Preliminary contracts in the construction industry

In law, a preliminary contract typically aims to prevent the parties to a contract from entering (at a later stage) into a similar legal arrangement with third parties. In order to confirm that that they will not do so, parties will sign a preliminary contract.

Preliminary contracts are more common in Europe when buying land or property, especially when reserving property off-plan. Buying off-plan can be an uncertain process as a buyer commits to a property purely on the basis of drawings (plans) before any construction has taken place.

Preliminary contracts serve as a formal confirmation of reservation and may have more legal power than a deposit on its own. But they are formulated to secure the commitment of buyers rather than compelling developers to stick to their side of the bargain. Furthermore, a preliminary contract may not compel a developer to sell the property that is the subject of the contract.

Prior to signing the preliminary contract, potential buyers are advised to check how far the development has progressed and whether the developer or contractor is still in a position to start construction work. A further point to note is whether the work (if started) is in accordance with the plans. Some large developers can provide buyers with a degree of certainty but this may not be the case with all developers.

Preliminary contracts can be useful to potential buyers but they are not a full confirmation of the right to get what has been reserved.

NB The term 'preliminary contract' may also be used to refer to a contract for preliminary works, such as site preparation, setting out, construction of access roads and so on.

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