Earnest-money agreements, commonly referred to as arras contracts, are frequently used in Spanish property transactions. They are often signed before the final public deed and usually involve the payment of a deposit or agreed sum.
Although these agreements may appear straightforward, their wording can have important financial and legal consequences. A buyer should understand what is being signed before transferring money, particularly where the purchase depends on mortgage financing, the sale of another property or the resolution of existing charges.
A preliminary agreement should reflect the actual circumstances of the transaction rather than simply reproduce a generic template.
What are arras?
The term arras generally refers to money paid in connection with a property purchase agreement.
However, different types of arrangements can have different legal consequences.
For this reason, the title of the document is not enough to determine what will happen if the transaction fails. The actual wording and agreed terms need to be reviewed.
Identifying the parties
The agreement should correctly identify the buyer and seller.
The seller’s ownership position should also be checked against the Land Registry.
If several people own the property, the position of each owner should be considered.
Additional documentation may also be required where a person acts through a power of attorney or where the property belongs to a company.
Describing the property
The agreement should identify the property clearly.
The address, registry information and, where appropriate, cadastral reference should be checked.
If the transaction includes a garage, storage room, furniture or other elements, the agreement should make clear what is included.
A vague description can lead to disagreements about what exactly was agreed.
Stating the purchase price
The total purchase price should be clearly stated.
The contract should also identify the amount being paid as a deposit and record any previous payments.
Payment methods should be documented carefully.
This can be particularly important where funds are transferred internationally.
Setting the completion deadline
The agreement should establish a realistic timeframe for completion.
The final purchase may depend on obtaining mortgage finance, cancelling an existing mortgage, obtaining documentation or resolving planning issues.
A deadline that does not take these matters into account may create unnecessary disputes.
Consequences of breach
The contract should explain what happens if either party fails to complete.
Different types of earnest-money arrangements may produce different consequences.
This is why copying a standard agreement from the internet without reviewing its provisions can be risky.
The financial consequences of withdrawal or breach may be substantial.
Mortgage financing
If the buyer needs a mortgage, the contract should be reviewed with that circumstance in mind.
One important question is what happens if the requested mortgage is refused.
The answer will depend on the terms agreed by the parties and the wording of the contract.
A buyer should understand the risk before paying a deposit that may be difficult to recover.
Existing charges
The property’s legal status should be reviewed before signing.
If there is a mortgage, attachment, usufruct or other charge, the contract should establish how it will be dealt with.
Where appropriate, completion may need to be conditional upon resolving a particular legal issue.
Costs, taxes and possession
The parties should understand how relevant transaction costs will be allocated.
The agreement should also address when possession and keys will be delivered.
If tenants, occupants or existing contracts are involved, their position should be examined before the buyer becomes contractually committed.
Conclusion
An earnest-money agreement can provide useful structure for a Spanish property transaction, but it should be prepared and reviewed according to the actual circumstances.
Correctly identifying the parties, describing the property, checking charges, stating the price, setting realistic deadlines and regulating the consequences of non-completion are all important.
For international buyers, additional issues may arise when financing, powers of attorney or foreign documents are involved.
Frequently asked questions
Are arras contracts mandatory in Spain?
Not necessarily. They are commonly used but depend on the agreement between the parties.
Can I recover my deposit if my mortgage is refused?
This depends on the contract and the specific circumstances.
Should I check property charges before signing?
It is advisable to understand the legal position of the property before making a significant financial commitment.
Can I use a standard template?
Templates may be useful as a reference, but the agreement should reflect the actual transaction.
What happens if the seller breaches the agreement?
The consequences depend on the type of agreement and the clauses that were signed.
General information
This article provides general information only and does not constitute individual legal advice. The specific documentation and circumstances of each transaction should be reviewed before signing.
