Buyers’ Protection Mechanisms under Preliminary Agreements

Private Clients, Real Estate Litigation, Real Estate

Background

The economic environment in Bulgaria during the second half of 2025 is marked by exceptional dynamism. With Bulgaria’s accession to the eurozone and the adoption of the euro as the official currency, a wave of uncertainty has arisen regarding the conversion of Bulgarian lev (BGN) into euros. This uncertainty has triggered heightened activity on the real estate market, where many individuals and businesses view property as a secure haven for their cash holdings.

As a result, construction developers and property sellers have emerged as the primary beneficiaries. Riding this wave, many have significantly increased the prices of available properties. In doing so, however, numerous developers have acted without sound economic justification and, in many cases, in direct breach of their contractual obligations. Most notably, under already-entered preliminary agreements, some developers attempt to impose annexes introducing higher purchase prices, while others outright refuse to fulfill their obligations or terminate agreements on unfounded grounds – even going so far as to dispose of properties already subject to preliminary agreements. These practices are often carried out with a troubling sense of impunity, driven by the expectation of substantial profits.

Protection mechanisms

This note will briefly outline the legal mechanisms available to buyers for protection of their rights under preliminary agreements for purchase and sale of real estate, as well as ways in which sellers may be held accountable for non-performance or abusive practices.

Claim for declaration of the preliminary agreement as final under s. 19(3) of the Obligations and Contracts Act (OCA)

If a seller refuses to execute the final agreement (in the form of notary deed), the buyer may bring a claim under s. 19(3) OCA, requesting the court to declare the preliminary agreement final. When such a claim is upheld, the court judgment effectively replaces the final agreement, and the buyer becomes obliged to pay the outstanding purchase price within two weeks, together with all applicable taxes and fees related to the transfer of the property.

It should be noted, however, that filing of a claim under s. 19(3) OCA is not always possible. 

For example, if in the meantime the seller has already disposed of the property to a third party, the buyer cannot rely on this remedy. In such cases, the buyer is entitled to terminate the preliminary agreement without notice and to seek:

• Refund of all payments made.
• Reimbursement of expenses for improvements.
• Payment of contractual penalties for non-performance.
• Compensation for additional damages suffered.

Reimbursement of amounts paid by the buyer (s. 55(1.3) OCA)

Under s. 55(1.3) OCA, when a preliminary agreement is terminated, the seller is obliged to refund all payments received from the buyer. The buyer, accordingly, has the right to claim back the full amount paid under the preliminary agreement.

Reimbursement of expenses for improvements

In addition to the refund of amounts paid, the buyer may also claim reimbursement for expenses incurred on improvements to the property. Such situations are common in practice, as buyers often undertake improvements in anticipation of acquiring ownership, and sellers typically do not object at the time these expenses are made.

Contractual penalties (s. 92(1), sent. 1 OCA)

Preliminary agreements frequently include provisions for penalties in case of default, which may apply to both buyers and sellers. These penalties can take various forms:

• Fixed one-time payments (a lump sum); or
• Recurring payments (calculated daily, weekly, or monthly).

When negotiating such clauses, the parties should carefully consider the value of the agreement, the nature of the obligations, and the potential risks. This helps ensure that the penalties agreed are balanced and enforceable, minimising the risk of legal challenges, such as claims for reduction on the grounds of excessive penalty or objections that the penalty clause is invalid due to conflict with good morals.

Compensation beyond penalties (s. 92(1), sent. 2 OCA)

The penalties under preliminary agreement serve two purposes: they secure the performance of contractual obligations and compensate the non-defaulting party for damages from non-performance – without the need to prove those damages.

However, under s. 92(1), sent. 2 OCA the buyer is entitled to claim additional compensation for damages exceeding the agreed penalty, where such damages arise from the seller’s breach and are not fully covered by the penalty itself.

The compensation may include both:

• Losses actually incurred; and
• Lost profits;

provided they are a direct and foreseeable consequence of the non-performance at the time the obligation was assumed.

If the seller acted in bad faith – which is often the case in defaults under real estate preliminary agreements, their liability extends further, covering not only direct damages but also all consequential damages caused by the breach.

Examples of recoverable damages are the following:

• Actual losses (damnum emergens) – for instance, if real estate value rises significantly, the buyer may lose the opportunity to purchase a comparable property at the originally agreed price. In such a case, the buyer may claim the difference between the agreed price and the current market value of similar properties.
• Lost profits (lucrum cessans) – similarly, the buyer may claim the profit they would have gained had the agreement been performed. For example, if the seller had fulfilled its obligation and transferred ownership, the buyer could have realized a higher resale value on the market. The difference between the agreed price in the preliminary agreement and the price the buyer would have received after acquiring ownership and resale of the property may thus be claimed as a lost profit.

If you are entering into or already bound by a preliminary agreement and want to protect your position, NBLO can assist you. Our real estate and disputes team can review and (re)draft your preliminary agreement, negotiate fair penalty and price-adjustment clauses, secure performance (including claims under s.19(3) OCA) and, where needed, pursue refunds, penalties and damages for non-performance practices. For a private consultation, please email sofia@newbalkanslawoffice.com or london@newbalkanslawoffice.com.