Real estate article series part 9: „Pending status of transaction” or „retention of title” what, when and why?
In real estate sales contracts, it is often the case that the agreed purchase price is not paid in one lump sum but in instalments at a later date(s). A typical example of this is when the buyer wishes to pay the purchase price partly out of his own resources and partly out of a loan from a bank. But why is it advisable or (in some cases) expected to sell with a reservation of title?
In Part 9 of our series of articles on real estate, we will guide you through the maze of so-called „pending” and „reservation of title” types of transactions. Let’s see why they might be necessary and whether there is a legal difference between them other than the name or whether they are the same concept.
What is a deed of permit of transfer of title?
First of all, we need to be clear about the conditions under which a buyer can acquire ownership of the property. This requires two things:
- the conclusion of a contract for the sale of the property, either in a notarial deed or a private deed countersigned by a lawyer
- registration of the transfer of ownership in the Land Register
For an overview of the rules governing the Sale & Puchase agreement, we recommend Part 7 of our series of articles.
If, for example, the buyer pays the purchase price of the property in one lump sum when signing the contract and the seller receives the money immediately, the buyer’s ownership can be registered with the Land Registry within 30 days of the date of the contract. The application for registration is contained in the contract itself: the seller must give his irrevocable and unconditional consent to the cancellation of his title and the registration of the buyer’s title in the Land Register. This consent is called the authorisation for registration of ownership. But there are also cases where the seller deposits the registration authorisation with the deed lawyer in case the full purchase price of the property is not paid until a later date, in order to „maintain” his title until the full purchase price is paid. Once full payment has been made, the registration permit is only submitted, and the buyer becomes the owner of the property. This can be achieved by the pending sale method or by the retention of title method.
Is “Pending status of transaction” or „retention of title” the same or not? When if so and why it is of isn’t?
In the case of a pending registration, the contracting parties (seller and buyer) jointly request the land registry to suspend the buyer’s application for registration of the title until the seller has submitted his/her registration permit (but not later than 6 months), in accordance with the applicable rules. In this case, the buyer’s application for registration of ownership will be submitted to the land registry and the application for registration will be entered on the title deed of the property. In practice, this means that until the seller’s registration permit has been submitted or the 6-month period has expired, the land registry will not consider the application („pending” is the term), so the seller does not have to fear that the buyer will prematurely deprive him of his title to the property. In fact, if a new application for registration of a right of enforcement is received afterwards, e.g. because of possible unpaid debts of the seller, it cannot be processed (settled), as it is preceded in sequence by the application for registration of ownership. If the registration is granted, the buyer can acquire ownership of the property without any burden, since the subsequent application for registration of the right of enforcement will be rejected, as the property will no longer be the property of the seller but of the buyer. If the registration is not submitted within 6 months, the procedure for registration of the title will be terminated ex officio by the Land Registry and the title will be automatically deleted from the land register. It is therefore essential to respect the 6-month period, as a sale and purchase contract concluded earlier cannot be resubmitted and a pending registration cannot be requested (nor can it be extended).
In the case of retention of title, the seller expressly states in the contract that he retains title until full payment of the purchase price and requests the land registry to record this fact in the title deed (also Part III) of the property in favour of the buyer. This is called a deed of sale with retention of title. In this case, there is no legal time limit on how long the registration of the sale can be submitted, it will be encumbered by the property until then. Moreover, in such a case, this also entails a prohibition on alienation and encumbrance, which means that the property cannot be sold or donated to another person, nor can it be subject to a beneficial interest, for example, as long as it is registered. One thing it cannot prevent, however, is the registration of a right of enforcement on the property.
For more information on the title deeds, we recommend Part 1 of our series of articles.
Both methods therefore protects the seller’s interests from the buyer acquiring ownership of the Real Property before the purchase price has been fully paid, but we think it is important to illustrate the basic differences in the table below:
| Pending reservation | Reservation of title | |
| Until when it can be requested ? | Up to 6 months | No time limit |
| Where does it appear? | as a request in the margin of the title deed | as a request in Part III of the title deed as a burden |
| Why is it advantageous? | it guarantees the purchaser’s acquisition of the property free of encumbrances and protects against the registration of enforcement rights and other encumbrances | it can be for an unlimited period and it prohibits the alienation and encumbrance of the property (e.g. protects against the registration of a usufruct or the giving away of the property) |
| Why is it disadvantageous? | automatically cancelled after 6 months | no protection against registration of a right of enforcement |
| When is it appropriate? | full purchase price paid within 6 months | full payment of the purchase price can be made after 6 months |
Whichever contracting structure is chosen, it is essential to seek the advice of a professional, especially if the balance of the purchase price is to be paid from a bank loan (see Part 5 of this article), as each credit institution may impose different specific conditions on whether a reservation of title or a reservation of ownership should be included in the contract of sale of the property.
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If you are considering buying a property, please contact our office and get in touch with us. We will assist you in the complete management of your real estate purchase transaction (from making the purchase offer, through the preparation and submission of the contract, to the registration of the title in the land registry), whether it is a sale or purchase by an individual or a company.
Authors:
dr. Farkas Szabolcs László
dr. Bajcsay Gergely
Please note that the general information provided in this article is for informational purposes only and does not constitute legal advice. We do not assume any liability for any misinterpretation of the above information or for any changes in the law that may have occurred in the meantime. If you have a specific question or legal problem, we are able to provide individual advice after consultation with our office and after a full investigation of the case.
