The promise of sale (the konvenju) is the foundational instrument of Maltese property transactions, creating binding obligations on both parties to execute a final deed at an agreed price. Yet the law governing damages when promises fail has evolved substantially through case law.
The Civil Code establishes the core principle that if a promise is accepted, it creates an obligation on the promisor to carry out the sale or, if the sale can no longer be carried out, to make good damages to the promisee.
Damages themselves comprise two distinct categories:
Interest starts to accrue from the date when performance should have occurred until judgment or settlement; however, this point is disputable and ultimately determined by the court. A fundamental principle prevents interest accrual until damages become determinate. Notably, recent case law clarifies that interest on refunded deposits accrues only from the date the promise falls through, not retroactively from the deposit payment date. In Olive Gardens Investments v. Sant Fournier[1], a promise for €722,300 that should have closed in 2004 generated €1.1 million in damages by 2024, principally through 20 years of accumulated 8% interest.
From the seller's perspective, damages are available when the buyer breaches the promise without just motive. Valid reasons for buyer refusal include: the seller's failure to satisfy express conditions by the promised date, such as completing remedial work or obtaining regulatory approvals; latent defects discovered during inspection; the seller's breach of warranties regarding regulatory compliance; or the buyer's inability to obtain financing despite good faith effort.
Bad faith conduct generates substantial damages exposure exceeding the deposit. In Olive Gardens, the buyer filed judicial proceedings not to enforce the contract but to maintain a façade of interest while never intending to purchase, a dilatory tactic the Court found constituted bad faith and abuse of the legal process, warranting €1.1 million in damages.
From the buyer's perspective, remedies are broader. Buyers recover automatic deposit return if the promise expires naturally; deposit plus interest if the buyer has valid reason to refuse; and all documented direct costs incurred. If forced to purchase the same property elsewhere at higher cost, the buyer recovers the price differential. A critical protection is the statutory warranty against latent defects, which survives the final deed for two years and cannot be excluded by generic "as is" language.
Latent defects are hidden defects rendering property unfit or substantially diminishing value and entitle the buyer to either complete rescission and full price recovery or acceptance with a price reduction equal to remediation cost, at the buyer's election.
The deposit presents the most litigated issue. While many promises include "forfeitable deposit" language, the landmark judgement in the names Gerit Company Ltd v. A.M. Developments[2] established that such clauses are not self-executing.
Sellers seeking to retain forfeitable deposits must: file a judicial letter before the promise expires; file a sworn application within thirty days of expiration; and obtain a court order explicitly finding the buyer had no valid reason to refuse. Missing the thirty-day deadline results in automatic deposit return, regardless of contractual language. Even explicit forfeiture clauses require judicial validation that the buyer acted wrongfully.
Protective safeguards at the drafting stage prevents disputes. Both parties should include good faith clauses requiring cooperation and prompt notification of circumstances affecting performance.
For any further information or assistance, please contact us at info@gtg.com.mt
Author: Dr Neil Gauci
[1] First Hall Civil Court, Judge Tonio Mallia.
[2] First Hall Civil Court, Judge Giannino Caruana Demajo.