scope
Reservation agreements are generally utilised in anticipation of a forthcoming sale and purchase agreement. This article provides insight for both property buyers and sellers.
Purpose of Reservation Agreements
A Reservation Agreement serves multiple objectives:
Offers the buyer an exclusive window to negotiate and perform due diligence.
Restricts the seller from actions that would interfere with the buyer's intended purchase.
Minimises risk, in terms of both time and resources, for both parties.
Legal Formalities
Under Cyprus law, a Reservation Agreement that meets general contract law requirements will be enforceable. These agreements are generally in written form for evidentiary reasons, although can be oral too.
Key Elements
Exclusivity Period: The agreement must clearly outline the duration of exclusivity, including start and end dates. A vague duration like "a reasonable time" does not suffice.
Consideration: The document should clarify the obligations and expenses related to each party's commitments .
Deposit: Often, a deposit may be required. Provisions related to deposit refund or adjustment need meticulous drafting.
Obligations of Parties: Both parties should commit to actions facilitating the eventual transaction within the reservation period.
Seller's Obligations
The seller should not engage in activities that obstruct the buyer's potential transaction. Any intent to sell company shares as a workaround should also be restricted.
Buyer's Obligations
On the other side, the buyer should take steps to ensure they are ready to proceed with the transaction within the specified timeframe.
Termination Provisions
Generally, the buyer may have the option to withdraw, while the seller can only withdraw if the buyer breaches their obligations.
Remedies in Case of Breach
Possible remedies could include:
Damages for breach of contract.
Specific performance (though rarely practical due to the short period of exclusivity).
Damages would usually relate to loss arising out of the breach (including legal fees) and time rather than any hypothetical profits lost due to failure to complete the transaction.
Conclusion
Reservation agreements are a common practice in Cyprus property transactions. They serve as an essential preliminary step, providing both parties a chance to negotiate and proceed with due diligence in an exclusive manner. Property transactions are complex transactions and it is always advisable to consult a legal expert.
The content of this article is valid as of the date of its first publication. It is intended to provide a general guide to the subject matter and does not constitute legal advice. We recommend that you seek professional advice on your specific matter before acting on any information provided. For further information or advice, please contact Klitos Platis by email at klitos@kleanthousplatis.com.