The Purchase Offer – Pitfalls and Traps, Part II

Part I of this series dealt with what is perhaps the single most important insight: a purchase offer is not a non-binding piece of paper, but a legally binding declaration. Whoever signs is committed – and as soon as the seller accepts, the purchase contract has in essence already come into existence. "I have changed my mind" is no longer enough at that stage.

But the binding effect is only the first hurdle. In daily practice we see that the real financial damage does not arise from the binding effect itself, but from what is written in the small print – or from what is missing there. This second part is devoted to exactly those pitfalls and traps.

Many purchase offers are made on pre-printed forms provided by the estate agency. Understandably, these forms are not designed to protect the buyer's interests – they primarily serve to conclude the transaction quickly. Frequently they contain little more than a brief description of the property and the price.

The real problem: a good purchase offer should contain all essential principal and ancillary terms of the later contract – handover date, condition of the property, inventory included in the sale, liability, and release from encumbrances. Where these are missing, disputes arise later, or statutory default rules apply that are not necessarily in the buyer's interest.

Agents' purchase offers not infrequently contain clauses that favour the seller one-sidedly. Two of them are particularly delicate:

• Exclusion of warranty: where warranty is excluded, the buyer bears the risk of hidden defects – including defects that only emerge after handover.
• Exclusion of laesio enormis (shortfall of more than half): normally a contract can be challenged where the value of the performance is less than half the value of the consideration. Where this protection is contracted away, the buyer loses an important corrective.

Once signed, it is usually too late to correct. That is precisely why every offer belongs under review before signature.

In our experience, this is the most expensive trap of them all. Anyone who signs a purchase offer without a financing condition and then fails to obtain a credit commitment from the bank remains legally bound – and in the worst case owes damages as well as the full agent's commission, even though the property could never be acquired.

From practice: the Austrian Supreme Court has made clear that failed financing is not in itself a ground for release from the contract or from the commission – unless an express financing condition was agreed. "The bank will not finance it after all" is entirely understandable in human terms, but without a corresponding clause it has no legal effect.

An effective financing condition must be clearly worded, specific in content, and limited in time. A vague indication is not enough.

An increasingly common and particularly buyer-friendly reservation is the legal review reservation. Here the buyer expressly reserves the right to have the purchase offer reviewed by an attorney within a short period – typically seven to fourteen days – and may withdraw if that review is negative.

The advantage is obvious: the threshold for withdrawal is comparatively low. The buyer need only show that a legal review took place and that the notice of withdrawal was given in time. The content of the legal assessment generally does not have to be disclosed.

Anyone who submits a purchase offer without first inspecting a current land register extract risks unpleasant surprises. The register may contain encumbrances that significantly limit the value and usability of the property:

• Mortgages and charges – for example outstanding loans of previous owners
• Easements (servitudes) – rights of way, utility lines, or third-party rights of residence
• Prohibitions on encumbrance and sale – which can block a sale or a charge
• Pre-emption rights – securing a third party's priority in acquiring the property

Such encumbrances can often be cleared – but only if you know about them before you commit.

There is a statutory right of withdrawal that many buyers are unaware of: § 30a of the Austrian Consumer Protection Act, the so-called protection against being taken by surprise. It applies, however, only under narrowly defined conditions, all of which must be met together:

• the buyer is a consumer (not acting in a business capacity),
• the purchase offer was made on the same day as the first viewing, and
• the property is intended to serve as the principal residence of the buyer or a close relative.

Where these conditions are met, the buyer may withdraw within one week. Importantly, the period only begins to run once the buyer has received a copy of the offer and has been informed in writing of the right of withdrawal. Where that information is not given, the period is extended – to no more than one month from the first viewing.

In reality, however, an offer is often signed a few days after the viewing. In that case this right of withdrawal does not exist at all. It is therefore not something to rely on.