When buying a house, in Torrevieja or anywhere in Spain, you may have to sign a deposit agreement, also known as Contrato de Arras. This contract is not mandatory by law, although many real estate agencies include it as an essential part of the process, as it ensures a commitment from both the seller and the buyer when closing a sale. If you want to know what the Contrato de Arras is, and why is it so important to have one when you buy or sell a home, we will tell you today.
What is the Contrato de Arras?
The Contrato de Arras also called “the deposit” or “the reservation” when buying a house, is a private contract, prior to the sale, signed by both buyer and seller and serves to confirm the commitment of both parties.
It must include the personal data of buyer and seller, or their legal representatives, as well as a description of the property, and the final price of it. The amount of money that is left as a deposit must also be specified, leaving in writing whether it will be deducted later from the sale price. If the house is new construction, this amount will have to add a 10% VAT. Lastly, the maximum time to formalize the sale, possible charges of the house, and the distribution of the expenses of the sale must be added.
Although it is a private contract, it is very important that it’s well written, so as to avoid surprises and problems in the future. For a smooth sale, it is best to have the help of a professional, be it a lawyer or a real estate agent.
What advantages does it have for me?
If you are the one who buys the house, the main advantage is that with a relatively small amount of money, compared to what the total purchase costs, you can make sure that the house is for you and not for any other person who has the money to buy it first. When you know that this property has to be yours, but you still have some ends to tie before making the effective purchase, the Contrato de Arras is the solution.
If you are the one selling the home, you make sure you have a firm proposal, and that the buyer is really interested and will go forward with the sale. As sometimes these processes can be lengthy, the Contrato de Arras is the way of having some certainty until the sale is finished.
How many types of contract are there?
There are three types of Contrato de Arras, depending on the legal consequences of each. The type of contract must be specified, though if it isn’t, it will be considered a confirmation arras contract.
The confirmation arras contract (Contrato de Arras Confirmatorias) is the one that simply confirms that both parties are committed to the sale, and is detailed in article 1124 of the Spanish Civil Code. If this contract is breached, it cannot be terminated unilaterally, and both parts must go into trial instead. The injured party can choose between demanding compliance, or the resolution of the obligation, with the corresponding compensation for damages and payment of interest.
The cancelling arras contract (Contrato de Arras Penitencial), also called withdrawal contract, is somewhat more flexible, since it allows the buyer and seller to terminate the contract unilaterally, and therefore does not imply an obligation to sell or buy. Of course, this is not free of penalty; in the event that the buyer breaches the contract, they will lose the amount paid automatically. On the other hand, if it’s the seller who fails to do so, they have to pay the buyer twice the amount received. This type of contract must clearly reflect such consequences, or mention article 1454 of the Spanish Civil Code, where this is specified.
Finally, the damage compensation arras contract (Contrato de Arras Penales) is one that is carried out to guarantee compliance with the contract. It differs from the two previous types of contract in that the “arras” (that is, the amount paid by the buyer) are not an advance on the price of the sale or allow any of the parties to terminate the contract, even if they will be discounted from the final price when the sale is concluded. Instead, they replace the compensation of damages and the payment of interest in case of non-compliance.
What if the contract is broken?
Normally the Contrato de Arras is signed because the parties involved already have a commitment, and most of the time there is no problem. However, unforeseen events sometimes occur, such as the lack of financing or the home being needed for something else. In that case, we must check the type of contract that has been made to see how it is resolved; as we have already mentioned, the only contract that can be terminated unilaterally is the Contrato de Arras Penitenciales.
In the case of Arras Confirmatorias and Arras Penitenciales, the injured party may demand either the compliance with the contract or its resolution, compensation included, and the disagreement must be resolved in a trial.
The only way to terminate a Contrato de Arras without anyone having to pay is if what is called a “hidden vice” (vicio oculto) is found. The hidden vice is one or several serious defects present in the house that have not been indicated in the contract. As requirements, they have to be really hidden (the buyer did not know it), they have to exist before the sale, and they must be serious enough that they reduce the sale price.