In 2023, more than half a million property sales were completed in Spain. 2024 is on course to surpass that number. While it may seem like a straightforward transaction, property transactions have significant legal and financial implications for both buyers and sellers. Entering into these transactions without specialized legal advice can lead to serious consequences. In this week’s article, we share a new court success from our law firm: a resolution or termination of a sale contract that will result in our clients receiving €69,500 in compensation. You can check the full judgment by clicking HERE.
The Private Sale or Purchase Contract or Reservation Agreement.
Generally, the first step in any property sale or purchase is for both parties to sign a private sale contract or reservation agreement. Signing this document is often accompanied by a payment of a sum of money as part of the total price. Depending on how the contract is worded, the legal consequences of this payment can vary significantly. This is why it is crucial to seek the specialized advice of an independent lawyer before signing any legal document.
Confirmatory, Penal, and Penitential Earnest Money. Judicial or Notarial Requirement.
Sale contracts may include three types of earnest money or “arras” clauses. The penal clause, which sets a financial penalty in the event of a breach but does not allow for unilateral contract cancellation. The penitential earnest money clause, that under art. 1.454 of the Spanish Civil Code, allows unilateral contract termination with compensation. And the confirmatory earnest money clause, which guarantees performance without imposing penalties.
It is common to think that if a deadline set in the contract for a payment is not met, the contract is automatically terminated. This is far from the truth. While a breach by one of the parties can lead to the termination of the contract, the resolution or termination of a sale contract has specific requirements. According to Article 1.504 of the Spanish Civil Code, the seller must formally request the buyer, either through court or by means of a Notary Public, before being able to terminate the contract. Without this step, the contract remains in force, which could cause significant problems for the seller.
The Specific Case.
In September 2022, our clients signed a private sales contract with a penal earnest money clause to sell their property. The buyer made a payment of €69,500 to the real estate agency’s bank account. The deadline to sign the public deed before a Notary was agreed for the end of May 2023. However, the buyer could not make the remaining payment within this period. After several unsuccessful attempts to negotiate an extension with the buyer, our clients decided to terminate the sale contract. In accordance with art. 1.504 of the Spanish Civil Code, a notarial request was made to the buyer.
Despite this formal request, the buyer did not comply with the agreement. As a result, a lawsuit was filed before court so that it was confirmed that the contract has be terminated. The court fully upheld our claim. As requested in our court claim, the real estate agency must now pay our clients the €69,500 deposited by the buyer in their account.
Conclusion.
Having specialized legal advice at every stage of a property sale or purchase is essential. At White-Baos Lawyers, we are experts in real estate litigation law. If you wish to buy or sell a property, or if you find yourself in a problematic situation with the purchase or sale of a property, do not hesitate to contact us.
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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