Deposit contract in Spain for real estate purchase (Contrato de arras)

Earnest Money Agreement in Spain When Buying Real Estate (Contrato de arras)

Purchasing real estate abroad involves special risks and important legal nuances. Buyers in Spain are advised to sign an earnest money agreement or Contrato de arras to guarantee the safety of the transaction. This document confirms the seriousness of the intentions of both the buyer and the seller, establishes the key terms of the forthcoming transaction, and outlines the potential consequences in the event of its cancellation.

Main Concerns of the Buyer and Their Solutions

Fear of losing the funds paid. If one of the parties withdraws from the transaction there is a risk of losing the earnest money or having to return it in double the amount.
Difficulty in processing documents. When buying real estate in Spain a number of certificates, verifications and notarization are required. Without consulting a professional it is easy to make a mistake.
Potential purchase of a problematic property. The property may have debts, encumbrances or a disputed legal status.
Incomplete understanding of the contract terms. The language barrier and lack of experience may lead to misunderstandings at the time of signing.
The mortgage may not be approved by the bank. If the contract does not include mitigating conditions the buyer risks losing the earnest money if the bank rejects the loan.

Solution: Clearly specify the type of earnest money agreement, carefully review all clauses (especially those regarding cancellation consequences), verify the legal status of the property and seek assistance from a specialized lawyer or an experienced real estate expert in Spain.

What Is an Earnest Money Agreement in Spain (Contrato de arras) and Why Is It Needed

The earnest money agreement confirms the parties intentions to complete the transaction and outlines the main conditions of the future sale. It should include:

The property price and the amount of the earnest money.
The deadlines for signing the final purchase agreement (notarial deed).
The parties details (names, surnames, DNI (Documento Nacional de Identidad) or NIE (Número de Identificación de Extranjero) numbers, addresses).
A description of the property: address, characteristics, cadastral number.
The cancellation conditions and consequences for both parties.

If the earnest money agreement is not signed the parties remain without formal guarantees. The seller may sell the property to another buyer and the buyer risks spending time and money on preparing a transaction that does not materialize.

Main Types of Earnest Money Agreements in Spain

There are three main types of Contrato de arras that differ in legal consequences:

Arras confirmatorias. The buyer may pay the full price immediately and this type of agreement confirms the seriousness of both parties intentions. However in the event of cancellation the buyer only recovers the amount paid without additional compensation.
Arras penales. This agreement serves to impose penalties on the party that fails to meet the conditions. In case of breach of obligations the counterparty may demand not only the retention or return of the earnest money but also additional compensation for damages.
Arras penitenciales. The most common option for real estate transactions as both parties may cancel the agreement: if the buyer withdraws they lose the earnest money; if the seller withdraws they must return the earnest money in double the amount.

The most frequently used in purchasing property in Spain is Arras penitenciales. It is governed by the Spanish Civil Code (art 1454) thereby providing clear legal guarantees for both buyers and sellers.

Why the Earnest Money Agreement (Contrato de arras) Is So Important

Guarantee of serious intentions. It provides assurance that the parties are committed to closing the transaction.
Transparent recording of key terms. The price, deadlines and obligations are detailed in the document reducing the risk of misunderstandings.
Protection against double sale. The seller cannot simultaneously sell the property to another party.
Clear regulation of transaction cancellation. The agreement explicitly states what happens if the transaction is canceled.

How to Correctly Draft an Earnest Money Agreement in Spain

Since the reservation agreement (as the Contrato de arras is often called) is informal in its structure it is important to consider all legal nuances. It is recommended to prepare it in two languages Spanish and the buyer language. The agreement must include:

Accurate personal details of the parties: full name, DNI (Documento Nacional de Identidad) or NIE (Número de Identificación de Extranjero) numbers, address.
A description of the property: address, cadastral number, characteristics.
The amount and conditions of the earnest money: when it is paid and how it is accounted for in the overall price when signing the final agreement.
The final cost of the property and the form of payment: cash, bank transfer or other methods.
Specific deadlines: the date by which the parties commit to formalize the notarial deed.
The consequences of withdrawing from the transaction: what happens if either the buyer or the seller changes their mind.
The signatures of the parties: without the signatures of the participants or their representatives the agreement is not valid.

Points to Consider When Signing

Verification of the property legal status. Obtain a Nota Simple from the Registro de la Propiedad to ensure that the property has no debts, seizures or encumbrances.
Conditions in case of mortgage rejection. It is essential to include a clause regarding the return of the earnest money either in full or in part if the transaction is canceled due to the bank rejection.
Allocation of expenses. By default the parties agree on who pays the notary who covers the ITP (Impuesto de Transmisiones Patrimoniales) or IVA (Impuesto sobre el Valor Añadido) as well as the municipal tax on the increase in value.
The need for notarial authentication. Although the earnest money agreement does not require mandatory notarial processing it is often formalized in this way to avoid disputes and strengthen the evidentiary basis.

Common Mistakes and Risks

Incorrect choice of agreement type (Arras confirmatorias instead of Arras penitenciales). This results in the buyer not having the right to demand double reimbursement if the seller changes their mind.
Lack of a mortgage clause. In case of bank rejection the buyer may lose the earnest money.
Description of the property that does not match reality. Sometimes the area furnishings or parking space differ from what is stated in the agreement.
Outstanding utility debts. If the agreement does not obligate the seller to settle any debts the buyer will inherit those obligations after the transaction.

Steps to Ensure Transaction Safety

Carefully verify the property ownership rights and any debts.
Clarify all terms of the future sale including the allocation of expenses and deadlines for signing the main notarial deed.
Include a clause regarding the mortgage to avoid losing the earnest money if the bank rejects it.
If complications arise consult a lawyer specialized in Spanish real estate.

Conclusions

The earnest money agreement in Spain (Contrato de arras) is a guarantee that the property purchase transaction will proceed as safely and transparently as possible for both parties. It protects against the risks of double sale establishes the mechanism for the return or loss of the earnest money and outlines all terms including price deadlines and mutual obligations. To avoid legal mistakes and financial loss it is important to carefully review the documentation correctly choose the type of earnest money and clearly specify all conditions including possible modifications for example in case of bank mortgage rejection.

If the reservation agreement is drafted properly taking into account all nuances and confirming key points with professional consultants both the buyer and the seller can be confident that the transaction will be secure. This is why experienced professionals in purchasing real estate in Spain strongly recommend resorting to Arras penitenciales and obtaining the support of a lawyer.