Contracts in Spain
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Finding your dream home in Spain is a tricky business. And when you find it, the problem is that you may coincide with another buyer who is also keen to get their hands on the property. So that they don't get ahead of you, the best thing to do is to make a reservation on the property and avoid surprises. To do this, there are two contracts in Spain that come in useful: a reservation contract and a deposit contract. But what are they? And how are they different? We have the details. 

How is a reservation contract made in Spain?

In a reservation contract in Spain, the buyer reserves the property in exchange for the payment of a sum of money and the seller undertakes to sell it on receipt of this sum. This sum, known as a deposit or reservation, is then subtracted from the total price of the property. There is no fixed amount, as it depends on the agreement between the parties, but it is usually between 1% and 5% of the price of the house.

It should be noted that this type of contract can also be used in transactions where the property is under construction or has not yet been built and obliges the seller to deliver the property with the stipulated characteristics.

The reservation contract must comply with and contain the conditions agreed between buyer and seller, which then form the basis for the purchase contract. These are the points that must appear in a reservation contract in Spain:

  • Personal details: The identification details of the buyer and the seller.
  • Description of the house: Cadastral reference, address, surface area of the property, parking space, storage rooms, etc. 
  • Land registry number of the property: This is necessary to know if the property is owned by the seller.
  • Certificate of encumbrances of the property: This reveals whether the property is free of encumbrances, mortgages, etc.
  • Amount of the deposit: It is usually between 1% and 5% of the total price.
  • Form of payment: This establishes how the rest of the purchase price will be paid, and how the costs will be shared between buyer and seller (notary's office, municipal surplus value, etc.).
  • Termination clauses: Sometimes some specifications can be included for which the contract could be broken

Like any contract, it establishes a series of rights and obligations for both parties:

Buyer

  • The buyer has to buy the property at the time and price agreed with the seller.
  • They are obliged to buy the property and cannot back out, for example, if they find another property at a better price.
  • They must comply with the payment deadlines that have been established in the contract.

Seller

  • They have to sell the property at the stipulated price and within the stipulated period.
  • They are obliged to sell the property at the agreed conditions and cannot back out if they find a buyer who is willing to pay more.

Deposit contracts in Spain

For the purchase of a property, the most common is a deposit contract, known as a "contrato de arras" in Spain, by virtue of which a sum of money is given to the seller and the details that will form part of the future sale and purchase are closed. It is similar to a reservation contract, but has greater legal power.

"A deposit contract is included in article 1454 of the Civil Code, so it provides greater legal security than a reservation contract", explains Cesar García, director of Acounsel Abogados. "This contract protects the transaction for both parties, since if the sale is not carried out by the buyer, he will lose the amount paid and, on the other hand, if it is the seller who fails to fulfil the contract, he will have to return double the amount paid", he adds.

On the other hand, it should be noted that the deposit contract can be terminated if the compensation stipulated in the contract is paid, while the reservation contract can only be broken if certain clauses allow it.

García lists the points that a Spanish deposit contract should contain to avoid problems:

  • The amount of the reservation that is given as a deposit.
  • Indicate a deadline for signing the deed of sale: this includes a date, day and time to go before the notary and what happens if one of the parties does not attend.
  • Establish who sets the date for the execution of the public deed of sale and how this is to be notified.
  • Normally it is the buyer who sets the date of appearance before the notary, with a deadline that should have been set in the earnest money contract.
  • It is very important to indicate how the buyer notifies the seller of the day on which the public deed of sale is to be executed. This notification can be by email, but if you do not want to have any additional problems, it is always advisable to do it by burofax.
  • One of the most important issues is to establish how the expenses derived from the deed of sale are to be paid (notary, registers, municipal capital gains, etc.). It is advisable to fix them in accordance with the law, i.e. the seller will be responsible for the costs of the deeds and the buyer will be responsible for the other costs incurred after the sale. Likewise, the seller will also be responsible for the municipal surplus value, while the buyer will pay the Land Registry costs.

Reservation contract or deposit contract: which is better?

This depends on each person's situation. For example, if the buyer is not absolutely certain that he/she will be able to buy the property (uncertainty in obtaining financing, etc.), it is better to opt for a deposit contract, as he/she will be able to terminate it by paying compensation.

On the other hand, if the buyer is certain that he/she is going to buy the property, signing a reservation contract will make it impossible for the seller to sell it to someone else, even if offered more money, for example.

The best thing to do in a transaction as important as buying and selling a property is to be advised by a qualified professional. Often, the rush to close the transaction can lead to real headaches in the future.