LAWYER EXPLAINS: what is a booking agreement
Booking agreements often create confusion for people, and their content can be unclear. The Estonian Law of Obligations is partly responsible for this, as it regulates all kinds of contracts but says nothing about booking agreements. Because of this, it is assumed based on the name of the booking agreement that it is related to a sales transaction and that booking obligates the parties to conclude a real estate purchase and sale transaction. In reality, this is not the case according to the law.
A booking agreement is often a simple written contract, signed by hand or digitally, which temporarily halts the marketing of a real estate property for an agreed period. Although the law does not prescribe a mandatory form for booking agreements, oral booking agreements are also not excluded.
Neither in an oral nor in a simple written contract is it legally possible to agree on an obligation to conclude a real estate sales transaction in the future, because the Law of Property provides that a notarially certified transaction form is required for the acquisition or alienation of real property.
Booking is temporary suspension of sale
The booking agreement has been addressed by the Supreme Court, according to whose guidelines it is possible in such a contract to agree that the owner will not sell the property to third parties for a certain period of time in exchange for a booking fee, thus essentially giving a potential buyer additional time to arrange the circumstances necessary for the sales transaction (for example, bank financing).
It must be taken into account that if the agreed booking period has ended and the transaction has not taken place, the booking fee belongs to the owner, because he suspended the sale (this is not simply a halt to marketing), the permissibility of which has also been confirmed by the Supreme Court. However, if the sales transaction does take place, market practice is that the booking fee is credited against the sale price.
Uus Maa uses contracts corresponding to the above Supreme Court guidelines at the client's request. The booking agreements drawn up by us have been tested in court with the help of the Uus Maa legal team, and the court has not found their content to be void thus far.
A real estate agency is a deposit holder
From time to time, potential buyers wonder whether some part of the booking fee paid to the real estate agency also goes to the company itself. A real estate agency is, at least according to Uus Maa's booking agreement (as booking agreements from different agencies may differ), merely a deposit holder and generally receives no fee for this. The real estate agency's task is to transfer the booking fee to the party entitled to it, taking into account what has been agreed upon in the contract.
As a deposit holder, we assume that the contract has not been breached unless this is obvious or has been confirmed by a court. Therefore, the real estate agency generally transfers the booking fee at the end of the booking period to the owner specified in the contract, i.e., the seller of the property.
A preliminary contract is more secure
In most cases, a simple written booking agreement is used, as it is easier, cheaper, and faster to conclude than a notarially certified preliminary contract.
While a preliminary contract can include an obligation for the acquisition or alienation of real property and also stipulate penalties for breach, a booking agreement cannot. Although a booking agreement does not provide complete certainty that the sales transaction will take place later, in practice, in most cases, a sales transaction does follow the booking.
Thus, market practice has created the need for booking agreements. I would still recommend that, whenever possible, you immediately conclude a notarially certified contract (either a preliminary contract or a principal contract of obligation) to achieve legal certainty regarding the transaction.
Article author: Karlis Kolk, Legal Advisor at Uus Maa Real Estate Agency
