Section 7:3 of the Civil Code allows buyers of registered property to enter their contracts of sale into the public registers (the land register). This provision was introduced to protect buyers, for instance against breach of contract by sellers transferring the registered property to third parties after signing the contract of sale, or against (prejudgment or executory) attachment on the registered property to the seller’s charge after the contract of sale had been signed. Through registration third parties can become aware of contracts of sale between sellers and buyers. Registration is effective for six months. If the property has not been transferred within those six months, it is fair to assume that the contract of sale has meanwhile been cancelled. The entry of a contract of sale of registered property into the public registers is also called ‘priority notice’.
In practice the priority notice proved ineffective. Some creditors of sellers, instead of attaching the registered property, levied garnishment on the purchase price to be paid by the buyers to the sellers upon transfer of the registered property. Attachments have a blocking effect (Section 475 Code of Civil Procedure) as buyers become personally liable towards the attaching parties for their claims against the sellers if they would still (despite the attachment) pay the purchase price to the sellers. As a result of the attachment, buyers could not pay the purchase price to the sellers – through a civil law notary. Without payment of the purchase price sellers do not wish to transfer the registered property. Because of this the priority notice in fact did not protect buyers. The new provisions included in the Code of Civil Procedure have now rectified this situation as they stipulate that if following entry into the public registers (priority notice) attachment is levied on the purchase price, buyers can make payment to the civil law notary – despite the attachment – and instruct that notary to pay the purchase price to sellers without this resulting in liability of the buyers towards the attachors (Sections 455.2, 475.1 sub e, 475h.3). The civil law notary will then pay the seller and any attachors and mortgage holders from before the priority notice (anterior attachors). The seller can then transfer the registered property to the buyer free from attachments and mortgages and thus the transfer can be completed after all.
The law as amended also dictates (new Section 507b Code of Civil Procedure) that if attachment is levied on registered property after the priority notice (posterior attachment) such attachment is converted by operation of law into attachment on the purchase price against the civil law notary (conversion). The notary will first pay the anterior attachors and mortgage holders out of the purchase price. The remainder of the purchase price is called the surplus. The converted attachment is confined to the surplus, which means that the position of anterior attachors is not affected (and thus the transfer not blocked).
The new provisions in the Code of Civil Procedure protect buyers in the way intended when the priority notice was introduced.
Jetske Heikens
heikens@slangen-advocaten.nl
12 January 2016
