23.05.2018

The Polish law considerations: advance amount versus earnest money. Recovery of an amount by the purchaser

This article is to discuss legal issues that may arise under Polish civil law in connection with the conclusion of a preliminary sale agreement and payment by the purchaser prior to execution of the final sale agreement of the amount which may be classified, depending on the parties’ decision, either as an earnest money (in Polish: zadatek) or as an advance amount (in Polish: zaliczka).

Let’s take an example of the actual status. Preliminary agreement has been concluded by the seller and the purchaser. Upon execution of the preliminary agreement or shortly afterwards but in any event prior to execution of the final sale agreement which shall be executed in performance of the preliminary agreement, the purchaser has paid to the seller an earnest money in the meaning of the Polish Civil Code or an advance payment, which does not constitute an earnest money in the above meaning and it is not governed by the Civil Code. Now, the purchaser wishes to withdraw from the preliminary agreement and to recover the amount, which he had paid to the seller as the advance amount or the earnest money, since the seller has not satisfied the conditions precedent stipulated in the preliminary agreement or the purchaser does not wish to conclude the final sale agreement due to other reasons provided in the preliminary agreement such as, for example, key findings of the purchaser in the course of due diligence process reveal defects of the acquired asset or other issues which are deal breakers from the purchaser’s perspective. Or, the purchaser wishes to recover the amount which he had paid to the seller as the advance amount or the earnest money, because the preliminary agreement has been terminated by the parties or conditions precedent stipulated in the preliminary agreement have not been fulfilled but neither of the parties may be held responsible for such non-fulfillment of the conditions precedent.

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Author: Katarzyna Kostoń, attorney-at-law at GSW Legal Grabarek, Szalc i Wspólnicy Sp.k. (Warsaw, Poland)

(GRATA International)