An arras contract is a private agreement between a buyer and a seller of a property in which both parties formalize their intention to complete the transaction. In this contract, the buyer typically makes an advance payment to the seller as a deposit, guaranteeing the commitment to purchase. This contract provides protection for both parties and sets out penalties in the event that one of them does not fulfill the agreement.
Why is it Important to Sign an Arras Contract?
An arras contract protects the buyer from other potential buyers by temporarily removing the property from the market. This extra time gives the buyer the chance to organize their finances without the risk of someone else purchasing the property. For the seller, it provides security that the buyer is committed to the purchase.
The Three Types of Arras Contracts and Their Differences
There are three main types of arras contracts in Spain: penitential arras contract, penal arras contract, and confirmatory arras contract. Each type has distinct characteristics and conditions that are important to understand.
- Penitential Arras Contract: This type of contract allows either party to withdraw from the agreement, but with a penalty. If the buyer backs out, they lose the deposit. If the seller backs out, they must return double the deposit to the buyer.
- Penal Arras Contract: This contract is designed to ensure that both parties fulfill their obligations. If the buyer fails to complete the purchase, the seller can retain the deposit as compensation or demand fulfillment. If the seller fails to fulfill their part, the buyer may demand double the deposit or enforce the contract.
- Confirmatory Arras Contract: Here, the buyer makes a down payment to the seller, which is deducted from the final purchase price. This type of contract is not regulated by the Spanish Civil Code, meaning it cannot be terminated in case of non-compliance, nor does it provide the right to claim damages if either party withdraws from the agreement.
Arras Contract vs. Reservation Contract: What is the Difference?
A reservation contract and an arras contract are similar in that both require the buyer to make a payment to “reserve” a property. The main difference is that the arras contract is recognized by the Spanish Civil Code, providing greater legal security. While a reservation contract can only be terminated under specific conditions, an arras contract allows for termination if compensation payments, as stipulated in the contract, are made.
Can an Arras Contract be Extended?
Yes, it is generally possible to extend the duration of an arras contract if both parties agree. This is done by adding an addendum to the original contract, specifying the new deadline and the reason for the extension.
Is it Necessary to Sign an Arras Contract?
Although signing an arras contract is not mandatory, it is highly recommended. Signing it before a notary also provides additional legal security by creating an official document that supports the agreement and reduces the risk of future disputes.
Conclusion
Having an arras contract when purchasing property is an essential measure to protect both the buyer and the seller. This contract clearly defines the terms of the commitment and provides a legal framework that benefits both parties.
At CPG Abogados, our team of real estate law experts can help you choose the type of contract that best suits your needs. We are here to guide you through every step of the process.
If you have any questions, please don’t hesitate to contact us. At CPG Abogados, we offer expert and personalized legal guidance.
