Secure the sale of your house in Marbella: The deposit contract

19 Jan 2023 | Buying and Selling FAQ

Once the negotiation between seller and buyer has been completed, reaching an agreement on the price, it is necessary to secure the transaction and to set it down in a document with sufficient guarantees for both parties for the period of time agreed before it is made public at the notary’s office: the earnest money deposit contract.

deposit contract

We must bear in mind that the earnest money contract is a private purchase contract and therefore does not have a specific legal regulation. We must also bear in mind that there are three types of earnest money:

Arras Confirmatorias

These are an advance payment on account of the total price.

They represent an advance payment of the total price agreed, i.e. a first instalment of the total price stipulated, as a guarantee of performance. They are the first step in the sale.

This type of deposit is not expressly regulated in the spanish Civil Code.

In the event of breach of the purchase contract by one of the parties, the other party has two options, as legal actions outside of what has been agreed in this type of earnest money:

–  It can demand performance or

– Request the rescission of the contract and ask for compensation for damages (art.1.124 of the Civil Code).

It should be noted that these two options may be consecutive if, once performance has been demanded, it proves impossible.

 

Arras Penales

An amount is agreed as a penalty for non-performance.

They guarantee the fulfilment of the purchase contract. They are not an advance payment, they are an obligation with a penalty clause and do not allow either party to withdraw from the contract.

The amount of the penalty deposit is agreed between the parties.

This type of deposit is also not expressly regulated in the spanish Civil Code.

In the event of non-performance by the seller, the seller will return the agreed amount. The earnest money is the amount of the penalty to be paid for non-performance.

In the event of non-compliance by the buyer, the buyer loses the amount paid as a penalty deposit or pays it if he has not done so before.

It should be mentioned that it is possible to initiate legal action for compulsory performance or termination, in both cases, with the possibility of claiming damages that the non-performance of the other party has caused.

 

Arras Penitenciales

This is the most recommendable type of earnest money contract as it allows for free and legal withdrawal by either party, which is implicit in the contract.

Penitential deposits are expressly regulated in article 1.454 of the spanish Civil Code:

If there has been a deposit or down payment in the contract of purchase and sale, the contract may be rescinded and the buyer may agree to forfeit them, or the seller may agree to return them in duplicate“.

If the buyer withdraws, he will forfeit the amount delivered.

If the seller withdraws, he will return to the buyer double the amount paid as earnest money.

In summary, confirmatory and penal deposits do not allow for withdrawal, and legal action must be taken later in the event of breach by either party, whereas penitential deposits do allow for withdrawal and set out the conditions for withdrawal.

If you are going to buy a house we recommend that you reserve it with a penitential deposit contract.

It is important and highly recommended that in the case of signing a penitential deposit, it is penitential because it gives legal certainty to the buyer and seller by identifying the parties, the property object of the sale, the total price, the date of notarisation and handing over of the keys, the taxes and expenses of the sale, the charges if any and any clause that has been agreed to be included. All this facilitates and ensures that the day of the signing at the notary’s office is a formality.

Benarroch Real Estate has a team of collaborating lawyers who will be able to advise you throughout the whole process of buying and selling your home in Marbella.

Brice Benarroch Mennessons

Article by Brice Benarroch Mennessons

19 Jan 2023
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