A Property Buyer’s Guide to the ‘Arras’ Contract
The Arras is a ‘pre-purchase’ contract containing the important terms of a purchase agreement. Normally the real estate agent has an arras template. These are usually drafted in favor of the Seller. You can use them, but be sure to add clauses that protect yourself.
a) The Buyer pays a 10% deposit when they sign. The amount is negotiable; 10% is the norm. If the Buyer fails to sign the deed for a reason attributable to the Buyer (found another property, etc.) they lose the 10%.
Mortgage Exception. If the Buyer’s mortgage application is denied, they can still get their arras money back. But this must be correctly written in the arras contract. If it’s not clear, the agent/seller might be able to keep your money. See below.
b) If the Seller fails to sell the property for a reason attributable to the Seller, they must pay back double the deposit or 20% of the purchase price.
To bind both parties to the deal, reserve the property in the Buyer’s name and it forces the parties to write down the important terms of the deal before they proceed.
3) Before Signing
Due Diligence. The Buyer must thoroughly investigate the property before signing. Ask a lot of questions. The agent is under a very limited duty to disclose property defects. Some have a policy of ‘don’t ask, don’t tell’. You can get some documents online, but the agent/seller has most of them. If they refuse to turn them over, they might have something to hide.
4) Arras Contract Terms
Below is a summary of some terms. You can propose any term you want to protect yourself.
a) Penalty Clause. Seller: ‘The Seller will return double the deposit to the Buyer if the Seller fails to sign the deed for a reason attributable to the Seller.’ Likewise: ‘The Buyer loses the deposit if the Buyer fails to sign the deed for a reason attributable to the Buyer.’
In case no one is at fault: ‘The Seller will return the deposit if the deed cannot be signed for any reason beyond both parties’ control.’ This was used when a party couldn’t sign due to COVID-19.
b) Property Repairs. Find out if the building has any past repairs unpaid or future repairs needed. If there are any signs of damage, get an architect’s inspection. Then write the damage details, and who pays to repair them, into the arras. Repairing buildings in Barcelona can be really expensive.
c) Your Mortgage. It’s best to have your mortgage approved before you sign. If not, write that you need a mortgage and quote the Catalan law that forces the seller to return the arras if your application is denied or you can’t get enough mortgage money to buy.
TIP: Don’t hire the agent, or their mortgage broker, for a mortgage. Their involvement could make it hard for you to get your arras money back in case you can’t get a mortgage. Keep your mortgage search totally private.
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 10% or 20%. However, if you have evidence that the seller can’t be trusted or doesn’t pay his bills, go with the agent.
b) Agent. Some agents want the arras money so they can get paid right away (the seller pays them a % of the purchase price). Request to see their authorization to receive money on behalf of the seller. Then identify in the arras who you are paying and that both parties have to return their share of the arras doubled if the seller doesn’t sell.
6) Deed-Signing Date. Finally, be sure to state a deadline to sign the deed. This forces the parties to resolve pending matters and will force the seller to move out in case he lives in the property.
Buying property in Spain can be a contact sport. What’s important is not to sign or pay anything unless you are completely protected.
For questions feel free to email [email protected] or call 664 665 365.