Understanding Different Types of Sales Contracts

Posted on Nov 9, 2024 in Law & Jurisprudence

Property Sales Contracts

Concept of Real Estate

A property sales contract is a document where one person agrees to transfer property ownership to another in exchange for an agreed price. Real estate is classified as:

  • By nature (e.g., land)
  • By incorporating a building
  • By destination (e.g., a statue)

Real estate can be the subject of a sales contract.

Elements of a Building Sales Contract

  • Vendor: The individual or legal entity transferring the property.
  • Purchaser: The individual or legal entity receiving the property in exchange for payment.
  • Ownership Registration: Verifies the document’s legality and registers the property under the buyer’s name.
  • Notary: Oversees the signing of the deed of sale.
  • Administrative Manager (Optional): A professional who can handle the sales process.

Costs Associated with Building Sales

New Buildings

  • VAT (Value Added Tax): Paid by the buyer to the seller.
  • IAJD (Tax on Documented Legal Acts): Levied on legal documents.
  • Notary Fees: Paid by the seller for the original and subsequent copies of the deed.
  • Registration Fees: Based on the property’s value.
  • Plusvalia (Municipal Tax): Based on the increase in urban land value.

Second-Hand Buildings

Costs are similar to new buildings, but VAT is replaced by ITP (Transfer Tax), paid by the buyer. The deed is signed before a notary and the building is registered under the Property Regime.

Hire Purchase Agreements

Concept

A hire purchase agreement involves one party delivering tangible movable property to another for a price paid in installments. Key aspects include:

  • Deferred payment for more than three months.
  • Amount exceeding a regulatory minimum.
  • Applies to tangible, non-consumable assets identifiable by brand, serial number, or manufacturing.

Exclusions

  • Resale of purchased goods and related financing.
  • Occasional sales and loans without profit.
  • Sales and loans secured by mortgages or pledges without displacement.
  • Installment sales or loans under a certain value (e.g., €1800), unless parties agree otherwise.

Form and Content

Formalized in writing with copies for all parties, including:

  • Date and place of agreement.
  • Identification of the parties.
  • Goods description.
  • Cash sale price.
  • Payment amount and method.
  • Number and frequency of payments.
  • Nominal interest rate.
  • Annual Percentage Rate (APR).
  • Breakdown of total credit cost and APR calculation.
  • Transferability of seller’s rights (if agreed).
  • Prohibition of transfer without seller’s written authorization until full payment.
  • Notification and payment addresses.
  • Asset valuation for potential auction.

Buyer’s Rights

  • Adequate information.
  • Return the property within seven working days if unused.
  • Make early full or partial payments (without penalty).

Seller’s Rights

  • Terminate the contract for buyer default and demand compensation.
  • Take legal action if the agreement is formalized in writing, published, or registered.

Supply Contracts

Concept

A supplier agrees to deliver specific goods or services continuously in exchange for a periodic price (e.g., raw materials, electricity, water).

Types of Supply Contracts

  • Public Supply Contracts: Written agreements between a vendor and a contracting authority for purchases.
  • Private Supply Contracts: Written agreements between private parties for the supply of goods or services.

Content

Formalized in writing, specifying the product price, supply period, and payment method.

Leasing Agreements

Concept

A financial contract with a purchase option exercisable at the end of the lease term. Applies to both movable and immovable property.

Advantages

  • Asset acquisition without large investments.
  • Increased liquidity.
  • Frequent asset renewal without obsolescence risk.
  • Tax-deductible lease payments.

Disadvantages

  • Potential legal issues.
  • Difficult to cancel early.
  • Tenant responsible for expenses beyond the initial investment.

Purchase Options at Lease End

  • Exercise the purchase option by paying the residual value.
  • Return the asset.
  • Renew the lease.

Parties Involved

  • Property seller.
  • Leasing company (financier).
  • Lessee (tenant with purchase option).

Types of Leasing

  • Financial Leasing: Irrevocable contract with obligation to pay even if the asset is returned.
  • Operating Leasing: Revocable contract with the option to return the asset and stop payments.
  • Leaseback: Selling an asset and leasing it back with a repurchase option.

Leasing and Taxation

Taxes are calculated based on company profits, so understanding the tax treatment of leasing is crucial.

Renting

Similar to leasing but without a purchase option.

Franchise Agreements

Concept

A contract where the franchisor supplies goods, services, trademarks, etc., to the franchisee, who pays for the right to operate under the franchisor’s conditions.

Parties Involved

  • Franchisor: Grants the franchise rights.
  • Franchisee: Operates the business under the franchise.
  • Trademark/Logo: Distinguishes the franchise.
  • Know-How: Transferred from franchisor to franchisee.

Classifications

  • Distribution Franchise: Franchisor manufactures products, franchisee markets them.
  • Manufacturing Franchise: Franchisor shares formulas and processes with the franchisee.
  • Service Franchise: Franchisor provides service procedures.

Form and Content

A pre-contract is often used before the final agreement. The preliminary contract should include:

  • Franchisor identification.
  • Accreditation details.
  • Business activity description.
  • Franchisor’s experience.
  • Network structure.
  • Rights and obligations.
  • Contract duration.
  • Termination and renewal conditions.

The final contract should include:

  • Type of franchise.
  • Areas of operation.
  • Duration.
  • Franchisor-franchisee relationship.
  • Product sourcing, pricing limits.
  • Merchandising proposals.
  • Personnel training.
  • Management support.
  • Advertising support.
  • Non-compete clause (optional).

Obligations

Franchisor’s Obligations

  • Grant use of distinctive signs.
  • Provide technical assistance.
  • Control franchisee’s quality.
  • Train franchisee and staff.
  • Supply products.
  • Allow franchisee to sell stock upon dissolution.
  • Respect exclusivity clauses.

Franchisee’s Obligations

  • Maintain confidentiality.
  • Meet agreed-upon conditions.

Termination Causes

  • Breach of contract.
  • Mutual agreement.
  • Death, disability, or bankruptcy of a party.