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Rescinding a Contract: Three Important Steps

An overview of the steps that one has to take when things have gone wrong in a contractual relation under Bulgarian law, i.e. when the opposite party is in breach of the signed contract or has failed to fulfil its obligations and you want to rescind the agreement and seek remedy. In the current property market situation in Bulgaria, in most cases of rescission of a contract, buyers are trying to get out of signed Preliminary Contracts for purchase of real estate such as apartments in a holiday complex, where the developer is in substantial delay to complete the construction or has failed to complete with the promised quality.

Below we address some hypothetical situations in order to give you an idea of the process if the competent jurisdiction is the Bulgarian court.

However, before taking this route it is highly recommended that you entrust your case to an experienced and independent lawyer whose job will be not only to guide you through the process, but before all, to conduct a review of your specific case and to advise you, whether you are the rightful party and are entitled to withdraw from the contract.

In our experience, very often common sense and your logical conclusions deviate from the legal side of a dispute.

I.    First step – rescinding of the contract.

Once your solicitor advises you that you are entitled under the contractual provisions and factual circumstances to rightfully withdraw from your contract and demand full refund plus compensation and/or penalties if such are due, you have to rescind it in the most efficient and provable manner. There is one way to do it – by way of the so-called ‘Notary Invitation’.

The Notary Invitation represents a notice, addressed to the opposite party, in which you present briefly the facts that lead to your decision and most importantly you: (i) declare that you rescind the contract, and (ii) demand refund of the paid moneys and any penalties that may be due. The most characteristic feature of this notice is that it is delivered through a notary public – an official with delegated powers to record events and occurrences and create evidence in the form of official documents.

If the notary invitation is properly delivered in compliance with all legal requirements, it acquires official evidential force before the court, thus preventing the opposite party from stating that it had never been notified of the rescission or invited to refund the paid moneys. It is advisable that all your actions must always be performed in the most efficient way from the point of view of future court proceedings. The notary invitation has to be professionally prepared so that it abides by any requirements as to its content, form and manner of delivery, which may be contained in the contract that will be rescinded or in the applicable law – the correct address of the opposite party (which may differ from the one, stated in the contract) has to be complied with, the respective legal or contractual ground for rescission has to be noted, the claimed amount has to be precisely assessed and calculated. The notary charges, related to the delivery of the notary invitation are about EUR 20 – 30.

Once the notary invitation is duly delivered to the correct person and address, it produces a rescission effect immediately or within a certain period of time, depending on the specific case and contract. Note that sometimes, if the contract contains specific clauses, the rescission effect may not occur, if within a certain period the opposite party fulfills its obligations.

But you must also be aware of the legal force of this notary invitation and that if you change your mind and decide to finalise the deal, that would only be possible if the opposite party also prefers this, regardless of whether the contract had been rescinded or not.

ІІ. Second step – initiation of court proceedings

It is again suggested that this procedure is mainly applied to Preliminary Real Estate Purchase Contracts in which the developer is in default. It is well known that most developers are quite reluctant to admit any default on their part in delaying to fulfil their obligations. They are even more unwilling to refund any moneys they have already received, not to mention payment of any compensations and penalties that may be due on top of the refund. In this situation, the next step following the Notary Invitation is delivered and following the expiry of the terms, determined for voluntary refund, is inevitably to initiate court proceedings. The contract has been duly rescinded, the paid instalments are due back, but are not refunded so this right has to be protected and effected through the relevant Bulgarian court.

The procedure starts with filing of a civil action before the court, which contains full description of the case, the failure of the opposite party to fulfill its obligations, the due rescission of the contract and the failure of the opposite party to refund the due sums within the term given in the Notary Invitation. At the end the writ must contain an explicit demand – what is the amount claimed and preferably – on what legal ground. The claim must be well grounded, consistent and supported with written evidence (as comprehensive as possible).

The filing of the writ involves certain expenses. The main one is the state court charge, which is payable in advance, upon filing of the writ and is currently 4% of the total interest of the action or the claimed amount. During the court proceedings you may also incur some additional expenses such as for official translation of written evidence, expert witness’s reports, travel expenses, in case the defendant is not based in the city where your lawyer is based  (according to the Bulgarian civil procedure rules the case is heard by the court in the main seat of the defendant), etc. When the court case is decided, the court charge is collected from the lost party.

Our legal system has three court instances. The first instance may take from one to two and in some more complicated cases or if one of the parties (or its attorneys) has fragile health (!?) – even more than two years. The second and the third instance are normally much more expeditious.