What is the 'contrato de arras' in Spain and what is its purpose?

Once you have found your ideal property in Spain, you will want to ensure that the purchase proceeds smoothly, without unexpected complications or last-minute surprises. This is where a 'contrato de arras', Spanish for 'deposit contract', plays a crucial role. This type of agreement allows you to reserve your chosen property, while the seller commits not to offer it to other buyers, giving you time to complete any outstanding formalities, such as securing a mortgage.

In this article, we will explore the different types of deposit agreements, the key considerations when signing one, and other essential details to help you move forward with your property purchase with confidence.

What is a 'contrato de arras'?

In Spain, a 'contrato de arras' is a private agreement typically signed during the process of purchasing a property. This contract serves as a mutual guarantee and commitment between the buyer and the seller, ensuring that the transaction proceeds according to the agreed terms. As part of the agreement, the buyer provides the seller with a sum of money, usually equivalent to 10% of the property's price, as a deposit or guarantee.

What information should be included in a deposit contract?

Although additional clauses may be included, a Spanish deposit contract should always contain the following key details:

1. Identification of the parties: Full names, identification numbers (such as national identity card or passport) and any other relevant details.
2. Property description: The full address, key features of the property, cadastral reference and any existing charges or encumbrances.
3. Purchase price: The total agreed price for the property and the specified method of payment.
4. Deposit amount: The sum provided by the buyer as a security deposit.
5. Period of completion and validity of contract: The timeframe within which the final purchase agreement must be signed, including any extensions and the conditions for such extensions.
6. Type of deposit contract: Whether the contract is confirmatory (arras confirmatorias), penal (arras penales) or penitential (arras penitenciales).
7. Cost allocation: Specifies who will bear costs such as notary fees, land registry fees, taxes and other related expenses.
8. Withdrawal clause: The conditions under which either party may withdraw and the penalties applicable.
9. Signatures: Signatures of both the buyer and the seller.

Is a deposit contract compulsory in Spain?

Signing a deposit contract is not a legal requirement when buying property in Spain. However, it is a widely practised and highly recommended step as it provides legal certainty for both parties throughout the negotiation process.

There are several advantages to signing a deposit contract:

1. Commitment: It formalises the intentions of both buyer and seller, ensuring a clear agreement.
2. Protection: In the event of non-compliance, the contract outlines the consequences - typically, the buyer forfeits the deposit if they withdraw, while the seller may be required to refund twice the deposit if they fail to honour the agreement.
3. Reservation of the property: The contract effectively 'secures' the property, preventing it from being sold to another party while the contract remains in force.

Although not mandatory, a deposit contract is an invaluable tool for preventing misunderstandings and potential complications during the purchasing process. Without it, the parties may proceed directly to signing the final purchase contract, but without any prior security should one party decide to withdraw.

In summary, while not legally required, signing a deposit agreement is highly recommended as it provides greater security and protection for both parties involved in the transaction. If a property is sold privately, either the buyer or the seller can draft the contract. However, if you are purchasing through an estate agent, the agent usually prepares the document.

What is the difference between a deposit contract and a sales and purchase agreement?

The main difference between a deposit contract and a sales and purchase agreement lies in their function and the stage at which they are used in the sales process:

• Deposit contract: A preliminary agreement in which the buyer provides a sum of money as a guarantee of their commitment to complete the purchase. This contract sets out obligations for both parties but allows for withdrawal under certain conditions, usually with penalties. It includes details such as the agreed price, the amount of the deposit, deadlines for formalising the sale, and penalties for non-compliance.
• Sales and purchase agreement: The final contract that formalises the transfer of ownership of the property. It specifies the identity of the parties, and contains information such as a detailed description of the property, the total price, the terms of payment, the delivery date, and the transfer of ownership. Unlike a deposit contract, the sales and purchase agreement does not allow for withdrawal without legal consequences.

Types of deposit contracts

There are three types of deposit contracts in Spain, each with different legal consequences if the property is not sold:

Arras penitenciales

Also known as a cancellation deposit, this type allows either the buyer or the seller to withdraw from the agreement under specific conditions.

It is the most common form of deposit contract and serves as a financial deterrent to discourage breaches while providing flexibility by allowing either party to withdraw in exchange for financial compensation. For your reference, here is an example of a Spanish arras penitenciales-contract.

Arras penales

In this case, the deposit serves as a security for completing the transaction rather than an option to withdraw. If one party fails to fulfil the agreement, they incur a penalty but cannot unilaterally withdraw. In the event of default, the buyer forfeits the deposit, while the seller must return it in double. Unlike arras penitenciales, additional legal claims for damages or enforcement of the contract may arise. As such, penalty deposits are less common and involve a stricter commitment.

Arras confirmatorias

This type of deposit acts as an advance payment towards the final purchase price, reaffirming the commitment of both parties to complete the transaction. Unlike the other types, it does not grant the right to unilateral withdrawal or impose automatic penalties in case of non-compliance.

If one party breaches the contract, the other can demand fulfilment of the agreement or, if this is not possible, terminate the contract and seek compensation. In this case, the deposit is not automatically forfeited but may be subject to legal claims for damages or enforcement.

How long is a deposit contract valid for?

The validity of a deposit contract depends on the period agreed upon by the parties for formalising the final sale. In Spain, there is no legal standard period, as this is determined by mutual agreement between the buyer and the seller. However, it is common for this period to range between 30 and 90 days from the signing of the contract.

If the parties are unable to complete the transaction within the agreed timeframe, they may agree to extend the term of the contract. Any extension must be documented in writing and agreed by both parties. If no extension is agreed, the deposit agreement will expire at the end of the agreed period, with the legal and financial consequences set out in the agreement, depending on the type of deposit agreement signed.

Now that you understand the importance of a deposit contract, you can proceed with confidence. If you have already signed one or are in the process of doing so and need to secure a mortgage before the contract expires, we recommend reading our article Fixed, variable, and mixed mortgages: How to choose the best option. It contains valuable insights to help you make an informed decision and find the right financing for your new property in Spain.