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. Only sign if you are absolutely sure you’re ready to buy.
1) How it works
a) Buyer. The Buyer pays a deposit equal to 10% of the property’s purchase price. If they decide not to buy, they lose the 10%. The % 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 and reserve the property in the Buyer’s name. No one can back out without paying a penalty.
b) It forces the parties to discuss 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 of the terms. You can propose any term you need to protect yourself.
a) Penalty Clause. This is standard: ‘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. You must find out if the building has any past repairs unpaid, or future repairs needed, before you commit to buy. Write in the Arras who has to pay for the repairs. Repairing buildings in Barcelona can be really expensive.
c) Buyer’s Mortgage. It’s best to have your mortgage approved before you sign the arras; but some Sellers won’t wait. If so protect yourself by writing: “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.” The Seller might not accept this but you have to try.
5) Who does the Buyer pay the Arras to?
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 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%. So 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 (called an encargo). Then add a term to the Arras saying that “the Seller or the Agent or both must pay back double the deposit to the Buyer if the deed cannot be signed …” If you pay the agent, tell the Seller that they still have to pay back double the arras if they breach the contract.
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.