If you are interested in buying a property in Spain, you will have heard the word “arras” which could be translated as purchase deposit, earnest money deposit or security deposit.
Usually the first step of the future sale of a property is the Deposit Agreement, named “arras” in Spanish, it is the document that reflects the mutual commitment of buyer and seller and should clearly specify what are the basic conditions of that future sale.
Arras contract is a private document to book for the prospective buyer a right to buy the property providing for it a sum of money to the seller, and penalizing the buyer or seller if they break that agreement.
Fundamental data that must contain the earnest money contract is all the data that will appear in the future contract of sale:
- Exact identification of the Property: including its physical description and Property Register details; attachments(garage, storage, terraces, garden … ); including the exclusive use of acommunity element (if it is the case), “cédula de habitabilidad” number in case of a dwelling (a copy must be surrendered).
- Must be expressed if the property isfree of occupant or tenants and if there are any liens or encumbrances (mortgages, liens, …), and established the way to release such charges before the final purchase and who will pay the expenses of such cancelation.
- Final prize and means of payment.
- Deadline to formalize the purchase before a Notary.
- Covenants ondistribution of expenses in the sale, for example, IBI(local tax) of the current year, ordinary community dues, extraordinary expenses agreed or pending approval by the community.
- Amount paid as deposit or “arras”,,specifically mentioning that all amounts delivered will be deducted to the final price.
- In case of new construction housing, to the final amount must be added 10% VAT, which must appear properly broken down. Second or subsequent transmissions will be taxed by the Transfer Tax (in Catalonia also 10%).
- It can also be included who will pay (seller or purchase) real estate agent fees.
Deposit will be paid at the time of the signing of the earnest money contract and terms of payment will depend on what both parties agree. It is highly advisable to pay with nominative bank check in favour of the owner, to ensure the solvency of the buyer and the identity of the final recipient of the payment, as well as being able to credit the payment if it were needed in the future.
In the case of a marriage under a system of partnerships, it will be understood that the spouse who signs the agreement doesit on behalf of their partnership, as there is a legal presumption of gainfulness of the property acquire.
In the case of marriages under a separated by property or unmarried couples, both must appear at the signing of the contract in order to be jointly entitled to the rights arising from it.
In the case of marriages on a separate property system or unmarried couple, oth parties must appear at the signing of the contract in order to be joint holders of the rights arising therefrom.
What happens if the contract is broken and the deed of sale is not formalized?
Usually when we find ourselves before a document of arras or earnest money the prospective buyer agrees to purchase housing within and for the price stipulated in the contract, although it may withdraw lawfully the purchase (because it is no longer interested) losing the quantity delivered.
The seller may also withdraw from the sale, in which case, as a penalty must return in duplicatethe amount received as a deposit.
It is necessary to reflect in the contract that the “arras” are configured as penitential, contemplating the possibility of withdrawing from the commitment by losing the buyer the quantity delivered or returning the seller in duplicate, depending on who is responsible for the withdrawal. This latter question has given and gives rise to numerous lawsuits and jurisprudence of the Courts, so it is always advisable to have good legal advice before proceeding to the signing of a contract.