Preliminary contract: elements, form and consequences

A preliminary contract organizes the terms of a future transaction and “locks in” key arrangements between the parties. It is used when the final contract cannot be signed immediately, for example due to the need to collect documents, obtain financing or agree on a date. A well‑prepared preliminary contract reduces dispute risk and makes closing the transaction smoother.

Update: 5 March 2026

In brief:

• A preliminary contract binds the parties and may create claims, but the scope of protection depends on the form.
• Most disputes arise from imprecise clauses on timing and subject matter.
• A deposit and a contractual penalty strengthen security when clearly described.

What a preliminary contract is and when it is used

A preliminary contract is an obligation to conclude a final (promised) contract in the future. In practice you will meet it in real estate sales, but it is also used in other relationships when time is needed to prepare the final contract. The key is to set the terms that should not change without both parties’ consent.

Remember that a preliminary contract protects the interests of both parties — it is not a loose letter of intent but a real commitment with potential consequences.

Final contract vs preliminary contract

A preliminary contract leads to the final contract and has much stronger effect than a letter of intent. A letter of intent usually expresses a wish to cooperate but does not create such strong obligations. If you want real security, a preliminary contract with clear terms and a deadline for the final contract is the better choice.

Elements of a preliminary contract

Parties, subject matter, price, deadline

A good preliminary contract should clearly indicate:

• the parties and their identifying data,
• the subject of the future contract (e.g., real estate, transfer of rights, service),
• the price or rules for determining it,
• the deadline for signing the final contract,
• payment rules and possible security.

The more precise the clauses, the lower the dispute risk. This applies especially to the deadline, payment method and responsibility for documents and formalities.

Form of the contract — written or notarial

The form of a preliminary contract affects the scope of protection. As a rule it can be concluded in simple written form, but if the final contract requires a special form (e.g., notarial), it is worth considering the same form already at the preliminary stage.

Effects of choosing the form

In practice a notarial form increases security because it makes it easier to enforce the conclusion of the final contract. In a simple written form, protection is usually narrower and more often limited to damages claims.

Deposit, advance payment and contractual penalty

A preliminary contract often includes a deposit or an advance payment. These are two different mechanisms:

• a deposit serves as security and can mean forfeiting the amount or paying double if the contract is not performed,
• an advance payment is a prepayment that is generally refundable.

In addition, the parties may agree a contractual penalty, which strengthens discipline in fulfilling the arrangements. It is worth ensuring precise wording so there is no doubt when the penalty is due and in what amount. The guides on contractual penalties and deposit/withdrawal fee may help.

What happens in case of non‑performance

If one party refuses to sign the final contract, the form of the preliminary contract, its clauses and the circumstances matter. In practice you may seek signing of the final contract or damages. The scope depends on how the preliminary contract was drafted.

Disputes over non‑performance can be costly and time‑consuming, so clear clauses and realistic deadlines are crucial.

Most common mistakes in preliminary contracts

Most problems come from vague wording and shortcuts. In practice the most risky are:

• lack of a precise description of the subject matter,
• unclear payment rules and no schedule,
• no consequences for non‑performance,
• a deadline for the final contract set “by feel” without considering formalities.

Each of these increases the risk of dispute and delays. The more concrete the clauses, the easier it is to enforce the arrangements.

Checklist before signing

• check that the subject description is complete and unambiguous,
• set a realistic deadline for the final contract,
• agree payment rules and security,
• confirm who provides documents and by when.

How to minimize risk

The best protection is a precise contract and good documentation. In practice it is worth:

• setting a realistic deadline for signing the final contract,
• clearly describing the subject matter and payment rules,
• securing the transaction with a deposit or contractual penalty,
• agreeing a procedure for withdrawal or changes.

If the matter concerns a specific real estate transaction, see the guides on the preliminary apartment sale contract and the preliminary property sale contract.

Note: this text is for information only and does not constitute legal advice.