In discussions surrounding Maltese law, the concept of a ‘deposit’ in promise of sale agreements is often a source of significant misconceptions. The question of what happens to a deposit when a promise of sale expires without the final deed being published is particularly pressing.
This issue was recently addressed in the judgment of the Civil Court, First Hall, in Eurox Estates Limited v. Emmanuela sive Lilian Mifsud, dated 17th September 2024, presided over by Judge Henri Mizzi. The ruling clarifies the legal ramifications when a property transaction fails to materialize, particularly regarding the notion of the deposit.
The dispute arose from an agreement signed on 29th November 2021, between the plaintiff, Eurox Estates Limited, and the respondent, Emmanuela sive Lilian Mifsud. Under the agreement, the respondent committed to selling a residential property located in St. Julian’s for €720,000. The plaintiff paid a deposit of €72,000, which was held by the public notary, with the remaining balance due upon the finalization of the sale.
The agreement stipulated that the transaction was conditional upon the issuance of a Planning Authority development permit in “an executable non-appealable manner.” This permit was a crucial prerequisite for proceeding with the transfer of ownership. The final deed was to be executed by 30th July 2022, unless the permit was not issued, in which case the agreement allowed for up to three extensions of three months each.
By July 2022, the required development permit had not been issued. Both parties subsequently agreed to two extensions, the first extending the deadline to October 2022, and the second to 31st January 2023. Despite no formal agreement on a third extension, both parties acted as if one had been granted. The plaintiff, fully aware of the deadline, continued its efforts to secure the necessary permit.
On 12th April 2023, the respondent sent a judicial letter demanding that the plaintiff finalize the sale, despite the ongoing absence of the required permit. This unexpected demand surprised the plaintiff, as the respondent was well aware that the permit had yet to be obtained.
Faced with this dilemma, the plaintiff had two options: invoke the termination clause in the agreement, allowing withdrawal if the permit was not issued, or negotiate for additional time. However, the respondent refused to extend the agreement beyond 31st January 2023, prompting the plaintiff to withdraw its development application.
The respondent then sought to claim the €72,000 deposit, arguing that the plaintiff had breached the agreement by failing to complete the sale. In a letter dated 5th May 2023, the respondent requested the notary release the deposit in her favor. Conversely, the plaintiff contended that the promise of sale had expired due to the failure to adhere to the contractual deadlines and the absence of legal actions to extend the agreement per Article 1357(2) of the Maltese Civil Code.
Article 1357(2) stipulates that a formal judicial intimation is required to extend a promise of sale. If the promisor fails to comply, further legal action must be taken within 30 days following the expiration. Since neither party had taken the necessary steps to extend the agreement, the plaintiff argued that the contract had lapsed and that the deposit should be returned.
Judge Henri Mizzi ruled in favor of Eurox Estates Limited, confirming that the promise of sale had expired by 30th April 2023, ie. by the end of the second extension. The court noted that no legal action had been initiated to extend the agreement under Article 1357(2), rendering the contract unenforceable. Consequently, the court ordered the return of the €72,000 deposit to the plaintiff.
The ruling highlighted that the expiration of the agreement nullified all its terms, including those regarding the deposit. Both parties were restored to their status quo ante, as if the promise of sale had never existed.
This decision underscores the importance of adhering to the specific terms and deadlines established in property agreements. Failure to meet contractual obligations or take timely legal action can lead to the automatic expiration of agreements, leaving parties without legal recourse to enforce them.
Moreover, the ruling serves as a crucial reminder for both buyers and sellers that by signing a promise of sale agreement, parties are granting each other rights and obligations that remain effective only for the duration specified in the promise of sale.