As we reiterate whenever we have the opportunity, when buying or selling real estate in Spain it is essential to be properly advised. Preferably, by an independent lawyer. In this week’s article we warn you about one of the most common mistakes when buying and selling a property in Spain. The false belief that the initial purchase and sales agreements or documents are meaningless.
Reservation contract, “arras”, deposit contract, etc.
One of the most confusing issues for buyers and sellers (both foreign and Spanish nationals) is the different names given to the private documents in which a sale and purchase can be formalised. Reservation contract. Deposit contract. Private sale or purchase contract. Etc.
It is worth noting that, although given different names, in the majority of cases the initial document signed constitutes a fully consolidated pact. That is to say, from all these documents rights, obligations and legal consequences arise for the parties.
Is there such a thing as an “arras contract“?.
The answer to this question may come as a surprise to many of our readers. No. The so-called “arras contract” does not actually exist as such. The “arras” is not a type of contract, but an agreement that can be included in a purchase/sale contract. The concept of “arras” has its origins in classical Roman Law. As proof of entering into a contract (and as a guarantee of its fulfilment) the buyer used to give to the seller a valuable object, a ring, etc., in a symbolic way.
What types of “arras” are there?. Confirmatory, penal, and penitential.
Confirmatory “arras” are those in which the amounts paid by the buyer constitute an advance on the total price. This type of deposit does not allow the contract to be terminated unilaterally. And in the event of non-compliance by one of the parties, the other party could enforce the contract.
Penalty deposits or “Arras penitenciales” are also the amounts paid to the vendor as a guarantee for the fulfilment of the contract. With an important nuance. If the buyer defaults, he will lose the amounts paid. If it is the seller who defaults, he/she will have to return the amounts received in duplicate. However (as in the case of confirmatory deposits) it will be possible for either party to enforce the agreement from the defaulting party.
Finally, penitential deposits or “Arras penitenciales” allow the unilateral withdrawal from the contract by paying a previously agreed amount, without the other party being able to enforce the agreement.
The importance of a solid agreement and a clear wording from the get-go.
Many clients come to our office after having signed a reservation contract prepared by the real estate agency; under the belief that “The reservation is a document that is signed simply to take the property off the market. There is nothing wrong with signing it. The important contract is the contract of sale”. These statements are completely wrong.
If, after the reservation document has been signed, the parties do not agree on the terms of the private contract (problems in the Land Registry, Cadastre, Septic Tank, Occupation License, etc.) buyers and sellers will be bound by the initially signed document. And this document be very deficient, not clear about the type of deposit or “arras” agreed, etc. Creating a conflict between the parties which, depending on the wording of the initial agreement, can lead to losing the amounts paid, having to return double what was received, being forced to fulfil what was agreed, etc.
Conclusion.
At White Baos Abogados we are experts in real estate law and conveyancing, and we have been advising our clients for more than 20 years in the purchase and sale of real estate in Spain, with all the guarantees. Do not hesitate to contact us. We will study your case and offer you expert legal advice on the initial purchase and sales agreements.
The information provided in this article is not intended to be legal advice, but merely conveys information relating to legal issues.
Carlos Baos (Lawyer)
White & Baos.
Tel: +34 966 426 185
E-mail: info@white-baos.com
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