Types of Purchase / Sale Contracts in Marbella: Arras

Purchase & Sale Contracts

When a price has been agreed on a property both the buyers and the sellers are looking to secure the conditions of the agreement.

In Spain, prior to final completion there are generally two contracts that are signed, the reservation contract – subject to due diligence –  as soon as the offer is accepted in order to take the property off the market and the private purchase contract, once the buyers’ lawyers have had time to check the legality of the property.

The main difference between the two contracts is:

Reservation: The deposit required on the reservation contract is generally a smaller amount – normally 6’000 Euros on an average property and the contract is signed subject to due diligence, which allows the buyers to withdraw and for their deposit to be refunded if the property does not meet the criteria in the contract, for example if there are legal issues property.

Private Purchase Contract: At the stage of the private purchase contract the amount is higher (10% of the price) and due diligence is assumed to have been completed.

The time between the two contracts is generally 2 to 3 weeks.

Final completion and payment of the balance of the purchase price can be at any stage afterwards, sometimes a few days or in other cases months.

One concept that is particularly strong in Spanish Law is the concept of “arras” which is amount that is paid together a the time of signing a the contract, in order to reinforce the contractual obligations.

There are several types of contracts which imply different obligations for the buyers and sellers, in the first three cases the aggrieved party can sue the other party for breach of contract and force the sale, in the last case both parties can withdraw paying a penalty but cannot force the sale.

Arras Confirmatorias

This is merely an advance payment on account, whereby the payment serves to “confirm” the contract. If either the buyers or sellers withdraw, the aggrieved party can sue for breach of contract and force the sale or cancel the contract and sue for damages.

Arras Penales

This is similar to the previous contract whereby if one part withdraws the other party can either sue for breach of contract and force the sale or cancel the contract and sue for damages; however, in this case the amount of damages is normally fixed at the amount of the deposit.

Option To Buy

A further possibility is to sign an option contract. In this case the buyers pay an amount to the sellers to give them the option to buy the property within a given period. If at the end of the period they decide to buy the property they can proceed with the purchase, if they do not then they have simply lost the amount paid for the option. One advantage of the option contract is that it can be written into the land registry, so any future buyers would be aware of the existence of the option. If the sellers try to sell the property before the option’s expiry date the buyers can sue for breach of contract to force the sale.

Arras Penitenciales

This is a different form of contract where both parties can withdraw from the contract by paying a penalty.

From the side of the buyers, if they withdraw from the contract they lose their deposit.

From the side of the sellers, if they withdraw from the contact they are required to refund the deposit and, at the same time pay an additional penalty of the amount the deposit.

The point behind this contract is that both parties, once an offer is agreed will have incurred costs and need to be compensated. The amount of this “Arras” can vary, if it is included at the reservation stage it is generally 6´000 Euros on an average property, but if it is part of the formal purchase contract it will be 10% of the value of the property.

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Note: The information above is for guidance only and does not constitute legal advice. I highly advise using a lawyer before entering into any contractual obligation.