Signing a Preliminary Sale Agreement Before Bank Approval: Risks and Precautions

Buying a home almost always means signing the preliminary sale agreement (compromis de vente) well before the bank has given its final answer. The seller wants to secure the transaction, the buyer wants to tie up the property, and banks only commit once the agreement has been signed, on the basis of a costed project. This raises a question that worries most buyers: what happens if one commits in writing before the financing has been secured? This guide explains what one actually signs before the bank's approval, how the loan condition precedent protects the buyer, and what precautions to take so that a dream property purchase does not turn into costly litigation.

Signing a preliminary sale agreement before the bank's approval: a normal practice, not recklessness

A widespread misunderstanding should be cleared up at the outset. Signing a preliminary sale agreement before the bank's approval is neither a mishap nor a fault: it is the usual course of a purchase financed by a loan. No bank issues a firm loan offer for an abstract project. It needs an identified property, a price and a seller, and therefore a signed preliminary contract, in order to review the file and issue an offer within the meaning of Articles L313-24 et seq. of the French Consumer Code.

The preliminary sale agreement, also called a bilateral promise of sale (promesse synallagmatique de vente), binds both parties: the seller promises to sell and the buyer promises to buy. A promise of sale amounts to a sale, as Article 1589 of the French Civil Code recalls. In other words, by signing, the buyer does not simply reserve the property: he or she takes on an obligation to buy. This is precisely what makes the question of financing central. Without a protective mechanism, a buyer whose bank refused the loan would remain bound to complete the purchase, or would have to compensate the seller.

French law anticipated this imbalance. Two mechanisms combine to protect the individual buyer: the ten-day cooling-off period and, above all, the condition precedent of obtaining a loan.

The loan condition precedent: the buyer's statutory protection

A mandatory mechanism arising from the Scrivener Act

The loan condition precedent originates in Law No. 79-596 of 13 July 1979, known as the Scrivener II Act, now codified in Articles L313-40 to L313-42 of the French Consumer Code. The principle is simple and protective: where the buyer of residential property finances the purchase by a loan, the preliminary contract is deemed to be concluded subject to the condition precedent that the loan or loans are obtained.

In practical terms, as long as the bank has not granted the financing, the sale is not definitively formed. If the loan is refused on the terms provided for in the contract, the condition precedent is not fulfilled: the buyer recovers the whole of the deposit and owes no compensation. It is this clause that neutralises the risk of committing before the bank's approval. A preliminary agreement signed without bank approval is therefore not dangerous in itself, provided that it contains a properly drafted loan condition precedent.

Article L313-41 of the French Consumer Code: “Where the instrument referred to in Article L. 313-40 states that the price is paid, directly or indirectly, even partly, with the help of one or more loans (…), that instrument is concluded subject to the condition precedent of obtaining the loan or loans financing it. The period of validity of that condition precedent may not be less than one month from the date of signature of the instrument.”

This mandatory character is crucial: the parties cannot waive it by a simple clause, except in the specific case of a formal waiver of the loan, examined below. A clause that deprived the borrowing buyer of this protection would be deemed unwritten.

The mandatory content of the clause

To be effective, the loan condition precedent must specify the characteristics of the financing sought. Article L313-41 requires the preliminary contract to state the maximum amount of the loan applied for, its term and the maximum interest rate. These parameters define the scope of the protection.

The issue is twofold. These statements make it possible to assess whether the bank's refusal relates to the loan described. If the buyer applies for a loan that matches the announced characteristics and it is refused, the condition fails and the sale falls through. By contrast, if the buyer applies for a loan on terms more favourable than those written into the agreement, for example a rate lower than the stipulated ceiling, the bank's refusal does not correspond to the clause, and the buyer may be criticised for not having played by the rules.

The clause also sets a period, which by law cannot be less than one month from signature. In practice, notaries and drafters often choose a period of forty-five to sixty days, which is more realistic given current bank processing times. During this period, the buyer must submit the loan application and obtain a response.

The concrete risks of committing before having the financing

While the loan condition precedent neutralises the main risk, it does not cover every situation. Signing a preliminary agreement before the bank's approval exposes the buyer to several difficulties that must be kept in mind.

The first risk concerns the deposit. On signing the agreement, the buyer generally pays a sum equal to five to ten per cent of the price, held in escrow by the notary or the estate agent. If the loan condition precedent properly fails, this sum is returned in full. But as long as the dispute has not been resolved, in particular if the seller challenges the genuineness of the bank's refusal, the funds may remain blocked for several months. The buyer is then left without his or her down payment to reposition another project. The calculation and the terms of the escrow of this sum are set out in our guide on the deposit on a property purchase.

The second risk is that of the running time limit. A buyer who is slow to submit the loan application, or who hesitates repeatedly, may see the period of the condition precedent expire. Once that deadline has passed, the situation becomes more complicated: the seller may serve formal notice on the buyer to perform and, depending on how the agreement is drafted, treat the condition as deemed fulfilled for lack of diligence.

The third risk concerns purchases outside the scope of the Scrivener Act. The statutory protection of the condition precedent applies to residential property or property for both professional and residential use. A purely professional acquisition, commercial premises bought by a company, or a purchase by an investor acting in a professional capacity may fall outside this protective regime. In those cases, the loan condition precedent is not automatic: it must be expressly negotiated and inserted, failing which the buyer commits without a safety net.

The fourth risk, more insidious, is that of overestimating one's borrowing capacity. Signing an agreement while betting on a bank approval that one has not prepared, without having checked one's debt ratio or consulted a broker, amounts to gambling with the clause. Since the recommendations of the High Council for Financial Stability (Haut Conseil de stabilité financière) became binding in 2022, borrowers' debt-service ratio has been capped, generally at thirty-five per cent of income, insurance included, with a maximum loan term. A buyer who ignores these constraints may believe himself or herself protected by the condition precedent when he or she has in fact engineered his or her own failure.

The pitfalls that cause the benefit of the condition precedent to be lost

The loan condition precedent only operates if the buyer has acted in good faith. The Civil Code lays down a decisive rule in Article 1304-3:

Article 1304-3 of the French Civil Code: “A condition precedent is deemed fulfilled if the party who had an interest in it has prevented its fulfilment.”

In other words, a buyer who deliberately sabotages the loan application cannot rely on the refusal to recover the deposit and withdraw. The case law regularly penalises disloyal conduct. Several situations arise frequently.

• Failure to submit a loan application. A buyer who approaches no bank, or who produces a mere refusal email with no file behind it, does not show that he or she genuinely sought financing. The courts then treat the condition as deemed fulfilled.
• An application that does not match the characteristics of the agreement. Applying for a higher amount, a shorter term or a lower rate than those stated in the clause distorts the condition. The refusal obtained does not correspond to the loan described.
• Deliberate deterioration of one's creditworthiness. Taking out a significant consumer loan between signature of the agreement and submission of the mortgage application, resigning from one's job, or changing one's situation so as to bring about a refusal, exposes the buyer to losing the benefit of the clause.
• A single application. Some agreements require at least two applications to be submitted to different institutions. Being content with a single bank, when the contract requires several, may be characterised as a breach.

It is accepted in French law that the burden of proving the genuineness of the steps taken rests on the buyer. It is for the buyer to show that a compliant and complete application was submitted, and that the refusal is real. Keeping evidence of one's steps is therefore not an incidental precaution: it is the condition of obtaining a refund.

The role of the refusal certificate

In practice, a bank that refuses a loan issues a refusal certificate. This document is the key item for triggering the condition precedent. It must still be usable: a certificate must state that the application related to a loan matching the characteristics of the agreement. A vague refusal, with no amount or term, leaves the buyer exposed to challenge by the seller, who may suspect an application deliberately sized to fail. The time limits to be observed after the refusal and the remedies open to the buyer are detailed in our article on the signed preliminary sale agreement where the loan is refused.

How to protect oneself before signing

Most of the protection is determined before signature. A well-prepared buyer turns a preliminary agreement signed without bank approval into a controlled formality rather than a gamble.

Preparing one's financing before signing

Even before signing, it is prudent to obtain a detailed simulation, ideally a feasibility certificate from a broker or an agreement in principle from a bank. This agreement in principle is not a firm loan offer, but it gives a solid indication of borrowing capacity. It makes it possible to calibrate the characteristics of the loan condition precedent on realistic figures rather than on optimistic estimates.

A prudent buyer checks three parameters before signing: his or her debt ratio against the ceiling in force, the amount of his or her personal contribution, and the consistency between the price of the property and his or her real capacity. Signing an agreement in the hope that the bank will follow, without these checks, amounts to leaving matters to chance.

Negotiating the drafting of the condition precedent

The drafting of the loan condition precedent deserves particular attention. Several points must be negotiated and checked before signature.

• The amount of the loan must correspond to the real financing need, after deduction of the down payment. An understated amount would mean that the buyer could not rely on a refusal relating to the sum actually required.
• The maximum interest rate must be set realistically, above the market rates of the day, so that a rise in rates does not trap the buyer. A ceiling rate that is too low renders the condition ineffective: the bank will offer a higher rate, technically in line with the market but exceeding the ceiling, without this amounting to a genuine refusal.
• The term of the loan must be consistent with the ability to repay.
• The period for fulfilment of the condition must be sufficient, never less than the statutory month, and preferably close to forty-five to sixty days given actual bank processing times.

It is also useful to specify the number of banks to be approached and to provide for how the steps taken are to be evidenced. These stipulations protect the buyer as much as they reassure the seller.

Documenting every step

Once the agreement is signed, the buyer must act quickly and keep a record of everything. Loan applications should be submitted without delay, and the acknowledgements of receipt, the emails exchanged with bank advisers, the requests for further documents and, where applicable, the refusal certificates should be kept. This traceability is the best defence if the seller challenges the genuineness of the steps taken.

Having the agreement reviewed before committing

A signed preliminary contract is binding. Having the draft agreement reviewed by a French lawyer (avocat) or a notary before signature makes it possible to check the soundness of the condition precedent, the accuracy of the characteristics of the loan, the consistency of the time limits and the absence of any trap clause, in particular as to the fate of the deposit. This review, often neglected, costs infinitely less than litigation over the return of the funds. The clauses to check before signing the preliminary contract are reviewed in our article on the model preliminary sale agreement.

The special case of the buyer who waives the loan

Some buyers have the necessary funds and buy in cash, or do not wish to mention bank financing in order to strengthen their offer against other candidates. The law strictly regulates this situation. Article L313-40 of the French Consumer Code requires that, where the buyer declares that he or she will not use a loan, the instrument contain a handwritten statement by the buyer acknowledging that he or she has been informed that, if he or she nevertheless takes out a loan, he or she will not be able to rely on the protection of the condition precedent.

This handwritten statement is not a trivial formality. By waiving, the buyer undertakes to pay the price out of his or her own funds. If the buyer changes his or her mind and ultimately applies for a loan that is refused, he or she cannot invoke the statutory condition precedent: the buyer remains bound to buy or must compensate the seller. The waiver of the loan must therefore be a carefully considered decision, never an improvised strategy to appear stronger than another buyer.

Conclusion: committing knowingly rather than as a gamble

Signing a preliminary sale agreement before the bank's approval is neither reckless nor avoidable: it is the normal order of operations, and the Scrivener Act precisely organised the protection of the borrowing buyer around the loan condition precedent. The real danger lies not in signing without secured financing, but in a poorly drafted clause, a period that is too short, an unrealistic ceiling rate, or conduct that deprives the buyer of the benefit of the condition.

The position taken in this guide is clear: a buyer's security is not built after the bank's refusal, but before the agreement is signed. Prepared financing, a clause negotiated on realistic figures and rigorous traceability of the steps taken are enough to turn a preliminary agreement signed without bank approval into a controlled commitment.

Before signing, have the draft agreement and the wording of the loan condition precedent reviewed by a professional, and check that the ceiling rate and the period genuinely match the market and the bank processing times of the day. It is this upstream precaution, more than any step taken after a refusal, that durably protects your purchase and your deposit.

Frequently asked questions

Can one sign a preliminary sale agreement without the bank's approval?

Yes, and this is in fact the usual situation. Banks only issue a firm loan offer after the preliminary contract has been signed, on the basis of an identified property and price. For a residential purchase financed by a loan, Article L313-41 of the French Consumer Code requires the agreement to be concluded subject to the condition precedent of obtaining the loan. This clause protects the buyer if the financing is ultimately refused.

Is the loan condition precedent mandatory in a preliminary sale agreement?

For an individual buyer financing a home by a loan, yes: it is mandatory under Articles L313-40 and L313-41 of the French Consumer Code. Its duration cannot be less than one month from signature. It is not automatic, however, for purely professional acquisitions or cash purchases, where it must be expressly negotiated. Where the loan is waived, a specific handwritten statement is required.

What happens if I lose my financing after signing the agreement?

If the bank's refusal relates to a loan matching the characteristics stated in the condition precedent (amount, term, maximum rate), the condition fails and the sale is not formed. The buyer then recovers the whole of the deposit without compensation. The buyer must nevertheless prove that a genuine and compliant application was submitted, supported by the refusal certificate. A careless file or a non-compliant application may cause the buyer to lose this protection.

How long does the loan condition precedent last?

The law sets a minimum duration of one month from signature of the agreement, under Article L313-41 of the French Consumer Code. In practice, drafters most often choose forty-five to sixty days, which is better suited to actual bank processing times. This period may be extended by mutual agreement between the parties if the processing of the file is delayed. Once the deadline has passed without an extension, the situation must be clarified without delay.

Can I lose my deposit if the bank refuses the loan?

No, provided that you have played by the rules. If the refusal is genuine and relates to a loan matching the agreement, the deposit is returned in full. However, Article 1304-3 of the French Civil Code provides that the condition is deemed fulfilled if the buyer has himself or herself prevented its fulfilment, for example by submitting no application, by applying for a non-compliant loan or by deliberately damaging his or her creditworthiness. In those cases, the seller may keep the deposit.

Should an application be submitted to several banks?

That depends on how the agreement is drafted. Some preliminary contracts require at least two applications to be submitted to different institutions. Approaching only one bank when the contract requires several may be analysed as a breach of the duty of diligence. It is prudent to check this clause before signing and to keep evidence of each step.

What is the difference between an agreement in principle and a loan offer?

An agreement in principle is a favourable indication given by the bank before the file has been fully reviewed: it does not bind the bank definitively. A loan offer, governed by Articles L313-24 et seq. of the French Consumer Code, is a firm document which, once accepted after the statutory ten-day reflection period, binds the bank. Only the loan offer genuinely fulfils the condition precedent. An agreement in principle is reassuring but is not enough to treat the financing as secured.