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Sale transactions

Our law firm prepares documents for the sale of various types of property - sale of inventory, sale of real estate, sale of motor vehicles, sale of companies, sale of rights, etc. In particular, we specialise in assisting our clients to negotiate the cross-border sale transactions. 

We prepare both binding and non-binding sale proposals, letters of intent, definite sale agreements, and auxiliary transactional documentation such as acceptance acts, lists of discrepancies, bills of sales, help our clients with escrow arrangements. We also deal with the removal of security from the purchased property, registration and deregistration matters.

In particular, we advise on the following matters:

Knowledge & Insights

International transactions

In the event the international sale transaction mandatorily or by reason of choice is governed by the Lithuanian laws, one should consider the requirements of the Lithuania law. Most provisions of the Lithuanian Civil Code are dispositive and may be contracted out, however some of them not.  More problems may arise when there is no formal written sale agreement, but  rather mutual confirmations made via e-mail or fax, in which the price and specific quantity of goods or services are specified. Whether such contracts are enforceable by reason of the Lithuanian law, depends on the goods on sale and other provisions of the Civil Code. 

In the international trade, usages and business practices (lex mercatoria) play a significant role. Generally, it is not prohibited to include various trade customs or INCOTERMS that specify the rights and responsibilities of parties with regards to delivery of goods in the cross-border transactions. 

Seller

The Lithuanian Civil Code permits a seller to sell assets to which that person does not have a title at the moment of conclusion of the sale agreement. Such sales transactions are enforceable provided that at the moment of closing the seller will acquire a title to such assets and lawfully passes over such title to the buyer.

Subject matter of the sale

By reason of the Lithuanian law, the subject matter of the sale can be assets circulating in the market, future goods, securities, proprietary rights. The seller must warrant that the property is free and clear of any liens, except for the cases when a buyer agrees to accept the goods with certain liens or encumbrances, and the seller properly notifies the buyer on the existence of such liens and encumbrances. Also, the seller must confirm that the assets on sale are not seized and there are no legal disputes on the goods and the right to dispose such assets is not restricted.

Purchase price and payment terms 

The sales agreements can be enforced in Lithuania even when the parties did not expressly agree on the purchase price. Generally, the Lithuanian Civil Code is based on the principle of reasonableness. If the purchase price was not agreed or it was set out indirectly, the price shall be determined given due regard to the intentions of parties and general requirements of reasonableness. 

The parties should also agree on the way of payment of the purchase price. Indeed, the pre-payment is rarely used in the international trade, except that a deposit might be required to cover from 5% to 30% of the purchase price. Customarily, the payment is made: 

Typically, the cost of the transactional shall be divided between parties. However, if the agreement is not specific on this point, and the agreement is governed by the Lithuanian law, the buyer would be expected to take such costs. On the contrary, costs of delivering the goods, weighting and calculation shall be ordinarily borne by the seller, unless parties agree otherwise.

Remedies for the defects of goods

The Lithuanian Civil Code sets out various remedies when defected goods were sold. The contract terms setting aside the liability of a seller for defects of goods shall be null and void, except when the seller disclosed those defects to the buyer or such defects must have been known to the buyer or the buyer purchased goods at its own risk when the seller was not a profession trader. Otherwise, in the event, when the goods do not meet the requirement with regards to goods, the person who purchased goods of inappropriate value shall have the following rights:

Sale of Real Estate

The Lithuanian Civil Code entails certain provisions in relation to the sale of real estate - sale of land, premises, residential property, apartments, and other types of real estate. The commercial contract of real estate sale must be approved by a public notary, save the real estate transactions that have been concluded with a company undergoing bankruptcy proceedings. Failure to get the contract approved by the public notary, renders the contract ineffective.  

The real estate sale agreement shall be effective to third persons only if it was properly registered at the public register. The title of the real estate passes from the date of transfer of such assets. If one party is avoiding the duty to register the real estate sale transaction, the other party shall have a right to apply to the court and register the transaction. Thus, the agreement will be registered on the basis of the relevant court ruling. 

The real estate sale transactions have somewhat stricter requirements with regards to the specification of the purchase price. In the event, the price of real estate sale transaction is not expressly set out in the contract, such ransaction shall be deemed null and void.

The transfer of assets must be documented by a deed of transfer or on the basis of other documents. If the deed of transfer (or equivalent document) is not signed within the term specified in the agreement, it shall be deemed that the purchaser is refusing to accept and the seller is refusing to deliver the property on sale. The fact that the property was accepted by the buyer does not release the seller from the liability for transferring the defected property.

Sale with retention of title retention

In many jurisdictions it is possible to sell property and retain the title until the purchase price is paid in full. This transaction is sometimes known as a conditional sale in the common law countries. The purpose of such clause is to control the risk in case when the purchaser does not have sufficient funds to pay the purchase price in full. The retention of title is the security for the seller to repossess the property in the event the purchaser defaults. 

The Lithuanian Civil Code permits the parties to agree that the title to the goods under sale shall be passed to the purchaser until the purchase price is paid in full. Nevertheless, the fact that the seller has retained the title to the property can be used against third parties only if the sale agreement including a clause on the retention of title has properly been registered in the public register. In this case, the seller will be able to retain the title against the next buyer if when the property is further re-sold. In practice, the many sale contracts governed by the Lithuanian law include the provisions on the retention of title; however they are not registered as required by law to transfer such effect to third parties. 

Sale and lease-back arrangements

A company may also be willing to raise money, but continue using the property for its operational activity. In this case a company may find a financing party, which purchases the property and leases it back for the agreed time (for example, for useful life of property). From the economic perspective such transaction are often supported by shareholders, since this permits businesses to return the investments to its shareholders, and further generate business by paying installments to the financing party. If the original seller (lessee) defaults, the financing party may repossess the property and so avoid the problems linked with enforcing the security. The Lithuanian Civil Code does not have any specific provisions for this type of transactions. The sale and lease back transactions can be structured by combining the sale and leasing agreements or into one document.

 

Šulija Partners Law Firm Vilnius, registered office Jogailos street 4, 3rd floor, Vilnius, LT-01116, Lithuania, fax +370 52051926, e-mail: info@SulijaPartners.com

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