Preparation of a preliminary contract for buying real estate in Bulgaria

The purchase of real estate in Bulgaria, especially when financed through a mortgage loan, almost always passes through a crucial legal stage – the drafting and signing of a preliminary sale and purchase contract. This agreement, often informally referred to as a “deposit contract”, lays the legal foundation for the future transfer of ownership and carries significant legal weight.

Pursuant to Article 19, para. 1 of the Obligations and Contracts Act (OCA), a preliminary contract obliges the parties to conclude a final contract under the agreed terms. In practical terms, this means that if the seller later refuses to complete the transaction, the buyer may compel performance through court proceedings, provided that the buyer has fulfilled their own contractual obligations.

The real challenge, however, is rarely whether a preliminary contract will be signed, but how it is drafted – whether it contains all essential clauses, documents, safeguards, and mechanisms for protection. This is precisely why the involvement of a lawyer specialised in real estate transactions is not merely advisable, but essential ⚖️.

BSLC provides comprehensive legal assistance throughout this process, including:

• verification of ownership and encumbrances,
• drafting a legally secure preliminary contract,
• structuring deposit (earnest money) clauses,
• aligning the contract with mortgage requirements,
• ensuring compliance with bank-specific conditions.

When the transaction involves mortgage financing, the preliminary contract requires heightened legal precision, as a third party enters the legal relationship – the bank 🏦. For loan approval, banks require the contract to include specific elements, such as price, deadlines, explicit declarations of ownership, and notarised signatures. These notarised signatures are mandatory if the contract is to be entered in the Property Register under Article 113 of the Ownership Act.

Registration plays a decisive protective role – it prevents fraudulent backdating, resale to third parties, or attempts to circumvent the buyer’s rights by selling the property at a higher price to another party.

In the following sections, we examine in detail:

• how a preliminary contract should be structured,
• when and how deposits are legally effective,
• what documents are required,
• common and costly mistakes,
• and why legal representation is critical.

All of this serves one purpose – security and predictability in one of the most important decisions a person makes: purchasing real estate 🏠.

What is a preliminary sale contract and when is it required?

Under Article 19, para. 1 OCA, a preliminary contract is an agreement by which the parties undertake to conclude a final contract in the future under agreed conditions. In real estate transactions, this means that the buyer and seller expressly agree that once certain conditions are met – most commonly mortgage approval or completion of documentation – they will proceed to notarise the transaction.

It is crucial to understand that a preliminary contract does not transfer ownership. This follows directly from Article 18 OCA, which requires a notarised deed for the transfer of ownership over immovable property. The preliminary contract has an obligatory (contractual) character only – it creates an obligation to act in the future.

Its practical importance lies in the fact that it can be enforced in court. If one party refuses to sign the final notarial deed, the other party may bring a claim under Article 19, para. 3 OCA, requesting the court to declare the final contract concluded. The court decision then has the legal force of a notarial deed.

Why is this so important ❓
In practice, the preliminary contract secures the seriousness of the parties’ intentions, fixes the parameters of the future transaction, and allows the buyer to protect their right to acquire the property. Buyers often sign such contracts before mortgage approval, while sellers use them while resolving ownership issues or administrative matters (e.g. removal of encumbrances, obtaining certificates of tolerance).

A particularly sensitive element is the deposit, which frequently accompanies the preliminary contract. Unless otherwise agreed, the deposit functions as earnest money within the meaning of Article 93, para. 1 OCA, serving both a security and sanctioning function.

💡 Example:
If you pay BGN 10,000 as a deposit and the seller unjustifiably refuses to complete the transaction, you are entitled to receive BGN 20,000 in return.

Mandatory content of a preliminary real estate contract

According to Article 19, para. 2 OCA, the preliminary contract must contain all essential elements of the final sale contract. This requirement is critical, because only a properly drafted preliminary contract may be replaced by a court judgment under Article 19, para. 3 OCA.

In practice, the contract must include at least the following:

• 🔸 Identification of the parties – full names, personal numbers or company identifiers, addresses, and legal capacity. If the seller is a legal entity, up-to-date registry documents must be attached.
• 🔸 Precise individualisation of the property – cadastral identifier, address, area, floor, adjoining parts, ideal shares, and building rights. This is mandatory because notarisation requires an identical cadastral identifier under the Cadastre and Property Register Act.
• 🔸 Price and payment method – total price, payment method (cash or bank transfer), instalments, deposit, deadlines, and penalties for delay.
• 🔸 Deadline for final contract – a clearly fixed date is essential, as it triggers the right to bring a claim under Article 19, para. 3 OCA.
• 🔸 Encumbrances and legal status – seller’s declaration that the property is free of mortgages, liens, or third-party claims, or specification of how existing encumbrances will be cleared.
• 🔸 Registration clause – express agreement for registration in the Property Register under Article 113 OA.
• 🔸 Costs allocation – who bears notarial and registration fees.

Without these elements, the contract loses enforceability and cannot be judicially replaced. For this reason, BSLC prepares preliminary contracts using established legal templates adapted to real-life risk scenarios, not generic forms.

Registration of the preliminary contract and its protective effect

A preliminary contract may be registered in the Property Register under Article 113 of the Ownership Act, provided that the signatures and content are notarised. Although not mandatory, registration has decisive protective value.

It renders the contract opposable to third parties, preventing the seller from:

• reselling the property to another buyer,
• manipulating contract dates,
• evading obligations by creating fictitious earlier contracts.

📜 Important in practice:
If you agree to purchase a property for BGN 100,000 and pay BGN 20,000 as a deposit, an unregistered contract allows the seller to refund double the deposit and sell to another buyer at a higher price. Registration makes this legally impossible – subsequent buyers are bound by your registered rights.

Registration provides a reliable date and real legal protection against fraud and bad faith conduct.

Cost and preparation of a preliminary contract

The price for drafting a preliminary real estate contract is not regulated by law. Under Article 36 of the Bar Act, attorney fees are freely agreed, considering complexity, workload, and responsibility. In practice, fees range between BGN 250–500 for standard transactions, with higher fees for complex cases involving inheritance, co-ownership, or mortgages.

While contracts may be drafted by brokers, notaries, or parties themselves, only a lawyer:

• has legal authority under the Bar Act,
• conducts full legal due diligence,
• bears professional liability for the legal outcome.

⚠️ Notaries authenticate acts but do not protect client interests, nor are they able to verify the rights of the seller in full! It is very common in property fraud cases in Bulgaria of foreigners trusting the notary more than an attorney and bearing losses upwards of 300 000 $. Brokers have no licensing or legal responsibility. Entrusting a EUR 300,000 transaction to an unregulated intermediary is a serious risk.

Deposits in preliminary contracts and associated risks

In practice, preliminary contracts often include a deposit clause – a sound approach when drafted correctly. When the deposit qualifies as earnest money under Article 93 OCA, it serves as proof of the contract and predetermined compensation.

However, risk arises when the deposit is not expressly defined as earnest money. In such cases, it is treated as partial payment without sanctions, leaving the buyer unprotected.

Even riskier is the practice of paying deposits through informal “reservation agreements” or receipts issued by brokers. These documents often lack enforceable clauses and lead to disputes and litigation.

🛡️ BSLC recommendation:
If a deposit is agreed, it must be included in a properly drafted preliminary contract, explicitly defined as earnest money under Article 93 OCA, with clear sanctions, deadlines, registration, and full identification of parties and property.

Only then is your investment truly protected.

Documents required for signing a preliminary real estate contract

According to established practice under Article 19, para. 1 of the Obligations and Contracts Act (OCA), a preliminary contract must contain all essential elements of the final sale contract. For this reason, the parties must have at their disposal a complete set of documents proving the legal status of the property, the parties, and the agreed price. Without these documents, valid consent cannot be formed, and the contract is exposed to risks of nullity or voidability.

📌 In practical terms, the following documents are typically required for concluding a preliminary contract for the sale of real estate:

• Title of ownership – a notarial deed, privatisation contract, court decision, or another document evidencing the seller’s ownership rights.
• Cadastral sketch or scheme – issued by the Geodesy, Cartography and Cadastre Agency; for land plots a sketch, and for buildings or units in buildings a cadastral scheme.
• Certificate of encumbrances – issued by the Registry Agency, showing whether mortgages, attachments, or other real rights are registered over the property (Article 2 of the Registration Rules).
• Certificate of heirs – when the property is inherited, to verify the seller’s legal standing.
• Marital status documentation – declaration or certificate indicating whether the seller is married and whether the property falls under matrimonial community property, which is crucial for the validity of legal acts.
• Permit for use or certificate of tolerance – for newly built properties or buildings with unclear construction status.
• Certificate of paid taxes – issued by the municipality, confirming the absence of outstanding public liabilities under Article 264, para. 1 of the Tax and Social Security Procedure Code, especially relevant if notarisation is imminent.
• Power of attorney – if a party acts through a representative, with mandatory notarisation.
• Banking and financial information – when payment is made via bank transfer or mortgage financing.

Without gathering these documents, no real legal due diligence can be performed by a lawyer, and each omitted verification significantly increases the risk of entering into a preliminary contract containing invalid, unenforceable, or dispute-prone clauses.

👁️ BSLC reminder: even when purchasing a small apartment, signing a preliminary contract without prior legal due diligence may result not only in loss of the deposit, but also in involvement in lengthy court proceedings.

Preliminary contract when purchasing with a mortgage – specific risks and protection

When a purchase is financed through a mortgage loan, the preliminary contract must explicitly provide that the final contract will be concluded only upon bank approval and loan disbursement. This clause is essential to protect the buyer from liability if financing is refused.

A particular risk arises when the property is already encumbered by a registered mortgage – voluntary or statutory. In such cases, the buyer must be clearly informed and must expressly accept whether they will acquire a mortgaged property, unless prior repayment or deletion of the mortgage is agreed.

Under Article 179 OCA, a mortgaged property serves as security for the debt even after ownership is transferred. Therefore, contractual safeguards are indispensable.

To protect their interests, the buyer should:

• require an up-to-date certificate of encumbrances to identify existing mortgages, attachments, or pending claims;
• include a termination clause allowing withdrawal if the loan is not approved or the mortgage is not deleted within a fixed deadline;
• agree on a payment mechanism compliant with bank requirements, such as payment via special accounts, bank approval of the preliminary contract, and clauses for establishing a mortgage in favour of the bank upon notarisation;
• avoid paying a deposit or earnest money without clear guarantees regarding financing or mortgage deletion.

In mortgage-financed transactions, banks typically require the preliminary contract to be notarised and registered, ensuring opposability under Article 113 of the Ownership Act. This is a critical safeguard for the buyer, preventing last-minute substitution with a “better-funded” buyer.

In short, purchasing real estate with a mortgage is entirely feasible, but requires strict legal structuring and proactive legal involvement. This is precisely how BSLC protects its clients – through clear legal strategy, detailed investigation, and a transaction-specific approach 🛡️.

“Why pay a lawyer in Bulgaria when I can use a template?”

The belief that a preliminary contract can be safely handled using an online template is understandable from a cost-saving perspective, but in practice it often proves far more expensive. The preliminary contract is not a mere formality – it is a foundational legal instrument creating binding obligations and serious consequences in case of non-performance.

Under Article 19, para. 1 OCA, a preliminary contract binds the parties to conclude a final contract once agreement on essential terms exists. This requires not only listing the price and property description, but also precise legal drafting of deadlines, deposit or earnest money clauses, termination mechanisms, and the right to bring a claim under Article 19, para. 3 OCA.

Template contracts do not account for:

• the specific legal condition of the property – encumbrances, co-ownership, matrimonial regime;
• risks involving third parties – spouses, heirs, co-owners whose consent is required;
• individual payment arrangements, financing methods, or sanctions for delay;
• registration for opposability under Article 113 OA, which is impossible without notarisation and compliant content.

📌 Practical example:
A buyer signs a template preliminary contract without the seller’s spouse being a party. Later, it turns out the property is matrimonial community property. The spouse refuses to sign the final deed. The preliminary contract becomes relatively ineffective, as consent was missing from both spouses, and the buyer cannot acquire the property.

Without a competent lawyer, buyers also miss opportunities to:

• register the contract;
• impose protective measures in rare cases;
• structure termination and refund mechanisms;
• secure protection in case of loan refusal.

🧠 The truth is simple: a cheap contract today can cost dearly tomorrow. There are no universal solutions in legal work – only individual protection and professional responsibility.

“No problem, I’ll use artificial intelligence”

Artificial intelligence can be a helpful informational tool, but it is not a legal service and bears no legal responsibility. Even if it provides accurate information (which is not guaranteed), AI cannot replace a licensed lawyer who carries financial, disciplinary, and ethical liability for every clause and consequence.

🤖 Using AI for legal matters is like reading a medical website before surgery – useful for understanding terms, but impossible to perform the operation yourself. Law is not only about statutory wording, but about interpretation, application, and legal culture. It is living, contextual, and risk-sensitive.

AI can help you understand concepts and prepare questions. But if you rely solely on AI or templates, you alone bear the consequences, without recourse for damages.

🎯 When dealing with high-value properties, family assets, mortgages, co-ownership, or inheritance issues – do not test the legal system at your own expense.

Common real estate fraud schemes involving preliminary contracts

Real estate fraud rarely starts with obvious threats. More often, it begins with a seemingly harmless preliminary contract signed in haste. Because the preliminary contract has binding effect under Article 19 OCA, poor drafting can turn it into a long-term legal trap.

Unsigned spouse in matrimonial property

If a property was acquired during marriage, it is matrimonial community property under the Family Code. A preliminary contract signed by only one spouse is relatively ineffective, and cannot be judicially declared final. A final deed signed without both spouses would be void.

Contracts with elderly or vulnerable persons

Agreements concluded with persons lacking capacity (e.g. dementia, stroke aftermath) may be absolutely void under Article 26 OCA. Fraudsters often use false powers of attorney or exploit heirs’ ignorance.

Misrepresentation of legal status

Encumbrances, disputes, or pending cases are sometimes concealed. This constitutes material misrepresentation and grounds for voidability under Article 28 OCA.

Backdated or multiple preliminary contracts

If the first buyer fails to register the contract, the seller may conclude a second one with another buyer. Only registered preliminary contracts under Article 113 OA are opposable to third parties.

Cash deposits without documentation

Paying deposits in cash, without receipts or through intermediaries, is one of the most common mistakes. Recovery is uncertain unless criminal fraud is proven.

Notary liability and its limits

Under Article 73, para. 1 of the Notaries Act, a notary bears liability for damages caused by culpable breach, but only up to the certified material interest. If the transaction is notarised at tax valuation, liability is limited to that amount.

At the same time, Article 25 of the Act obliges notaries to guide and inform parties, but this duty is largely deontological, not automatically sanctionable. The state does not bear liability for notarial acts.

Article 25a allows funds to be paid into a special notary account by agreement, increasing transaction security.

🔎 Conclusion: notaries have important but limited responsibilities. True protection comes from independent legal due diligence by an attorney.

How to protect yourself – BSLC recommendation

• Always use a real estate lawyer for drafting and review;
• Insist on notarisation and registration;
• Verify ownership and encumbrances independently;
• Require proper powers of attorney;
• Pay only via bank transfer under clear contractual safeguards.

⚠️ BSLC’s professional position is unequivocal: never sign a preliminary contract without legal review. What seems like saving money is often the most expensive mistake. A well-drafted preliminary contract is not just the beginning of the transaction – it is the first shield against fraud.