In Spain, the “contrato de arras”, known in English as a deposit contract or deposit agreement, is a fundamental document and, in most cases, an essential requirement to seal an agreement for the purchase of a property in Spain.
In the process of buying a property in Spain, this contract plays a crucial role in guaranteeing security and commitment for both the buyer and the seller. In this post, we will explain what an earnest money contract is, the different types that exist, and the relevant information you should know about it.
What is a Deposit Agreement?
The deposit contract is an agreement prior to the signing of the purchase contract that establishes the commitment between the buyer and the seller of a property. Through this contract, both parts commit themselves to carry out the transaction definitively in the future.
Types of Lease Agreements
- Confirmatory Leases: In this type of contract, both sides agree on the definitive sale and purchase of the property and deliver an amount of money as security. If either party breaches the contract, the aggrieved party may claim compensation or demand the fulfillment of the agreement.
- Arras Penitenciales: Also known as arras penales, in this type of contract, if one of the parts decides to withdraw from the transaction without a justified reason, he/she loses the amount delivered as earnest money. On the other hand, if it is the seller who defaults, he must return to the buyer double the value of the earnest money received.
Important Information about the Earnest Money Agreement
- Amount of the Deposit Contract: The amount of the deposit agreement can vary, but is generally 10% of the total value of the property. This amount can be negotiable between the parts and is established in the contract.
- Terms and Conditions: It is important to clearly state the terms and conditions in the deposit contract, including the date of signing the final purchase contract and any specific conditions agreed between the parts.
- Legal Advice: Before signing any earnest money contract, it is essential to obtain legal advice to fully understand the terms and conditions of the agreement, as well as the rights and obligations of both sides.
- Registration in the Land Registry: Although it is not mandatory, it is advisable to register the earnest money contract in the Land Registry to provide greater security and protection to the parts involved.
In conclusion, the earnest money contract is a fundamental tool in the process of buying and selling property in Spain, providing security and commitment for both the buyer and the seller. Knowing the different types of earnest money contracts and the relevant associated information is essential to carry out a successful and smooth real estate transaction. Always remember to obtain proper legal advice before signing any contract of this type.