Reservation Agreement for a New-Build Property: What to Watch For

A reservation agreement secures the unit you have chosen, but it often commits you before you know all the terms of the purchase. Before signing, check the circumstances in which your reservation fee is returned, how long the reservation lasts and exactly what is included in the price. Have any unclear provisions reviewed by a lawyer.

What a reservation agreement is for

For a new-build property, the reservation agreement is usually concluded before the agreement on a future purchase agreement or before the purchase agreement itself. The developer sets aside a specific flat, house or parking space for you for an agreed period and does not offer it to other prospective buyers. In return, you usually undertake to pay a reservation fee and to negotiate the further agreements within the agreed time limit.

It is a legally binding document. It is not merely a formal confirmation of interest, so do not sign it under pressure such as "tomorrow the flat will already be sold". You can find the general purchasing process in our guide to buying a new-build property.

The reservation fee: when it is returned and when it is forfeited

The most important part of the agreement concerns money. Watch for the following points:

• Purpose of the payment. Does the agreement state explicitly whether it is a deposit that is credited towards the purchase price, or a non-refundable fee for simply holding the unit?
• Grounds for a refund. Is the payment returned if your bank does not approve your mortgage, if the price changes or if the developer fails to provide the promised documents?
• Grounds for forfeiture. The agreement should state clearly when the money is forfeited. Ask for an explanation of vague wording such as "in the event of failure to cooperate".
• Refund deadline. It should be specific, not "without undue delay".
• Where the payment goes. Find out whether the money is held by the developer or managed in escrow by a lawyer or notary. Escrow is usually safer for the buyer.

Validity of the reservation and follow-on deadlines

A reservation is limited in time. Check by when the agreement on a future purchase agreement or the purchase agreement must be signed, and whether that deadline is realistic. If you are financing the purchase with a mortgage, bear in mind that approval, the property valuation and the preparation of documents all take time. You can get an indicative idea of repayments and the required own contribution in the calculator, but a mortgage specialist can tell you the exact terms.

Also find out what happens if the reservation is extended. Many agreements allow the reservation to be extended only once or for an additional fee. The agreement should also describe the situation where the delay is caused by the developer, for example by late delivery of the draft agreement.

What exactly you are reserving and at what price

The unit must be identifiable in the agreement so that no doubts arise. Check:

• the designation of the flat or house, the floor, the layout and the floor area, ideally with a reference to an attached plan,
• ancillary areas, that is, the cellar, balcony, terrace, garden, parking space or garage, and whether they are included in the price,
• the price, whether it is stated including or excluding tax, and when it may change,
• the standard of finish, for example floors, doors, and bathroom and kitchen fittings.

If the price may change after the reservation, find out under what conditions. It is best if it is fixed for the duration of the reservation. Changes to the layout or floor area when construction is completed are dealt with later in the purchase agreement, but it is worth seeing now how the developer allows for them. As for third-party documents, check that the attached design documentation matches what you were shown.

Buyer's obligations and penalties

A reservation agreement sometimes contains provisions that could catch you out later. Pay particular attention to the following points:

• Contractual penalties. If the agreement sets a penalty for withdrawal or for not signing a further agreement, have its proportionality assessed.
• Obligation to conclude a purchase agreement. There is a difference between an obligation to negotiate and an obligation to buy. The text must make clear exactly what you are signing.
• Content of the future purchase agreement. Ask whether the developer will give you a draft of it, or at least a template, before you sign the reservation.
• References to general terms and conditions. If the agreement refers to a separate document, request it and read it in full.

What to check about the developer and the project

Before signing, it is worth finding out who the other party is and what stage the construction has reached. Check that the contracting party is the company that is actually building the project and that it has a building permit. Information on completed and planned projects can be found in the overview of developers, and offers of flats and houses in the project catalogue. If you are searching in a particular area, the overview of locations will help.

Ask also how your payment will be secured in the later stages of the purchase, for example through escrow, and whether the land is encumbered by a bank's lien. These matters belong more in the purchase agreement, but the developer's response to your questions will show how transparently they operate. Not sure which projects match your requirements? You can use the housing enquiry.

Practical steps before signing

1. Request the draft agreement in advance, not only at the signing.
2. Read the whole text, including the annexes, and note anything unclear.
3. Have the agreement reviewed by a lawyer who specialises in property.
4. Consult a mortgage specialist on whether the deadlines match the loan approval process.
5. Request in writing every change that you agreed verbally.
6. Keep a copy of the signed agreement and proof of payment of the fee.

Frequently asked questions

Can I withdraw from a reservation agreement?

It depends on what is agreed in the contract and on the circumstances. Some agreements allow withdrawal without penalty, while others link it to forfeiture of the fee. Check the withdrawal conditions before signing and discuss any doubts with a lawyer.

Will I get the fee back if the bank does not approve my mortgage?

Not automatically. A refund must follow from the agreement, so ask about this case explicitly and have it put in writing. Also find out how you must prove that the mortgage was not approved.

Is a reservation the same as a purchase?

No. A reservation only secures the unit for a certain period. You become the owner only on the basis of a purchase agreement and registration in the land register. That is precisely why it is important that the reservation agreement does not contain terms that later weaken your position when negotiating the purchase agreement.