One of the ways that the investor makes money is in the resale of real estate. Thus, reducing operating expenses is essential to ensure profitability. And this type of contracting can contribute to the reduction of tax, notarial and registration expenses.
Want to know more about this topic? So, let’s go ahead with reading this article.
Is there a difference between the contract and the contractual instrument?
Before we talk specifically about what the contract with a person to declare is , first, it is necessary to distinguish some concepts. So let’s start by distinguishing the contract from its contractual instrument.
What is a contract?
It is a legal transaction arising from the agreement of the parties that aims at one or more services to give, do or not do something.
Also, contracts are usually formed upon acceptance of a proposal made.
So, on a daily basis, we enter into various contracts. In other words, buying a candy or gum is also an act of hiring. But, there is usually no need for major formalities. Because, in these cases, the form of hiring is usually verbal.
However, there are other assets of more expressive value that interested parties seek to document the will agreement. Here comes the importance of contractual instruments.
What is a contractual instrument and how does it differ from the contract itself?
Now let’s understand what a contractual instrument is and the importance of distinguishing the contract itself.
The contractual instrument is only a form of expression of the contractual will or documentation (formalization or materialization) of the contract.
In this way, it will be, as the name itself refers, the instrument to formalize the negotiations. In this sense, as can be seen, the instrument differs from the contract itself.
Another way to see this distinction more clearly is to remember the music. The musical instrument differs from the music that is played through it. Similarly, the contract is distinguished from its contractual instrument, through which it merely externalizes and documents its existence.
The contractual instrument can be private or public. There are even types of contracts that the law requires, as a rule, the public form as a requirement for validity. The purchase of properties with a value above 30 minimum wages is one such case. The rule is the public instrument – public deed of purchase and sale.
And can there be multiple contracts in one instrument? Yea! That’s what we’ll see later.
Several contracts and a single contractual instrument.
There are even situations in which several contracts can coexist in the same instrument. This situation even occurs in the private instrument of real estate purchase and sale promise.
To be clearer let’s give some examples.
First let’s recall the musical example. How many songs can you play through a musical instrument? Several! Likewise, it can be said that a single contractual instrument can contain several contracts. For reasons of didactics, material and formal relevance, normally the quantity is not so great.
Another example, however, is in the purchase and sale of real estate. The main obligations in the purchase and sale are: (a) payment of the price and (b) the transfer of ownership and ownership of the property. However, it is also common for the parties to enter into other agreements related to the main business. Furthermore, note that these binding agreements, as a rule, are provided for in the same contractual instrument, in the form of topics and clauses.
The mandate contract (power of attorney), for example, is an accessory contract well used in the promises to buy and sell real estate. Usually when the prospective buyer needs to perform acts on behalf of the promising seller, or vice versa. Thus, in some cases, instead of giving the power of attorney in a separate instrument, the purchase and sale promise is celebrated in the body of the contractual instrument.
Another ancillary contract is a surety bond. It is also common to celebrate it in the contractual instrument of purchase and sale or lease promise.
In addition to these, there are many other examples, but these are enough for us to understand that in a single contractual instrument several contracts can coexist. This is what happens with the contract with the person to declare.
What is the contract with person to declare?
In fact, based on the distinctions presented above (contract and contractual instrument), it is now easier to understand what the contract with the person to declare is.
So what is the contract with person to declare?
In short, the contract with the person to declare is an accessory legal transaction that allows one of the contracting parties to indicate the person who will acquire the rights and assume the obligations arising from the contract.
Therefore, the essence of this contract is the possibility for the original contractor to elect a person to replace him and assume his contractual position, in the main business. It is, moreover, an accessory contract, dependent on a main business, normally practiced in preliminary contractual instruments (purchase and sale commitments).
Therefore, this contractual modality is commonly provided for in contractual instruments in the form of clauses. Thus, a topic or some contractual clauses are reserved to regulate the matter. For this reason, it may be that some have already celebrated it without knowing it.
For example, in contractual instruments of purchase and sale promises, a clause is created providing for the possibility of such indication and recognition. Especially in businesses where the buyer will be a legal entity, not yet existing, but which will be incorporated.
Its prediction is found in articles 467 to 471 of the Civil Code.
Thus, in the contract with a person to declare, the buyer will act speculatively or as an intermediary. Therefore, the promising original buyer usually does not intend to actually acquire the good. In other words, receive the granting of the public deed.
Promise to buy and sell real estate with a person to declare. How is it instrumented?
As seen, the contract with the person to declare refers, in general terms, to negotiations linked to a future complementation.
Thus, the contract with a person to declare fits perfectly into the concept of a promise to buy and sell. This is because the purchase and sale commitment is a preliminary contract that promises the granting of the definitive contract in the future. For more information about the purchase and sale promise, access the following link: PURCHASE AND SALE PROMISE: What contract is this?
In fact, as the definitive contract will only be awarded at a future time, the purchase and sale promise is associated with the contract with the person to declare. Thus, the promissory original buyer (the investor/intermediary/facilitator) can appoint another person to acquire the property at an opportune moment.
Therefore, in negotiations involving the purchase and sale of property, the contract with the person to declare will have two sequential phases:
Promise to buy and sell property with a person to declare.
At that moment, the investor or intermediary celebrates the promise to buy and sell the property as a promissory buyer. However, it reserves for itself, in the same contractual instrument, the power to appoint another person to assume its position.
In effect, at this stage, all negotiations are settled by the promissory buyer and the promising seller. Furthermore, these negotiations are documented in a contractual instrument. Usually the parties refer to this instrument as Promissory Purchase and Sale Agreement and Other Covenants. Thus, this expression “other agreements” means that, in addition to the main business, the parties also made other contracts.
Among these “other covenants” is the contract with a person to declare.
Thus, the granting of the definitive purchase and sale contact is linked to a term and/or condition. The promising seller, therefore, undertakes to await the effective indication by the promissory buyer of his substitute.
Then, at that time, it will have to grant the definitive contract. In due time, and depending on the case, the Purchase and Sale of the property is granted through a private or public instrument. It is usually done by public instrument – Public Deed of Purchase and Sale of Property.
Public Deed of Purchase and Sale for registration.
So…, now it’s time to nominate the actual buyer and award the definitive contract.
It is at this moment, therefore, that the buy and sell promise is on the brink of being completed. This is because it is here that the indication of the actual buyer of the property promised for sale and the instrumentalization of the purchase and sale takes place.
As already explained, therefore, as a rule, it is through the public deed that the purchase and sale of the property is instrumentalized. For, it is the purchase and sale that is usually registered to transfer ownership of the property. It is in the notary offices that the public deed is done.
Therefore, in compliance with the contract with the person to declare, the public deed of purchase and sale of the property is granted to the indicated buyer(s).
In effect, the intermediary or investor (originally promising buyer) is replaced by the actual buyer of the property. Thus, the Public Deed of Purchase and Sale will state the owner of the property as the seller and the investor’s substitute as the buyer.
Once the public deed of purchase and sale of the property has been granted, the next step is to register it in the registration to effect the transfer of the property.
As mentioned above, there are situations where the purchase and sale can be granted by private instrument with the effect of a public deed. In this case, the private purchase instrument itself is registered in the property’s registration.
But what are the benefits of a contract with a person to declare in the purchase and sale promise?
What are the benefits of a promise to buy and sell a property with a person to declare?
In general terms, the contract with a person to declare, when carried out by lawyers specialized in the field, presents several advantages in purchases and sales.
Reduction of expenses on the resale of acquisitive rights
Well then, reducing expenses means increasing profits from the resale of the promissory buyer’s rights.
In other words, as it is not necessary to register the purchase and sale promise, it saves on expenses with notary office and registration. Furthermore, the replacement of the prospective buyer’s position by the named buyer does not generate transfer tax (ITBI).
However, it’s not just that. Because the contract with the person to declare is also useful in other situations.
Confidentiality regarding the identity of the final buyer of the property
Furthermore, it is also useful when you want to keep the identity of the final buyer of the property confidential for a period of time. For example, in cases where the intermediary, representing third parties, wants to avoid speculation about the value of the good, or has reasons to do so.
Secure a good deal for resale
Also, when there is an interest in securing a good deal, but there is still no right buyer. In these cases, you can speculate and find a buyer who buys for a higher value and, thus, make the difference.
Furthermore, it is possible in this case to opt for a brokerage contract with an exclusivity clause. But, normally, this activity is exclusive to realtors. Furthermore, the owner of the property will have to pay a commission to the broker, which does not occur in the contract with the person to declare.
Use of a legal business facilitator
Another hypothesis is that of the legal business facilitator. The right person in the negotiation can facilitate and enable a good negotiation. So, in principle, he will be responsible for negotiations with the owner of the property. At the right time, then, the promissory buyer of the property will present the actual buyer to the seller.
Wide possibilities for all parties
There are situations that work for all parties. For example, the interest in securing a negotiation right away. Thus, this contractual modality can generate benefits for all involved parties. The property owner, moreover, benefits (promising and effective seller) by being able to count on the investor’s help to locate a buyer.
However, the structuring of these negotiations requires several precautions. Also, depending on the purpose, you will need to adapt the strategy to the objective.
However, regardless of the objective, it is essential that personal and real estate certifications make the business viable. Even, it must be analyzed if there is document fraud . It also needs to verify whether the property is free of charge for debts that may compromise the purchaser. In addition, there are questions to consider about the prospective buyer’s risk. Thus, legal advice becomes fundamental and indispensable in these types of negotiations.
In conclusion to the topic discussed, the contract with a person to declare only finds its real practical meaning in preliminary contracts. Therefore, it is used a lot in promises to buy and sell real estate. Well, it is in the promises that, as a rule, various legal transactions are combined.
Therefore, as mentioned above, there are ample possibilities for the contract with a person to declare in the promise of purchase and sale of real estate. But, the best way to use this contractual institute along with other contractual types will depend on each concrete case. Therefore, it is recommended to consult a lawyer specializing in the real estate market to advice on the real estate transaction. The theme has several developments, as you can see.
However, we hope to have shed some light on its potential in real estate buying and selling operations. If you have other questions, please don’t hesitate to get in touch with us.