It’s an unthinkable scenario that’s naturally not to the fore of a couple’s mind when they are buying a home.
During the excitement of finding a property you love and subsequently signing the preliminary sales agreement, no one is thinking about the what ifs; namely the death of one partner after signing the contract with the seller.
It’s an overlooked vulnerability but the risk of financial penalties if a main purchaser dies after signing a preliminary sales agreement (‘compromis de vente’) and the surviving spouse cannot continue with the sale are real.
The death of a main purchaser after signing this binding agreement can leave grieving families facing unexpected financial penalties at the very moment they feel least able to cope.
A resident of Luxembourg recently faced this unexpected situation when buying a new home. In order to clarify the legal implications around such an event, we asked the opinion of a real estate lawyer.
It may be assumed that such a personal tragedy automatically releases the surviving spouse from the contract with the seller, but under Luxembourg law, that is not necessarily the case.
The death of one of the signatories during the period after the signing of the preliminary sales agreement but before the notarial deed had been signed does not automatically terminate the sales agreement.
Therefore, the legal and financial obligations of the surviving spouse to the seller and the estate agent remain in place. This reality places surviving spouses, particularly those without independent income, in a legally vulnerable position at an already devastating time.
Kefseresma Aksu of NC Advocat highlights a little-known but critical legal reality. “The surviving spouse is bound towards the seller as from the moment the loan is granted and the seller is aware of this. Consequently, the seller may compel the surviving spouse to appear before the notary to execute the deed of sale and, if necessary, bring proceedings before the Court to claim damages, which generally correspond to the amount of the penalty clause inserted in the preliminary sales agreement.
“The estate agent may also seek a court order compelling the surviving spouse to pay his or her commission, if such obligation was provided for in the preliminary sales agreement.”
Aksu explains that if one of the parties passes away after the loan has already been approved, and the loan approval was a condition that had to be met by the spouses or partners, then that condition is treated as having been met.
“Consequently, the contract continues to be legally binding. If one of them dies, the contract continues with the legal heir. In fact, all debts that have not been settled by the debtor are ordinarily transmitted upon death to the heirs, who inherit the deceased’s estate as legal successors.
“The general principle is that any obligations not performed during the deceased’s lifetime are transmitted upon death, meaning that the estate’s liabilities include debts that bound the deceased and remained unpaid at the time of death.”
Yet according to Aksu, such scenarios can be mitigated when buyers take proactive measures before signing a preliminary sales agreement.
One solution is contractual. Buyers can explore the possibility of inserting a clause allowing the sale to be cancelled without penalty if one of the purchasers were to unexpectedly die before the notarial deed is signed.
“In such cases, it is strongly recommended to include a termination clause (‘clause résolutoire’) in the preliminary sales agreement, providing that if one of the spouses dies after signing it or after the bank loan has been approved, but before signing the notarial deed, the contract will be terminated without any penalty to the buyer.
“The surviving spouse should also take all necessary legal precautions with the bank before taking out a mortgage, particularly by ensuring that life insurance coverage is in place.
“Where the loan is taken out jointly, death insurance ensures that the surviving partner will not be solely responsible for repaying the outstanding loan, depending on the coverage ratio (quotité) chosen”, she explains.
Despite its protective purpose, it is not routine to request such a clause, Aksu notes. “It is not common practice for buyers to ask for the inclusion of a termination clause in a property sales contract. In fact, such situations are quite rare, and the available case law shows no precedent involving a similar clause being applied in this context.”
She adds that the seller is fully entitled to refuse such a proposal. “In that case, the preliminary sales agreement will simply not be signed. One cannot compel a party to enter into a contract, and therefore the seller cannot be forced to accept a termination clause if they are not willing to do so.”
Given the significant risks, Aksu outlines that it is prudent to obtain legal advice before committing to a property purchase. She explains that a lawyer or notary can help buyers fully understand the implications of the clauses they are agreeing to and ensure that their rights and interests are properly protected.
“It is very important. In practice, many private buyers are not fully aware of the legal consequences they are committing to when signing a preliminary sale agreement, especially if the sale later fails to go through because a suspensive condition is not fulfilled.
“A preliminary sales agreement is in itself a binding contract; its effects are simply suspended until the suspensive condition is either fulfilled or not fulfilled. Once that condition is met, the obligations under the contract become fully effective.
“Conversely, if the sale fails because the buyers did not make sufficient efforts to obtain the required bank loan, for example, they may lose their deposit or face other contractual penalties.”
Aksu reiterates the two essential points: “First, the inclusion of a termination clause in the preliminary sale agreement can provide legal certainty by allowing the contract to be terminated without penalty if one of the purchasers dies before completion.
“Second, and most importantly, buyers should ensure that they are covered by life insurance (‘assurance décès’). This coverage is crucial, especially when purchasing as a couple, to prevent the surviving partner from being solely responsible for the mortgage repayment or contractual obligations.
“The insurance can be temporary, covering the period between the signing of the preliminary sale agreement and the final notarial deed, or long-term if linked to the loan itself,” she states.
