Judgment of the Supreme Court of 27 May 2022, Case No. 33 Cdo 72/2021

"A future contract on the transfer of real estate does not have to be in writing and may be concluded orally."[1]

Imagine the following situation.

You want to buy real estate. You have entered into a reservation agreement with the seller, under which the seller reserves the property for you. The reservation period ends, but you still need time to arrange a mortgage to finance the purchase price of the property. At the same time, both parties want to formally confirm that the transaction will go through and that it will not fall through at the whim of either party.

This is exactly what a forward contract for the transfer of the property is for.

This is a commonly used institution in real estate and legal practice. It is nothing less or more than a contract by which at least one of the parties (the seller or the buyer, but in practice usually both) undertakes to conclude a contract for the transfer of real estate (i.e. a contract of execution) upon invitation.

Although the provisions of the Act do not imply an obligation to conclude a future contract in a special form, for example in writing, it has not yet been entirely clear among the legal community whether it does not have to be concluded in the same form as the future contract in question.

In the case of the transfer of real estate, the law imposes a written form requirement on the purchase contract (i.e. the implementation contract). The question was therefore whether a future contract for the transfer of immovable property does not have to be in writing.

However, this issue has recently been clarified by the Supreme Court, which in its judgment addressed the validity of an oral contract for the future transfer of immovable property. In its judgment, the court upheld the validity of this oral agreement on a future contract of conveyance, which also surprised a significant part of the professional community.

What specific reasoning did the Supreme Court rely on in its judgment and what implications might the decision have for parties entering into forward contracts? This is what we have set out to try to shed light on (not only) for the lay public.

I.        The Supreme Court's supporting reasoning

The Supreme Court stated that, while it can be understood that a contract for a future contract for the transfer of real estate should be recorded in writing, as this protects the rights of both the seller and the buyer and their legitimate expectation of a future sale-purchase (the will to sell and buy the real estate), it cannot be ignored that the object of such a contract is "only" the obligation to enter into a contract for the transfer of the real estate at an agreed time, which will be the basis for the performance sought by the parties to the preparatory contract.

The Court also based its conclusions on the fact that, under the current legislation, a future contract does not have to contain the essential elements of a future (purchase) contract.

In addition, the Supreme Court argues the constitutional principle that no one may be forced to do what the law does not require, manifested in the fact that the seller and the buyer cannot be forced to conclude a future contract on the transfer of real estate in writing, because the law does not require them to do so.

All of these reasons therefore led the Supreme Court to conclude that an oral contract for a future contract for the transfer of immovable property was valid.

II.      Consequences of the judgment for contracts for future contracts

The newly confirmed acceptability of the oral form of the future contract for the transfer of immovable property is of considerable importance.

In our view, the Supreme Court's reasoning need not and will not apply only to contracts for the transfer of immovable property; on the contrary, it can also be applied to other types of contracts for which the law requires a special form, for example, mortgage agreements on immovable property, trade secret license agreements, etc.

The new law also opens the possibility to seek a court determination of the content of a real estate purchase agreement (and other agreements where a special form is prescribed for the implementation agreement) even without the existence of a future agreement in writing. Even so, the claimant must prove that an oral contract of sale and purchase agreement was actually concluded (and with what content), which can be very complicated and practically impossible without supporting evidence.

We continue to strongly recommend that all significant forward contracts be in writing, notwithstanding that the law does not require it in this case. This is the most reliable way to avoid problems and indeed the need for evidence in court.

Our office is always ready to help you with the preparation of the future contract as well as with the subsequent preparation of the implementation contract itself, so do not hesitate to contact us at any time.

[1] Legal phrase redacted.

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We used a publicly available AI translation tool to translate this article from Czech to English. Please contact us if any of the above information is unclear to you.‍