In this article we analyze what Spanish law establishes around down-payment and reservation clauses in real estate purchase and sale agreement. There are many different ways to “block” a property, interrupting the visits and fixing the price, and the most used is the so called Contrato de Arras.
Hereunder you will be able to find some different types of purchase and sale agreements:
Preliminary contracts are private contracts between the buyer and the seller that aim to reserve the property in exchange of a set down-payment sum. This sum is usually between 5% and 15% of the final price of the purchase, but could be even up to 20% since the parties are free to determine it as they wish.
A preliminary contract includes the personal data of buyer and seller, with the respective ID numbers, the final price of the purchase and sale and a description of the property. This last should include the city where is set, the address, the surface and the information contained in the Property Registry (Registro de Propriedad)
It must also establish a clear timetable to carry out any other eventual down-payment and setting the day for the signing of the final contract in front of the appointed Notary (Escritura de Compraventa). The deadline is usually set for 2- 3 months.
The Contrato de Arras Penitenciales:
The Contrato de Arras Penitenciales is conceived as a preliminary agreement, since it carries within the obligation to conclude the final sale before Notary.
The Arras Penitenciales are the ones set under art.1454 of Spanish Código Civil: this article admits the resolution of the contract through the payment of a penalty, that will consist in the sum given by the buyer as down-payment he steps back, or of the double of this sum if it’s instead the seller to change his mind about the sale.
The name that the parties give to the contract does not determine its legal classification and reference to art.1454 should be express to not give it the effects of the other two types of Arras described below.
Arras Confirmatorias and Arras Penales:
It is possible to include in the preliminary agreement clauses that look like the Arras but that have different legal effects. Those clauses are the Arras Confirmatorias and the Arras Penales.
The inclusion of those clauses doesn’t determine the contract to be a Contrato de Arras, but instead a real (preliminary) Purchase and sale Contract with stronger legal effects.
In those cases, the down-payment brings as consequence the obligation of the parties to the conclusion of the purchase and sale operation, without the possibility to step back.
In fact if one of the parties will not sign the Escritura de Compraventa before the appointed Notary he will be liable for contract breach. This means that the other party will be able to claim judicial reparation of all the damages suffered or to judicially enforce the conclusion of the agreement. (Arras Confirmatorias)
In the clause known as Arras Penales, instead, the legal effects are the same of the one just described, with the difference that the parties clearly determine the damage in the clause, in order to have a prior assessment without the need of an assessment by the Judge.
If you have any doubt about real state purchase and sale agreement you can contact us, we will be pleased to answer your questions.
Navas & Cusí Lawyers.