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A Pre-purchase Agreement, also known as a Reservation Agreement or Preliminary Sales Agreement, is a legally binding contract that defines the framework for a future purchase. In real estate and commercial transactions, it secures the parties’ intentions when the final sale contract is not yet ready. By establishing prices, deadlines, obligations, and contingencies, it protects both the buyer and the seller, ensuring fairness and transparency. 

Purpose and Main Features

The primary purpose of a Pre-Purchase Agreement is to secure the transaction at an early stage. Buyers benefit from the certainty of price and availability, while sellers gain assurance of the buyer’s commitment. Typical clauses include identification of the property or goods, purchase price, advance payments, deadlines, default provisions, and termination conditions. This structure reduces risks by clarifying expectations and minimizing disputes.

Use in Long-Term and International Contracts

Beyond real estate, Pre-Purchase Agreements are widely used in long-term commercial supply contracts. For instance, a producer and buyer may link the purchase price to an international benchmark with an agreed discount. Such arrangements guarantee continuity of supply for the buyer and predictable demand for the producer. When combined with Incoterms® 2020 delivery rules, liability, and force majeure clauses, the agreement becomes a cornerstone of secure cross-border trade.

Legal and Practical Considerations

While highly effective, these agreements require careful drafting. Parties must specify contingencies such as financing, permits, or due diligence outcomes. Governing law and dispute resolution clauses safeguard the enforcement of rights, while confidentiality, limitation of liability, and termination terms provide balance. Given their binding effect, parties should seek legal advice before execution to ensure compliance with applicable regulations and industry standards.

Check out more pages of our website for related content:

• Buy-Back Agreement
• Barter Agreement
• Counter Purchase Agreement
• Barter Agreement (for small business)
• Offtake Agreement
• Supply Agreement

Access the Full Contract Directory Index

You can browse the complete alphabetical list of all commercial, financial, and project-based contract templates by visiting our A–Z Contract Index.

References

• UK Government – Reservation agreements for new homes – Official guidance on reservation and pre-purchase arrangements in property transactions.
• The Law Society of England and Wales – Conveyancing Protocol: Pre-contract arrangements – Authoritative guidance on pre-contract obligations, transparency, and buyer–seller protections.
• European Commission – Contract law and consumer protection in property transactions – Regulatory framework addressing preliminary contracts, fairness, and enforceability.
• Practical Law (Thomson Reuters) – Preliminary agreements and reservation documentation – Professional legal resource covering reservation agreements, heads of terms, and preliminary sales structures.