Today we want to discuss in more detail the arras contract.
As we mentioned in our article “Types of Real Estate Purchase Agreements”, when the buyer signs the so-called arras or earnest money deposit contract he or she must pay a deposit. We could say that arras means deposit.
In Spain, there are three types of arras contracts and each type has different legal consequences. Of the three types only the Cancelling Arras (arras penitenciarias) are regulated by the law (Article 1454 of the Civil Code), the rest have been outlined by jurisprudence.
These are the three types of arras contract:
Confirmatory arras (arras confirmatorias)
Confirmatory arras contracts involve signing a private purchase contract which states the arras or deposit for the purchase. Contrary to the cancelling arras, which we will discuss next, there is no set amount for the deposit, although it normally is 5-10% of the total purchase price.
In the case of confirmatory arras there is no right to withdraw from the purchase contract. If one party decides they don’t want to go ahead with the transaction this is a breach of contract. The other party may sue you and ask the Judge to force you to grant the Escritura or property deed or to pay damages.
Arras as damages compensation (arras penales)
Arras as damages compensation also mean that the parties have no right to withdraw from the purchase contract.
If one of the parties wants to cancel the other party may take the other to court to force them to accept the contract or pay damages. The main difference between the arras as damages compensation and the confirmatory arras is that in the case of arras as damages compensation the monetary compensation has already been established in the contract and corresponds the amount given as “arras”.
If you decide to go ahead and sign the property deed, then the amount paid as arras will be considered as payment made in advance and will be discounted from the total price.
Cancelling arras (arras penitenciarias)
This type of arras is usually what we have in mind when we are going to sign a “contrato de arras” and is generally considered the default type. However, don’t make assumptions until you have spoken with an experienced real estate lawyer.
The difference with the previous two types of contracts is that the cancelling arras contract complements the purchase agreement and includes the right to change your mind and withdraw from the purchase contract. If this happens, the consequences are already agreed and are set by Article 1454 of the Civil Code:
- At signing, the buyer pays 10% of the property’s purchase price as arras or deposit. If the buyer decides not to buy, they lose the money.
- If the seller decides not to sell, he or she must pay the buyer double the deposit (20% of the purchase price).
Note: You can get your deposit back only if the private purchase contract can’t go head for any reason beyond both parties control, such a natural disaster.
Buying property in Spain can be a tricky business. Our recommendation is that you don’t pay anything unless you have seen a lawyer. For questions feel free to contact us at +34 932 553 107 or email us at email@example.com.