Preference agreement (Art. 1123 French Civil Code): clearing the beneficiary's right or facing substitution in the sale

An investor signs a promise to sell on an income-producing building, lifts the conditions precedent, completes, and six months later is served with a summons from a third party who claims to be the beneficiary of a preference agreement (pacte de préférence) granted by the seller and asks the court to substitute him in the sale. The asset has been financed, sometimes already restructured, and the dispute concerns not a price adjustment but ownership itself. The mechanism is well known, Article 1123 of the French Civil Code has governed it since 1 October 2016, and it gives the purchaser a tool for clearing the right that practice still under-uses: the interrogatory action (action interrogatoire). This analysis addresses the timing of that clearance, the proof of the double knowledge on which substitution of the purchaser depends, and the choices to be made on the investor's side and the seller's side in a property sale.

What Article 1123 of the French Civil Code requires of the seller

Article 1123, first paragraph, defines the preference agreement as the contract by which a party undertakes to offer its beneficiary priority to contract with it, should it decide to contract. The promisor's obligation is not to sell. It is to offer priority if and when it decides to contract. It is an obligation that is conditional as to when it is triggered, but firm as to its content, and Article 1104 recalls that contracts must be negotiated, formed and performed in good faith, a provision that is expressly mandatory (ordre public).

The agreement remains a contract. It therefore binds only its parties, in accordance with Article 1199. But Article 1200 requires third parties to respect the legal situation created by the contract. This interplay explains the whole mechanism of sanctions: the third-party purchaser does not breach the agreement, since it is not a party to it; it incurs liability and is exposed to eviction if it knowingly took part in the agreement being disregarded.

In practice, the agreements encountered in property matters are found in a variety of instruments: a preference clause inserted in a lease for the tenant's benefit, an undertaking given between co-owners in joint ownership (indivision) or between members of a civil-law company (société civile) holding the asset, an agreement annexed to a settlement protocol. An acquisition audit that is limited to the title deed and the mortgage register misses the essential. The different types of audit, their stages and the parties involved are presented in our article on real estate due diligence.

Not to be confused with a unilateral promise

Article 1124 governs the unilateral promise to sell. Its third paragraph provides that a contract concluded in breach of the unilateral promise with a third party who knew of its existence is void. Three differences shape the exposure to risk. The condition relating to the third party is a single one, mere knowledge of the existence of the promise, whereas Article 1123 requires two. The sanction is nullity, with no possibility of substitution. And Article 1124 contains no interrogatory action: a third party faced with a promise does not have the clearance mechanism of the third and fourth paragraphs of Article 1123.

The counterpoint of the statutory right of first refusal of the commercial tenant

The contractual agreement must likewise not be confused with the statutory right of first refusal in Article L. 145-46-1 of the French Commercial Code, whose mechanism is quite different: notification by registered letter with acknowledgement of receipt stating the price and conditions on pain of nullity, a notification that constitutes an offer of sale, a period of one month for the tenant to decide, then two months to complete the sale, extended to four months where a loan is used. Law No. 2026-403 of 26 May 2026 clarified, in its Article 61, the definition of premises for commercial use, understood as any premises intended for the principal exercise of a retail or wholesale trade or of commercial services, including adjoining storerooms and spaces, excluding premises used exclusively as offices and warehouses, as well as that of premises for craft use. These definitions apply only to transfers taking place after the promulgation of the law. The same building may be subject to both constraints: a statutory right for the tenant and a contractual agreement for a third party. The two are cleared by different routes. The clearance mechanism, the exclusions and the sanctions of this statutory right are detailed in our analysis of the commercial tenant's right of first refusal.

The hierarchy of sanctions: damages, nullity, substitution

The second paragraph of Article 1123 sets up a two-tier scale.

Where a contract is concluded with a third party in breach of a preference agreement, the beneficiary may obtain compensation for the loss suffered. Where the third party knew of the existence of the agreement and of the beneficiary's intention to rely on it, the latter may also bring an action for nullity or ask the court to substitute him for the third party in the contract concluded.

The first tier is obtained by the breach alone: the beneficiary obtains compensation for its loss, and that compensation is sought from the promisor on a contractual basis, and from the third party at fault on the basis of Article 1240.

The second tier requires two cumulative conditions, and this is where the investor's real exposure lies. The third party must have known of the existence of the agreement. It must also have known of the beneficiary's intention to rely on it. Knowledge of the existence of the agreement alone is not enough to open nullity or substitution. The converse is also true: a third party who is told that a neighbour "would like to buy the building if it is sold", without any agreement being disclosed to it, is not in the situation of the second paragraph.

Two points of drafting in the text deserve attention, because they govern procedural strategy. First, the beneficiary has a choice between nullity and substitution: it is not obliged to seek the annihilation of the sale, and may prefer to take its place. Second, substitution does not operate automatically. The text says ask the court to substitute him. It requires a court decision, and therefore delay, adversarial exchanges and an evidential burden on the claimant.

If the route of nullity is chosen, the ordinary rules apply. Article 1178 requires nullity to be pronounced by the court, unless the parties record it by mutual agreement. The annulled contract is deemed never to have existed, performance already rendered gives rise to restitution under the conditions laid down in Articles 1352 to 1352-9, and the injured party may, independently of the annulment, seek compensation on a non-contractual basis. Article 1123 does not specify whether this nullity is relative or absolute, and Articles 1178 to 1182 lay down only the general regime; the characterisation, which determines who may bring the action and whether confirmation is possible within the meaning of Article 1182, must be handled with care in the pleadings.

Proof of double knowledge: the tipping point of the case

The whole stake of the dispute is concentrated on a point of fact. The beneficiary who claims substitution must establish that the purchaser knew of the existence of the agreement and of its intention to rely on it. This double-knowledge requirement, adopted by the case law before the reform and then taken up by the Ordinance of 10 February 2016, remains delicate to handle: it concerns a state of mind of the third party, which can be proved only by documentary indications.

On the investor's side, the documents capable of feeding the opposing case can be identified as soon as the file is examined:

• entries in the seller's title deed or in an earlier instrument in the chain of title
• the lease disclosed in the data room where it contains a preference clause in favour of the tenant
• email exchanges with the seller, its adviser or the intermediary, in which the agreement is mentioned, even in passing
• a letter sent by the beneficiary to the seller and placed in the sale file
• audit reports or internal investment committee notes mentioning the subject

A structural fact must be taken into account: what appears in the data room is, by hypothesis, deemed known to the purchaser who had access to it. Knowledge of the existence of the agreement is therefore often easy to establish. It is knowledge of the intention to rely on it that constitutes the lock. A purchaser may perfectly well know that an agreement exists and not know that its beneficiary intends to exercise it. The interrogatory action serves precisely to leave this grey area, but it has an ambivalent effect that will be examined below.

Land registration and enforceability against third parties

Article 710-1 of the Civil Code provides that any instrument or right, in order to give rise to land registration formalities, must result from an instrument drawn up in authentic form by a notary practising in France, from a court decision or from an authentic instrument issued by an administrative authority. The same text adds that the deposit among a notary's records of a private instrument (acte sous seing privé), whether or not countersigned, even with acknowledgement of writing and signature, cannot give rise to land registration formalities.

The direct practical consequence: a preference agreement concluded by private instrument cannot be registered as it stands in the land register, and the reflex of depositing it with a notary changes nothing about that impossibility. A beneficiary who wishes to make its right visible must have had the agreement drawn up in authentic form. The question of the exact effects of such registration on the enforceability of the agreement and on proof of the third party's knowledge falls within the specific regime of land registration and must be settled with the drafting notary, text in hand, before any strategy is built on it.

Conflict between purchasers and the good faith condition

Where the beneficiary has actually exercised its preference and a sale has been formed in its favour, but the seller has in parallel sold to a third party, the conflict is resolved under Article 1198, second paragraph: where two successive purchasers of rights in the same building derive their right from the same person, the one who first registered his title of acquisition drawn up in authentic form in the land register is preferred, even if his right is later in time, provided that he is in good faith. Good faith is an express condition of the text, not an equitable corrective. A purchaser who registers first although it knew the building had already been sold to the beneficiary derives no benefit from its diligence. The race to registration protects only the one who did not know.

The interrogatory action of the third and fourth paragraphs: who, when, how

The third and fourth paragraphs of Article 1123 give the third party a means of clearing the right:

The third party may ask the beneficiary in writing to confirm, within a period that it sets and which must be reasonable, the existence of a preference agreement and whether the beneficiary intends to rely on it. The writing states that, failing a reply within that period, the beneficiary of the agreement may no longer seek to be substituted in the contract concluded with the third party or the nullity of the contract.

The holder of the action is the third party, not the seller

The text reserves the initiative to the third party, that is, the prospective purchaser. A seller bound by an agreement cannot clear the right itself by this route: its own obligation is to offer priority to the beneficiary, in the form and on the conditions provided for in the agreement. The interrogatory action is a tool for securing the purchaser's position, not a substitute for good faith performance by the promisor. In a case where the seller disputes the existence or scope of the agreement, it is therefore for the purchaser to take the initiative of the writing, in its own name.

The content of the writing

The text requires a writing, two questions and a statement. The two questions are the existence of a preference agreement and the beneficiary's intention to rely on it: asking only about the existence of the agreement means missing half of the purpose and leaving in place the most discriminating condition of the second paragraph. The statement, for its part, is reproduced by the text itself: failing a reply within the period, the beneficiary may no longer seek to be substituted in the contract concluded with the third party or the nullity of the contract. It must appear in the writing. Reproducing it word for word is the minimum precaution.

The text requires no particular form beyond a writing. A registered letter with acknowledgement of receipt, or even an act of a commissaire de justice (bailiff), is called for by evidential logic alone: one day it will be necessary to prove dispatch, receipt and date.

The "reasonable" period: no statutory length

The text sets a requirement of quality, not a length. The third party sets the period, and that period must be reasonable. No figure appears in Article 1123. The mistake to avoid is to transpose the six months of Article 1183, which concerns an entirely different interrogatory action, the one available in respect of nullity: a party may ask in writing the party who could rely on nullity either to confirm the contract or to bring an action for nullity within six months, on pain of lapse (forclusion). The six months are the period under Article 1183, not that of the preference agreement.

The 2016 reform created three interrogatory actions that must be distinguished: Article 1158, on the authority of a contractual representative, with a period set by the third party which must be reasonable; Article 1183, on nullity, with six months on pain of lapse; Article 1123, on the preference agreement, with a period set by the third party which must be reasonable. Setting too short a period exposes the purchaser to seeing the clearance deprived of effect, reasonableness being a matter for the court's assessment in light of the circumstances. Setting a comfortable period costs transaction timetable. It is a trade-off, and it is decided according to the value of the asset and the cost of post-acquisition litigation.

What silence clears, and what it does not

The fourth paragraph is precise and should not be widened. Failing a reply, the beneficiary may no longer seek to be substituted in the contract concluded with the third party or the nullity of the contract. The text refers neither to the action for compensation opened by the second paragraph, nor to the beneficiary's remedies against the promisor. To state that silence forfeits every remedy is inaccurate. The fate of the compensation claim of a beneficiary who has remained silent is a debated question, which the text does not settle. The purchaser who has cleared the right is therefore protected against eviction, though not necessarily against the existence of a compensation dispute between the seller and the beneficiary, which matters in assessing the liabilities warranty (garantie de passif) and the seller's representations.

The ambivalent effect of a positive reply

If the beneficiary replies by confirming the existence of the agreement and its intention to rely on it, the purchaser is exactly in the situation covered by the second paragraph: it knows both elements. To ask is therefore to accept crystallising one's own knowledge. Going ahead in spite of a positive reply and acquiring nonetheless exposes the purchaser squarely to nullity or substitution. The decision to trigger the interrogatory action must be taken in the knowledge that the alternative it opens is binary: either the right is cleared, or the transaction must be abandoned or restructured.

There remains the case of an incomplete reply, for example confirmation of the existence of the agreement without any position on its exercise. The text attaches the clearing effect only to a "failure to reply". A partial reply is not silence, and the purchaser cannot automatically rely on the fourth paragraph in that situation. It is better to chase and to document.

Agreements predating 1 October 2016 can be cleared

A transitional-law point that is frequently missed in files concerning buildings held for a long time. Article 9 of Ordinance No. 2016-131 of 10 February 2016, as worded following Article 16 of Law No. 2018-287 of 20 April 2018, provides that contracts concluded before 1 October 2016 remain subject to the former law, including as regards their statutory effects and mandatory provisions (ordre public). The clarification added in 2018 closed the debate on the immediate application of the new law to the statutory effects of earlier contracts.

The same Article 9 nevertheless reserves an express exception: the provisions of the third and fourth paragraphs of Article 1123 and those of Articles 1158 and 1183 are applicable as soon as this ordinance enters into force. A preference agreement signed in 2009 may therefore be the subject of an interrogatory action today. The clearance tool is available whatever the date of the agreement; the substantive conditions of the sanction, for their part, follow the law applicable to the agreement.

The operational sequence, purchaser's side then seller's side

Investor's side: a timetable, not a boilerplate clause

Clearance has to be placed within the timetable of the transaction, and its position determines its usefulness. Asking after completion by notarial deed no longer makes much sense: the sale has been concluded, and the interrogatory action does not retroactively protect a purchaser whose knowledge is already established. The useful sequence is as follows:

• identification of the agreement at the audit stage, by reading the chain of title, the leases, the articles of association and shareholders' agreements where the asset is held in a company, and earlier protocols
• sending the writing required by Article 1123 to the identified beneficiary, with the two questions and the statement from the fourth paragraph, before or at the same time as signature of the preliminary agreement (avant-contrat)
• making expiry of the period without reply, or the beneficiary's express waiver, a condition precedent of the promise
• keeping the whole chain of evidence: proof of dispatch, acknowledgement of receipt, calculation of the period
• seller's representations and warranties as to the absence of any other agreement, accompanied by specific compensation in the event of substitution or nullity

Where the beneficiary is unknown or cannot be found, the text provides no instructions. The practical arrangements for approaching the beneficiary in that case, and the interplay with clearance clauses inserted in the preliminary agreement, call for a solution to be worked out with the notary, without legal certainty.

Seller's side: clearance does not excuse non-performance

A promisor who sells without having offered priority to the beneficiary incurs contractual liability, even if the purchaser has cleared its own risk through the interrogatory action. The fourth paragraph protects the third party, not the seller. The good faith performance required by Article 1104 requires a seller who decides to contract to give effect to the preference, in the form and on the conditions provided for in the agreement. It should be noted that Article 1123 settles neither the content of the notification to the beneficiary, nor the fate of an offer made on terms less favourable than those granted to the third party: these points depend on the drafting of the agreement, which must be read word by word before any sale is launched.

The residual duration of the risk

No specific period is provided by Article 1123 for the beneficiary's action. The ordinary rules apply: Article 2224 subjects personal actions to a limitation period of five years from the day on which the holder of a right knew or should have known the facts enabling it to exercise it. The floating starting point is the real difficulty: it runs not from the sale but from the beneficiary's knowledge. For an asset acquired without clearance, the exposure may therefore extend well beyond the intended holding period, and emerge at the least favourable moment, that is, on resale, when the next purchaser carries out its own audit.

Conclusion

The preference agreement is not a litigation hazard, it is a documentary risk. It is detected by reading, it is cleared by a writing, and Article 1123 of the Civil Code places the clearance tool exclusively at the purchaser's disposal, including for agreements predating 1 October 2016. The two recurring errors are symmetrical: asking too late, when knowledge has already been established and the transaction is under way, or not asking at all, betting that the beneficiary will be unable to prove double knowledge, a bet that turns on documents which the purchaser itself received in the data room.

Our position is clear: as soon as an agreement appears in the chain of title, in a lease or in a shareholders' agreement, the interrogatory action must be triggered before the preliminary agreement is signed, with a period whose length is decided according to the value of the asset and not the commercial timetable, and expiry of that period without reply must be made a condition precedent. Before any acquisition of an asset held for a long time or arising from a partition, have the complete chain of titles and leases audited with a specific search for preference clauses, and have the writing required by Article 1123 drafted by the adviser in charge of litigation, not the one in charge of the transaction: it is the former who will one day have to produce it before the court.

Frequently asked questions

Must a preference agreement be registered to be enforceable against the purchaser? Article 1123 does not make the sanction in the second paragraph depend on registration: what matters is the third party's knowledge of the existence of the agreement and of the beneficiary's intention to rely on it. Article 710-1 of the Civil Code moreover requires, for any land registration formality, an instrument drawn up in authentic form by a notary, a court decision or an authentic administrative instrument, and specifies that the deposit among a notary's records of a private instrument, even countersigned and with acknowledgement of writing and signature, cannot give rise to land registration. A private-instrument agreement therefore cannot be registered as it stands. The exact effects of registering an authentic agreement fall within the land registration regime and must be checked with the notary.

What period should be set in an interrogatory action based on Article 1123 of the Civil Code? The text sets none. It requires only that the third party set a period "which must be reasonable". The six-month period on pain of lapse belongs to Article 1183, which concerns the interrogatory action in respect of nullity, and cannot be transposed to the preference agreement. Reasonableness is assessed in light of the circumstances, so that a manifestly short period exposes the purchaser to seeing the clearance deprived of effect.

Does the beneficiary's silence cause it to lose every remedy? No. The fourth paragraph of Article 1123 provides that, failing a reply within the period, the beneficiary may no longer seek to be substituted in the contract concluded with the third party or the nullity of the contract. The text does not refer to the action for compensation opened by the second paragraph. The fate of that compensation claim after silence is a debated question, and the seller remains in any event exposed in respect of its contractual obligation.

Can a preference agreement concluded before 1 October 2016 be cleared by the interrogatory action? Yes. Article 9 of Ordinance No. 2016-131 of 10 February 2016, as amended by Article 16 of Law No. 2018-287 of 20 April 2018, keeps earlier contracts under the former law, including as regards their statutory effects and mandatory provisions, but expressly makes the third and fourth paragraphs of Article 1123, as well as Articles 1158 and 1183, applicable as soon as the ordinance entered into force. The clearance tool is therefore available whatever the date of the agreement.

Is substitution of the purchaser automatic where the agreement is breached? No, for two reasons. First, it requires that the third party knew of the existence of the agreement and of the beneficiary's intention to rely on it, two cumulative conditions. Second, it requires a court decision, since Article 1123 provides that the beneficiary may ask the court to substitute him for the third party in the contract concluded. The beneficiary also retains the choice between nullity and substitution.

What is the difference from breach of a unilateral promise to sell? Article 1124, third paragraph, provides that a contract concluded in breach of the unilateral promise with a third party who knew of its existence is void. Only one condition of knowledge is required, and the only sanction provided is nullity, without substitution. Article 1124 contains no interrogatory action: a purchaser faced with a promise does not have the clearance mechanism of the third and fourth paragraphs of Article 1123.

For how long can an ousted beneficiary bring an action? Article 1123 provides no specific period. The action falls under the ordinary rule of Article 2224 of the Civil Code, that is, five years from the day on which the holder of a right knew or should have known the facts enabling it to exercise it. Because the starting point is linked to knowledge, the purchaser's exposure may extend beyond five years after the sale where the beneficiary has not been informed of the transaction.