I. About This Article
Sale with the right of redemption is a legal instrument often used in transactions involving real estate, commercial assets or other significant property, where the seller retains the right to redeem the sold property within a certain period.
At first glance, such an agreement may appear simple: the seller sells the property and keeps the right to recover it through redemption. However, in practice, sale with the right of redemption is often connected with serious legal risks, especially where the parties use this form not for a genuine sale, but to conceal a loan or another legal relationship.
The practice of the Supreme Court of Georgia shows that a sale agreement with the right of redemption may be a fully valid transaction if the parties’ real will is directed toward sale of the property and agreement on the seller’s right of redemption. However, if the formally concluded sale in fact conceals a loan, mortgage or another obligation secured by transfer of ownership, the issue of a sham transaction may arise.
In practice, such disputes often begin when the seller argues that the property was not actually sold and that the purpose of the agreement was only to receive money or secure repayment of a debt. The buyer, on the other hand, usually argues that the property was genuinely purchased and that, after expiry of the redemption period, the buyer became the full owner.
This article explains what sale with the right of redemption means, what rights the seller has, what restrictions apply to the buyer, how the redemption price is determined and what happens if the seller does not exercise the right of redemption within the agreed period.
The article also discusses the legal nature of the right of redemption, the importance of the redemption period, transfer of possession, the relationship between the sale price and the real value of the property, risks of sham transactions, burden of proof and recent practice of the Supreme Court of Georgia.
II. What Is Sale with the Right of Redemption?
Under Article 509 of the Civil Code of Georgia, if the seller has the right of redemption under a contract of sale, the exercise of this right depends on the will of the seller.
This means that sale with the right of redemption is a sale agreement where the seller transfers property to the buyer but retains the right to redeem it within the agreed period.
In this relationship, the seller has the right to exercise redemption within the agreed period, while the buyer, if the right of redemption is properly exercised, must accept the redemption price and return the property to the seller.
The right of redemption is a right, not an obligation. The seller decides whether to exercise it. However, if the seller does not exercise the right within the agreed period, the buyer’s ownership is no longer restricted by the condition of redemption.
III. How Does Sale with the Right of Redemption Differ from an Ordinary Sale?
In an ordinary sale, the buyer acquires ownership of the property and, as a rule, may freely possess, use and dispose of the purchased property.
In a sale with the right of redemption, the buyer’s position is different. Although the buyer acquires the property, the buyer’s ownership is temporarily restricted by the seller’s right of redemption.
The practice of the Supreme Court of Georgia explains that, during the redemption period, the buyer is restricted by the seller’s redemption right. The buyer may not disregard the seller’s right of redemption or refuse to return the property if the seller exercises the right within the agreed period and in the proper manner.
This is what distinguishes sale with the right of redemption from an ordinary sale: on the one hand, ownership is transferred to the buyer; on the other hand, the seller temporarily retains a special right to recover the property through redemption.
For more information about ordinary sale agreements, see our blog: Sale and Purchase Agreement — What You Should Know About Defective Goods, Payment of Price and Withdrawal from Contract.
IV. What Rights Does the Seller Have in Case of the Right of Redemption?
The seller has the right to redeem the transferred property within the period agreed in the contract.
The exercise of the right of redemption depends on the seller’s will. This means that the seller cannot be sanctioned merely because the right of redemption was not exercised. If the seller decides to exercise redemption, the seller must act in accordance with the contract and the law.
The seller must exercise the right of redemption in time. If the contract defines a specific redemption period, after expiry of that period the seller loses the right to demand return of the property from the buyer on the same terms.
At the same time, exercise of the right of redemption, as a declaration of will that must be received by the other party, should reach the buyer. A mere internal intention or oral desire is generally not sufficient. In practice, a clear and documentable notice is required.
V. What Rights and Restrictions Does the Buyer Have During the Redemption Period?
In a sale with the right of redemption, the buyer acquires the property, but the buyer’s ownership is temporarily restricted.
The buyer may not dispose of the purchased thing before exercise of the right of redemption in a manner that makes the seller’s redemption right impossible or ineffective. Article 513 of the Civil Code of Georgia directly provides that if the buyer transfers the thing before exercise of the right of redemption, such transfer is void.
This rule protects the seller. The right of redemption must be real and not merely a formal clause in the contract.
However, if the redemption period expires and the seller does not exercise the right, the restriction on the buyer is generally removed. After that, further sale or other disposal of the property depends on the buyer’s will.
VI. How Is the Redemption Price Determined?
Under Article 510 of the Civil Code of Georgia, redemption is exercised by paying the initial price.
This means that, as a rule, the seller must redeem the property at the price for which it was initially sold. However, the law also provides for certain adjustments.
The buyer may demand the amount by which the value of the goods increased up to the moment of redemption as a result of useful expenditures. For example, if the buyer made useful expenditures on the property that increased its value, this may affect the redemption amount.
On the other hand, the redeemer may demand deduction of the amount by which the value of the goods decreased before redemption. Therefore, the redemption price is not always a simple mechanical return of the original sale price. In some cases, assessment of the condition of the property and expenditures may be required.
VII. What Happens to Accessories Upon Redemption?
Under Article 511 of the Civil Code of Georgia, the buyer must return the purchased thing together with its accessories.
This rule is important because redemption does not concern only the main object in isolation. If the property has accessories that legally or functionally belong to it, they should also be returned together with the redeemed thing.
For example, where the subject of the sale is real estate or a commercial asset, accessories, equipment or other related components may become practically important. The contract should clearly define what belongs to the property and what must be returned in case of redemption.
VIII. What Happens If the Buyer Damages or Modifies the Thing Before Redemption?
Under Article 512 of the Civil Code of Georgia, if the buyer damages or modifies the thing before the seller exercises the right of redemption, the buyer must reimburse the seller for the damage caused.
This rule protects the economic value of the seller’s redemption right. The buyer cannot reduce the value of the property during the redemption period and then return it in a damaged or materially altered condition without consequences.
In practice, this issue may become important where the property has been physically changed, deteriorated, reconstructed, used in a way that caused damage or otherwise modified before redemption.
Therefore, in a sale with the right of redemption, the parties should clearly regulate the permitted use of the property during the redemption period, responsibility for maintenance, improvements, damage and reimbursement.
IX. What Is the Importance of the Redemption Period?
The redemption period is one of the central elements of this type of agreement.
The seller has the right of redemption only within the agreed period. If the seller does not exercise the right within that period, the seller can no longer demand that the buyer return the property on the same terms.
The practice of the Supreme Court of Georgia explains that the buyer’s ownership is restricted during the redemption period. After expiry of that period, the right to sell, retain or otherwise dispose of the property belongs to the true owner, namely the buyer.
Therefore, the redemption period should be clearly defined. The contract should state when the period begins, when it ends, in what form redemption must be exercised and what consequence follows if the period is missed.
Under Article 514 of the Civil Code of Georgia, the period during which the right of redemption may be exercised may not exceed 10 years. This period may not be extended.
X. What Happens If the Seller Does Not Exercise the Right of Redemption in Time?
If the seller does not exercise the right of redemption within the agreed period, the seller loses the right to demand return of the property from the buyer on the same terms.
This does not mean that the seller is absolutely prohibited from buying the property again. The seller may offer to purchase the property even after expiry of the redemption period. However, in such a case, the buyer is no longer obliged to sell the property at the initial price or on any other terms.
After expiry of the redemption period, the buyer is generally released from the restriction created by the right of redemption and may use, transfer or otherwise dispose of the property.
For this reason, control of the redemption period is critically important for the seller. Missing the deadline may mean final loss of control over the property.
XI. Can Sale with the Right of Redemption Conceal a Loan?
In practice, one of the most difficult issues is whether a specific sale with the right of redemption is a genuine sale or whether it only conceals a loan or security arrangement.
The Supreme Court of Georgia recognizes that a sale agreement with the right of redemption and a loan agreement secured by transfer of ownership may have similar factual features.
For example, a person receives money and formally enters into a sale with the right of redemption. If the real purpose of the parties was not sale of the property, but granting a loan and using the property as security, the transaction may be qualified as a sham transaction.
Therefore, in such disputes, the court does not limit itself to the title of the agreement. It assesses the real will of the parties, their conduct, amount of money transferred, value of the property, transfer of possession, redemption period and other relevant circumstances.
XII. What Is a Sham Transaction in the Context of Sale with the Right of Redemption?
A sham transaction exists where the parties formally conclude one transaction but actually intend to conceal another transaction.
In the context of sale with the right of redemption, sham character often appears where the parties formally execute a sale agreement but in reality conceal a loan agreement, mortgage or an obligation secured by transfer of ownership.
Under Article 56 of the Civil Code of Georgia, if parties use a simulated transaction to conceal another transaction, the rules applicable to the concealed transaction apply.
For more information about this issue, see our blog: Unlawful Transaction – When a Contract Does Not Produce Legal Effects.
XIII. What Criteria Does the Court Use to Distinguish a Genuine Sale from a Concealed Loan?
The practice of the Supreme Court of Georgia has developed several important criteria for assessing whether a genuine sale with the right of redemption was concluded or whether a loan was concealed.
The first criterion is whether the buyer actually took possession of the property. If the buyer did not actually take possession and the seller continues to possess and use the property, this may be one of the indicators that the parties’ real will was not directed toward genuine sale.
The second criterion is the redemption period. If the redemption period is unreasonably short, this may indicate that the agreement was actually used as an instrument to secure repayment of money.
The third criterion is the relationship between the sale price and the real value of the property. If the sale price is significantly lower than the real value of the property, this may strengthen the suspicion that the transaction actually served as security for a loan.
At the same time, the Supreme Court emphasizes that the existence of any one of these criteria does not automatically mean invalidity of the transaction. The court assesses the circumstances as a whole.
XIV. Why Does Transfer of Possession Matter?
Transfer of possession is one of the important factors in assessing the validity of a sale with the right of redemption.
If the buyer truly acts with the purpose of acquiring the property, it is natural that the buyer will generally have an interest in taking possession of the purchased property, using it or at least actually exercising ownership powers.
However, due to the specific nature of sale with the right of redemption, it is not always necessary for the buyer to take possession immediately. In some cases, the seller may continue to possess the property during the redemption period because the practical purpose of the agreement may require such a regime.
Therefore, non-transfer of possession alone may not be sufficient to declare the transaction invalid. But if it is accompanied by other circumstances – a short redemption period, low price, evidence of a loan or a security purpose – it may become an important indicator of invalidity of the sale with the right of redemption.
XV. Why Does the Relationship Between the Sale Price and the Real Value of the Property Matter?
The relationship between the sale price and the real value of the property is also an important circumstance.
In civil law, parties are free to determine the price. The mere fact that property was sold below market value does not automatically mean that the agreement is sham or invalid.
However, in a sale with the right of redemption, the price has special importance. If the sale price is significantly lower than the real value of the property, while the agreement is concluded for a short period and the buyer does not actually take possession, the court may suspect that the transaction did not actually serve the purpose of selling the property.
In such disputes, it is important to assess not only the amount of the price, but also the economic logic of the transaction from the perspective of the parties.
XVI. Why Does the Reasonableness of the Redemption Period Matter?
The reasonableness of the redemption period is an important indicator for identifying the real nature of the transaction.
If the redemption period is very short, for example several weeks or several months, and the economic terms of the agreement resemble repayment of a loan, the court may conclude that the real purpose of the transaction was not sale of property, but securing repayment of money.
Article 514 of the Civil Code of Georgia sets the maximum period for exercising the right of redemption at 10 years. This does not mean that a shorter period is automatically impermissible. The parties may agree on a shorter period.
However, a short period may become relevant when assessed together with other circumstances, such as low sale price, non-transfer of possession, evidence of debt or a security purpose.
XVII. How Is the Burden of Proof Distributed in Disputes Over Sale with the Right of Redemption?
The burden of proof has particular importance in disputes concerning the validity of a sale with the right of redemption.
As a general rule, each party must prove the circumstances on which it bases its claim or defence. If the seller argues that the agreement actually concealed a loan, the seller must present evidence supporting this position.
Such evidence may include a loan agreement, receipt confirming transfer of money, acknowledgement of debt, evidence of interest payments, correspondence, witness testimony, valuation of the property or other circumstances.
For more information about acknowledgement of debt, see our blog: Acknowledgement of Debt – What You Should Know About Confirmation of Debt, New Claim and Limitation Risks.
At the same time, according to the practice of the Supreme Court of Georgia, where there are circumstances that make the validity of the transaction doubtful – for example non-transfer of possession, an unreasonably short redemption period and a price inconsistent with the value of the property – the burden of proving the validity of the agreement may shift to the person relying on its validity, usually the buyer.
XVIII. When May a Sale Agreement with the Right of Redemption Be Declared Invalid?
A sale agreement with the right of redemption may be declared invalid on several grounds.
First, if it is established that the transaction is sham and actually conceals another transaction. In such a case, the legal nature and validity of the concealed transaction must be assessed.
Second, if the transaction contradicts mandatory requirements of law, public order or morality. For example, if the concealed loan agreement contradicts a statutory prohibition, the issue of invalidity of the concealed transaction may also arise.
For more information about invalidity caused by contradiction with legal requirements, see our blog: Unlawful Transaction – When a Contract Does Not Produce Legal Effects.
Third, if there is a defect of will – fraud, coercion, mistake or another circumstance that affected the will of a party.
Fourth, if the contract was formally concluded but the parties did not actually intend the legal consequences arising from it.
Assessment of these issues always requires analysis of specific factual circumstances, documents, payments, conduct of the parties and evidence.
XIX. What Happens If Only One Clause of the Agreement Is Invalid?
It is possible that a sale agreement with the right of redemption is not invalid as a whole, but that one specific clause is invalid.
The Supreme Court of Georgia has considered a case where one clause of the agreement effectively imposed a sanction on the seller for not exercising the right of redemption. The Court noted that the right of redemption depends on the seller’s will and that sanctioning its non-exercise does not correspond to the legal nature of this right.
If a specific clause of the agreement is invalid, this does not always mean invalidity of the entire agreement. Under the general rules of the Civil Code of Georgia, it must be assessed whether the agreement would have been concluded without the invalid clause. If it is established that the agreement would not have been concluded without that clause, the entire agreement may be treated as invalid.
If one party received money or another economic benefit without legal basis under an invalid clause, the issue of returning it under unjust enrichment rules may also arise.
XX. What Should a Business or Individual Consider Before Entering into Such an Agreement?
Sale with the right of redemption requires particular caution from both the seller and the buyer.
First, the parties should clearly determine whether their real purpose is sale of the property and agreement on the right of redemption, or whether they are trying to secure a loan or another obligation. If the real purpose is securing a loan, formal execution of a sale may create serious legal risk.
Second, the agreement should clearly define the redemption period, redemption price, form of notice, payment procedure, possession of the property and consequences of expiry of the redemption period.
Third, the buyer should assess whether and how the property may be disposed of during the redemption period and what restrictions apply.
Fourth, the seller should understand that missing the redemption period may result in final loss of the property.
Fifth, if the agreement is connected with a loan, debt or payment schedule, that relationship should be regulated through the legally appropriate instrument, rather than through a form that may later create the risk of a sham transaction.
XXI. How TB Legal Can Help
Within our contract law services, TB Legal assists businesses and individuals with preparation of sale agreements with the right of redemption, legal assessment of existing agreements, analysis of sham transaction risks, management of disputes related to redemption periods and development of strategies concerning return of property.
Our approach is based not only on formal review of the contract text, but also on assessment of the parties’ real purpose, economic interest, property value, evidence, court practice and possible financial risks.
If you plan to enter into a sale agreement with the right of redemption, already have such an agreement or want to assess whether it conceals a loan or another obligation relationship, it is important to obtain legal advice before making a decision.
XXII. Conclusion
Sale with the right of redemption may be an effective and lawful legal instrument if the parties’ will is genuinely directed toward sale of property and agreement on the possibility of redemption within a defined period.
However, the same form may become a serious legal risk if it is used to secure a loan, debt or another obligation. In such a case, the court may assess whether the formal sale is in fact a sham transaction.
The practice of the Supreme Court of Georgia shows that, in such disputes, decisive importance is attached to the parties’ real will, transfer of possession, reasonableness of the redemption period, relationship between the sale price and the real value of the property, evidence of payments and subsequent conduct of the parties.
Contact TB Legal if you plan to enter into a sale agreement with the right of redemption, assess an existing agreement or deal with a dispute related to this type of contract. We will help you analyse legal risks, choose the right strategy and protect your interests.
XXIII. Supreme Court Decisions Used
This article is based on the following decisions and rulings of the Supreme Court of Georgia:
- Supreme Court of Georgia, case No. AS-526-2024, 6 March 2026, Tbilisi.
- Supreme Court of Georgia, case No. AS-876-834-2013, 25 February 2016, Tbilisi.
- Supreme Court of Georgia, case No. AS-265-265-2018, 31 October 2018, Tbilisi.
- Supreme Court of Georgia, case No. AS-536-2019, 11 June 2021, Tbilisi.
- Supreme Court of Georgia, case No. AS-1090-2021, 18 May 2022, Tbilisi.
- Supreme Court of Georgia, case No. AS-1002-2022, 5 October 2023, Tbilisi.
- Supreme Court of Georgia, case No. AS-1293-2024, 8 November 2024, Tbilisi.
- Supreme Court of Georgia, case No. AS-1043-2024, 5 March 2025, Tbilisi.
- Supreme Court of Georgia, case No. AS-1540-2024, 20 March 2026, Tbilisi.
Disclaimer
This article has been prepared for general informational purposes only and does not constitute individual legal advice or a legal opinion. The issues discussed in this article may be assessed differently depending on the specific factual circumstances, contract terms, conduct of the parties and relevant evidence.
Before making a decision in a specific matter, it is recommended to obtain individual legal advice from a qualified lawyer.
