What is the promise of sale agreement?
It is a preparatory contract in which one party (the promising seller) commits to sell, and the other (the promising buyer) commits to buy, a specific asset within a defined term and under specific conditions. It does not transfer ownership yet — that transfer will occur when the definitive deed is signed (for real estate) or the definitive contract is signed (for movable goods).
It is governed by the Civil Code of Guatemala (Decree-Law 106), Article 1674 and following articles.
Why sign a promise of sale before the actual sale?
The most typical situations where a promise of sale is necessary:
- The buyer is relying on bank financing that has not yet been approved.
- The seller needs to cancel a mortgage before being able to transfer the property free of encumbrances.
- The property is still under construction (pre-sale) and does not yet physically exist.
- Due diligence is pending on the asset (registry, environmental, zoning review).
- Documents are still missing: municipal good-standing certificates, IGSS certification for a business sale, special authorizations.
- The buyer needs time to raise the price or to sell another asset first.
In all these scenarios, neither party wants the other to walk away during the waiting period. The promise of sale is the "lock" that secures the deal.
Essential elements of the contract
For the promise of sale to be valid and enforceable, it must contain:
- Clear identification of the parties and their legal capacity to contract.
- Precise description of the asset: for real estate — property, folio, book, district, location, area, boundaries. For vehicles — license plate, model, engine and chassis numbers.
- Agreed price and future payment terms.
- Term within which the definitive sale will be signed — this is the most critical element.
- Conditions that must be met before the definitive signing (financing, mortgage cancellation, etc.).
- Earnest money (arras) or deposit: amount the buyer hands over upon signing the promise, with a clear regime for what happens if either party breaches.
- Penalty clause or consequences for each party's breach.
- Venue and notary where the definitive deed will be signed.
Earnest money (arras): the economic heart of the promise
Arras is the money the promising buyer hands over to the promising seller when the promise of sale is signed. Its legal regime can be:
- Confirmatory: they count as an advance on the price. If the sale closes, they are credited against the balance. If it does not close due to someone's fault, damages apply.
- Penitential (right of withdrawal): they give the right to "back out" at a price. If the buyer withdraws, the arras are lost. If the seller withdraws, the seller must refund double the amount.
Critical: the contract must expressly state which type of arras applies. If it does not, the Civil Code's default rule kicks in, which may not be what you expected.
What happens if a party breaches?
If the promising buyer backs out or fails to pay
- The seller may retain the earnest money (if penitential) or claim damages.
- The seller may seek specific performance in court — the judge can order the signing of the deed if the buyer has the funds but refuses.
- Late-payment interest and any agreed penalty clause apply.
If the promising seller backs out or sells to a third party
- The buyer may demand return of the arras at double (if penitential).
- The buyer may seek judicial specific performance: forcing the seller to sign.
- The buyer may sue for damages.
- If the seller already sold to a third party, the buyer may request termination of the contract and claim the penalty.
Form of the contract
For real estate, we always recommend elevating it to public deed before a notary. Advantages:
- It allows the promise to be recorded at the Property Registry (RGP) — blocking sales to third parties during the term.
- It provides a certain date and full evidentiary weight.
- It is directly enforceable without needing prior signature verification.
For movable goods (vehicles, equipment), a private document is sufficient, provided it is well drafted and signed by both parties.
Difference from the sale contract itself
The promise of sale obligates the parties to enter into the definitive contract in the future. The sale contract transfers ownership immediately. Confusing the two leads to disputes: if you signed something labelled "sale" while conditions remained pending, ownership may have transferred without you intending it to.
Typical mistakes when signing a promise of sale without legal advice
- Unrealistic deadlines that lead to automatic default (e.g. 30 days to get loan approval).
- Failing to define the type of arras — the default regime kicks in and may not protect you.
- No clear suspensive conditions — if the loan is denied, who loses the earnest money?
- Not recording at the Registry — the seller could sell to a third party during the waiting period.
- No clear penalty for breach — you end up at the mercy of the judge.
- Not verifying encumbrances before signing the promise.
Frequently asked questions
Do I have to pay taxes when signing the promise of sale?
No. The promise of sale does not transfer ownership, so neither the 3% Stamp Tax nor the 12% VAT is triggered. Those taxes are due when the definitive sale deed is signed. A nominal document stamp by value (minimum Q0.50) is paid if the promise is elevated to public deed.
Can the promise of sale be recorded at the Property Registry (RGP)?
Yes, as long as it is in public deed form. Recording it is important because it blocks sales to third parties during its term and protects the promising buyer against any maneuvers by the seller.
What term should the promise of sale have?
Whatever the parties agree, but it must be realistic. For purchases with bank financing, we recommend 60–90 days. For pre-sale of properties under construction, up to 6–12 months. Very short deadlines create forced breaches.
Can I cancel the promise if I find another property I like better?
Yes, but at a cost. If the arras are penitential, you lose them. If they are confirmatory, the seller can sue you for damages. The promise of sale is signed to secure the deal, not to keep options open.
Does the promise of sale have to be signed before a notary?
For real estate we always recommend it, especially if you want to record it at the Property Registry. For movable goods a private document is acceptable, but it gains a lot from notarized signatures.
What happens if one of the parties dies before signing the deed?
The obligations under the promise pass to the heirs of the deceased. The heirs are required to execute the definitive deed. The obligation is only extinguished if the contract expressly stated it was intuitu personae (rare in sale transactions).
Is a verbal promise of sale valid?
No. The Civil Code requires written form for the promise of contract whenever the definitive contract also requires written form. A verbal promise is not enforceable.