The ‘Arras’ Contract

The ‘Arras’ Contract
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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).

2) Purpose

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.

12 Comments on “The ‘Arras’ Contract”

  1. Good afternoon, I have a friend wanting to pass on an apartment that he has bought off plan for €270,000 He had to pay 10% down plus VAT about 1 year ago and the remainder upon completion which will be over the next 2 to 3 weeks. He has not signed anything yet at the notary’s.

    He has decided to transfer the property on to another person with a €10,000 profit. We were told by the laywer of the buyer that there is a new law and that the buyer will now have to pay the 10% VAT as it is a new construction plus 8% transfer tax which seems extremely high and unfair to us as the first buyer never took possession of the property and it is just transferred onto another person.

    Can you please let me know if this is correct?

    I have just spoken to an accountant and he told me that there should be a separate invoice for the €10,000 profit and that he should pay 21% VAT on this invoice plus 10% on the purchase price which makes more sense to me.

    Thank you for your help.

    Best regards,

    1. Dear Ellen,

      Ellen,

      Thank you for your comment. These tax issues are tricky and must be dealt with properly. They arise frequently. To resolve them correctly I advise that you speak with a Spanish tax attorney (abogado fiscal). I share office space with one with experience in this area. His name is Raul Piñera at [email protected]. He charges 75€ for a one-hour consultation, to review your documents and provide advice. Let me know if your interested and I’ll schedule an appointment for you. Thanks again.

  2. Good evening

    I am about to sign an Arras to buy a property in Spain. It has a term called “cuerpo cierto” which in the English version is stated as “sold as seen”. I am not familiar with this term. I am slightly concerned. In England seller of goods (not property) tend to use the term to absolve themselves of any responsibly.
    There is no survey but the building (built in 1985) looks fantastic no visible structural or otherwise defect and I am not concerned about periodical maintenance items.

    Thanks

    Kindly Regards

    Gabriel

    1. Gabriel,

      Cuerp Cierto has its own meaning in an Arras contract. I’d have to see the context before I can give an answer. Let me know if you can email it or give me a call: 664665365. Thanks, Mark

  3. Thanks Mark.

    This is what it says

    “That the Buyers have been informed in detail of the characteristics, state of conservation and dimensions of the property object of this contract and that is sold ´as seen´.”

    The spanish version says:

    “Que la parte compradora ha sido informada detalladamente de las características, estado de conservación y dimensiones del inmueble objeto de este contrato que se vende como ´cuerpo cierto´.”

    I don’t have your email but if you could please email me and will give you more details.

    Regards

    Gabriel
    I don’t have your email

  4. Pingback: How to Buy Property in Barcelona: A Guide for Foreigners - Spain Advisors

  5. Hi Mark,

    We have agreed to sign an Arras on a property.

    The seller is short on Money so needs our deposit to help bring the Nota simple up to date.The cadastre is up to date, but the nota simple needs an architect to add a pool and out building, which has been there for over 5 years.

    If they back out and we need the 20% returned, how does this work. My worry is as they are short of money, how can they afford to pay double back if something goes wrong?

    Thanks
    Paul

    1. Paul, To update the nota simple an architect prepares a report adding the structures. He gives it to a Notary Public who uses it to prepare an ‘Escritura de Obra Nueva’ or ‘Escritura de Modificación’. This escritura is filed with the Registro, who then issue an updated nota simple. Then you can buy the property. I’m doing a case like this now and it’s taking a long time. The seller, or someone, has to pay each party involved.

      If the seller backs out of the arras, they should return double of whatever you paid (normally 10% of the purchase price x 2 = 20%). If they don’t have 20%, at least try to get the 10% you paid. Otherwise you can sue them, get a judgment and place a lien on the property. You would need a Spanish lawyer for this.

      I would be careful paying this person 10% of the purchase price. You should also find out how long it will take before you can sign the final deed. Depending on the property, updating a nota simple can be a long process. Feel free to call or email if you have more questions.

  6. Dear Mark ,
    My name is Ivan ,I am buying a commercial property in Barcelona, I am told by my solicitor, I need to pay 20% arras of the purchase price, and the seller can use that money even though the sell is still under process,it doesn’t sound right for me . In uk, we pay everything on the date exchange contract. I feel as buyer, my interest is not protected properly . Am I right ?
    Much appreciate it with your prompt answer when you can!
    Kind regards

    Ivan

    1. Ivan,

      Normally the buyer pays a 10% deposit with the arras. If you don’t buy you lose the 10%, so it’s the point of no return. If the seller does not sell, they must return double the 10%. So the seller must have that 20% available in case they decide not to sell you the property. The amount of the arras payment, however, can be 20%; 10% is not the law. But if you pay 20%, you should ask for something back from the seller since you’re paying more than the normal amount. And of course, be sure the seller has at least the amount you pay for the arras on hand in case the sale does not go through. So legally he can ‘use’ the arras money, just as long as he has it on hand in case the sale does not occur.

  7. Ivan,

    Normally the buyer pays a 10% deposit with the arras. If you don’t buy you lose the 10%, so it’s the point of no return. If the seller does not sell, they must return double the 10%. So the seller must have that 20% available in case they decide not to sell you the property. The amount of the arras payment, however, can be 20%; 10% is not the law. But if you pay 20%, you should ask for something back from the seller since you’re paying more than the normal amount. And of course, be sure the seller has at least the amount you pay for the arras on hand in case the sale does not go through. So legally he can ‘use’ the arras money, just as long as he has it on hand in case the sale does not occur.

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