Irrevocable promise to pay: what you should know

Buying a property is an important milestone. The first step is to make a successful offer. But what happens next? The procedure is explained step by step below.

Purchase, down payment and preliminary contract

The law stipulates that the transfer of ownership must be authenticated by notary. For their mutual protection, both contractual parties often agree on a reservation contract in advance (also called a “purchase commitment”). This can be very brief and consist of the following:

• the designation of the property
• the agreed purchase price
• the allocation of land registry costs
• the date of transfer of ownership and the amount of any down payment – including a provision in case the buyer or seller withdraws from the contract

Notary and purchase contract

Notaries’ offices are organized differently depending on the canton. In some cantons, notaries are freelancers, in others they are employed by the state.
The notary usually draws up the draft purchase contract. Both the buyer and the seller should study the documents thoroughly and have the chance to ask questions or request changes if necessary. The notary is available to both parties to the contract to provide neutral advice.

Depending on the transaction, the individual contractual provisions vary. They usually include:

• name of the buyer and seller
• detailed description of the land or property
• purchase price repayment (agreed purchase price and planned payment procedure)
• date of transfer of ownership
• liability for defects
• allocation of real estate transfer and notary’s fees

It is important to avoid drawing up and signing the contract under time pressure. And remember: the content of the contract is always authoritative. Any prospectuses, sales documents or oral discussions are irrelevant from a legal perspective.

The fees for the notary’s office and the land registry differ from canton to canton and are based on the tariff in force in the relevant canton. Often the buyer and seller share the costs, in some cantons they are borne by the buyer alone.

Authentication by notary

The authentication also takes place at the notary’s office. This is a very formal act. Depending on the canton and notary, the wording of the contract is read out and discussed again, one point at a time. You will be given another opportunity to ask technical questions. However, the formalities must have already been clarified and any negotiations on the content be settled by this point.

• As a buyer, you should, for example, have thoroughly checked whether certain details concerning the property in question, i.e. easements and encumbrances such as rights of way in favor of neighbors, have been entered in the land register. This information can be essential for the future use and development of the plot of land.
• You must have submitted binding proof that the purchase price can actually be financed. This may be an irrevocable promise to pay from your mortgage lender. In some cases, a binding verification of a financing application from the mortgage lender is also sufficient.

If all the documents are complete, the purchase contract is signed by both parties and by the notary.

Transfer of ownership

Transfer of ownership is when the property passes from the hands of the seller into those of the buyer. At this point, the mortgage notes required to secure financing must have been issued and be available.

Legally speaking, the transfer of ownership and the authentication of the purchase contract are two different processes. Depending on the procedure, the property may change hands immediately after authentication by the notary. However, there may also be a considerable delay between the authentication of the purchase contract and the actual transfer of ownership. This can lead to problems, which is why it should be stipulated in the purchase contract exactly when the transfer and authentication should take place. If possible, the sale should be organized so that both events occur simultaneously.

Payment of the mortgage

For the bank to pay out the mortgage, several conditions must be met:

• The client must have chosen a suitable mortgage and signed the mortgage contract with the bank.
• The client must have paid in the equity capital, which represents their share of the purchase price, usually 20 percent of the total amount.
• All the collateral required for the loan must have been provided: mortgage notes, any additional collateral, pledges, etc.
• The purchase contract must have been authenticated by notary.