Buying Property in Barcelona? Understand the ‘Arras’ Contract
The Arras contract contains the important, and normally the final, terms of a property-purchase agreement. When the Buyer signs, they must pay a 10% deposit. Thus, only sign if you are absolutely sure you’re ready to buy.
1) How it works
a) Buyer. The Buyer pays 10% of the property’s purchase price when they sign. If they decide not to buy, they lose the 10%. The amount (10%) is not a legal requirement, it’s negotiable.
b) Seller. If the Seller decides not to sell, they must pay the Buyer back double the deposit (20% of the purchase price).
a) To bind both parties to the deal. It reserves the property in the Buyer’s name because the Seller can’t back selll to someone else unless they pay a penalty. And the Buyer pays a penalty if they don’t buy.
b) It forces the parties to think through and write down all the important terms of the deal before they proceed.
3) Before Signing
The Buyer must thoroughly investigate the property (due diligence) to be sure the Seller is the true owner, to find any mortgages or liens on the property, confirm the property’s dimensions, etc. You’ll need some documents from the Seller to do this. If they refuse, don’t pay the deposit. They might have something to hide.
4) Arras Contract Terms
A Notary Public prepares the final deed using the terms in the Arras, so treat as the deed. Below is a summary of some terms. You can propose any term you need. Be creative to protect your interests.
a) Penalty Clause. This is standard but must be there: ‘The Seller will return double the deposit to the Buyer if the Seller fails to sign the final deed.’ Or: ‘The Seller will return the deposit if the deed cannot be signed for any reason beyond both parties’ control.’ In case it’s no one’s fault you get your deposit back.
b) Property Repairs. Repairing buildings in Barcelona can be really expensive. It’s an issue that must resolved before you sign the arras.
c) Buyer’s Mortgage. ‘The Buyer will pay part of the purchase price with a mortgage. The mortgage application is pending. If the mortgage is not approved, the Buyer won’t buy and the Seller must return the deposit.” It’s best to have the mortgage approved before you sign the arras; but some Sellers insist on signing the Arras first. If so protect yourself.
5) To whom does Buyer pay the Arras?
a) Seller. This is best because if the deal falls through you only have to chase one party for your 20%.
b) Agent. Some agents want the Buyer to pay them the Arras so they can get their fee. If something goes wrong and deed is not signed, they still get paid. But then you have to chase two parties to get your 20%. The agent will say ‘it’s not my fault, talk to the Seller.’ The Seller will say ‘I only have part of your deposit, talk to the agent’, etc. It can create a big mess. It’s best to pay the Seller.
c) Agent insists on payment. The agent might refuse to sell if you don’t pay them the arras. First, request to see their authorization to receive money on behalf of the Seller. Then add a term to the Arras saying that “the Seller still has to pay double the deposit to the Buyer if the deed cannot be signed …” Tell the Seller what’s going on and make it clear that they have to cover for the agent. If they refuse keep battling.
Buying property in Spain can be a contact sport. What’s important is that you, the Buyer, not pay anything unless you are completely protected.
For questions feel free to email [email protected] or call 64 665 365.