Conclusion of a Preliminary Real Estate Sale Agreement and the Legal Effects of a Deposit – Normative Framework, Contractual Structure, and Risks

By Josip Perkušić, Attorney at Law, Zagreb

 

A preliminary real estate sale agreement (pre-contract) constitutes a binding undertaking by the seller and the buyer to conclude a definitive sale and purchase agreement in the future, with its essential elements agreed in advance. Its legal nature derives from the general provisions of the Croatian Obligations Act (Zakon o obveznim odnosima), which governs the formation and effects of obligations and expressly permits freedom of contract within the limits of mandatory rules and the principles of good faith and fair dealing. In real estate transactions, the preliminary agreement serves a crucial function in ensuring legal certainty prior to the final completion of the transaction.

1. Essential Elements of the Preliminary Agreement

A preliminary agreement must contain all essential elements of the future principal sale agreement, primarily the subject matter and the purchase price.

Particular importance is attributed to the provision stipulating the deadline for concluding the main agreement, which is typically defined as an essential term. This allows for automatic termination of the preliminary agreement in the event of non-compliance with the agreed deadline, without the need for any additional declaration of intent.

2. Deposit and Earnest Money – Legal Regime

The deposit (kapara) is a legal institution expressly regulated by the Obligations Act, serving both as a means of securing performance and as evidence of the conclusion of the agreement. Pursuant to statutory rules, if the party that has provided the deposit fails to perform its obligation, the other party is entitled to retain the deposit. Conversely, if the non-performing party is the recipient of the deposit, it is obliged to return double the amount received.

The deposit may also be agreed as a withdrawal fee (odustatnina), thereby acquiring a dual function:

– securing the performance of the agreement, and

– granting the right of unilateral termination subject to financial consequences.

Such formulation (with explicit reference to Article 307 of the Obligations Act) is of particular legal significance, as it clearly defines the consequences of non-performance: the buyer forfeits the deposit, while the seller must return double the amount received.

3. Key Legal Risks

Despite its widespread use, the preliminary agreement entails certain risks:

(1) Risk of Invalidity due to Lack of Essential Elements

If the preliminary agreement does not contain the essential elements of the principal agreement, it may be legally unenforceable.

(2) Land Registry Risks

The buyer assumes the risk of existing encumbrances if accepted without reservation, which is frequently the case with historical burdens or unresolved ownership issues.

(3) Risk of Deposit as a Withdrawal Fee

Parties are often unaware that a deposit may also constitute a right of withdrawal, which may result in the loss of the transaction with relatively limited financial consequences.

(4) Deadline as an Essential Term

A strictly defined deadline may lead to automatic termination and forfeiture of the deposit without the possibility of subsequent performance.

(5) Risk of Non-Conclusion of the Main Agreement

Although it is possible to seek judicial enforcement for the conclusion of the principal agreement, in practice, deposit-related sanctions are more commonly activated than claims for specific performance.

5. Conclusion

A preliminary real estate sale agreement represents a key legal instrument for structuring a transaction and allocating risks between the contracting parties. Its legal effectiveness depends on the precision of its provisions, particularly with respect to the subject matter, price, deadlines, and the regime governing the deposit.

Agreeing on a deposit as a withdrawal fee further strengthens the legal consequences of non-performance, while simultaneously allowing for a unilateral exit from the contractual relationship.

Therefore, the drafting of a preliminary agreement requires heightened professional diligence, with clear definition of all legal and factual circumstances, in order to prevent disputes and ensure legal certainty for all parties involved.

Zagreb, 20 April 2026