Option Agreement or Promise to Sell?

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By Roxana NEACŞU, Senior Associate, GRUIA DUFAUT LAW OFFICE

 

Are you planning to conclude a sale and make sure that your partner does not change his mind until the date scheduled for the sale to take place? According to Romanian law, for this purpose, you can choose between two legal instruments: the unilateral or bilateral promise to sell and the option agreement. However, in each specific case, one must determine which of the two options is more suitable.

 

Unilateral or Bilateral Promise to Sell

 

Under a promise to sell, the promisor-seller and the promisor-buyer (under a bilateral promise) or only one of them (under a unilateral promise) undertake to conclude the sale contract, at a later date, under certain conditions specified in the promise (price, deadlines etc.). By the conclusion of a promise, the parties undertake to give their consent for the sale, on a specified later date.

Attention! The promise must contain all the clauses of the future sale contract, enabling the promise to be carried out. Thereafter, on the date scheduled for the conclusion of the sale contract, the parties will have to re-express their consent for the sale and meet to conclude the contract. Please note that the promise can be concluded in the form of a private deed, even if, in accordance with the law, the promised contract must subsequently be concluded in authentic form (before the notary public).

Should one of the parties fail to comply with the promise, the other party may either obtain damages or ask the Court to render a ruling having the force of a sale contract.

 

Option Agreement

 

The option agreement implies the undertaking of one of the parties – called the offeror – to sell the asset in question to the other party – the beneficiary – and to remain bound by this declaration of will and not to dispose of it (sell, create collateral) for a specified period. During this period, the beneficiary may accept or reject the offeror’s offer. Thus, unlike the promise to sell, by the conclusion of an option agreement, the offeror already gives his consent for the sale and the sale contract is validly concluded by the mere formulation of the option by the beneficiary.

Like the promise to sell, the option agreement must contain all the elements of the future sale contract, so that this contract can be concluded by the simple acceptance of the offer by the beneficiary. It should be noted, however, that the agreement and the beneficiary’s statement of acceptance must be concluded in the form required by the law for the contract the parties intend to conclude (e.g. for sales of buildings, the form required by the law is the authentic form).

In the event that the beneficiary expresses his option, but the offeror disputes the valid conclusion of the sale contract, the beneficiary may ask the court to rule that the sale contract was duly concluded by the exercise of the option. If the offeror sells the property in question to a person other than the beneficiary during the period of validity of the option agreement, the offeror may incur civil liability and the beneficiary may obtain damages.

 

Main Similarities and Differences; Advantages and Disadvantages

 

In fact, the option agreement is a kind of unilateral promise to sell. The essential difference between the two remains in the fact that, while any promise involves the reiteration of the parties’ consent at the conclusion of the sale contract, the option agreement operates automatically after the option has been exercised and does not involve any reiteration of the offeror’s consent for the valid conclusion of the sale contract.

If the option agreement or promise concerns the sale of immovable property, they must be registered in the Land Register for enforceability against third parties.

The option agreement is the most appropriate if offeror has a great interest in selling the property to the beneficiary, whereas the beneficiary is not necessarily decided to buy the property and wishes to have more contractual freedom. Of course, from this perspective, the option agreement is rather beneficial to the beneficiary. It goes the same with unilateral promises to buy or sell. However, if both parties are equally interested in concluding the sale and wish to reassure themselves that their partner does not change his mind, the bilateral promise to sell is the most suitable.

In conclusion, in our opinion, it is much more desirable to conclude option agreements as beneficiaries, because in this case your partner already agrees with the sale. However, your partner has to be sufficiently interested in the sale to accept the conclusion of such an agreement.