Reservation or arras contract

  • Last Updated on Saturday, 18 July 2020 15:30
  • Written by Maria Santos Acedo

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As already mentioned, this type of contract can be found when the purchase is made through a real estate agent. It is a complete and legally binding contract, so legal review and advice is recommended. When buying through a real estate agent, in many cases these contracts are presented directly by the agent. A legal review is even more important here because they have not detailed legal knowledge.

 

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A "reservation contract" prepared and submitted by the real estate agent can be confuse for the parties, especially regarding the down payment. Even if the notarial purchase contract is drafted and signed later, the agreements made in the preliminary contract are already legally binding and therefore leave little chance for subsequent negotiation.

In general, the following points should be considered with respect to these contracts:

1. See the results of the Due Diligence:

Results of the Due Diligence have to be included in the contract and, therefore, have to be known by both parties. It is important to identify the owners, the property itself and any charges that may exist on it.

2. Who signs the preliminary contract?

Although less common today, these contracts have to be signed by the estate agent on behalf of the seller. This practice should be avoided, because in case of dispute it is more difficult to verify if the act was with or without enough power of representation. If a person signs such contracts in Spain on behalf of another, enough authorization can only be demonstrated without questioning their veracity, by means of a power of attorney. In the presence of the seller, a copy of the identification or passport need to be requested, which has to be attached to the contract accordingly.

 

 

 

 3. Who receives the initial payment?

At first, the initial payment should be made directly to the seller as part of the purchase price, but in some cases both the estate agents and the lawyers involved act as trustees. If payment is not made directly to the seller, this fact has to be in writing and approved by the buyer and seller.

If payment is directed to the seller's lawyer, the seller acts as trustee in most cases and, under the contract, holds the payment until the notary appointment. If the notarial sales contract is signed as agreed, the lawyer transmits the amount to the seller as part of the purchase price.

If the public deed of sale of the property does not materialize, the lawyer transmits it back to the buyer if the seller has mediated fault, or to the seller if the fault comes from the buyer. Here it is crucial how the clauses are drafted in the arras contract, because in only a few cases the loss of the deposit constitutes a true withdrawal right. In other cases, the other party, despite the loss of the advance, can legally seek compliance with the purchase contract. In addition, a certificate of bank ownership has to be attached with the account number specified in the contract.

4. How is the deposit made?

The initial payment should never be made in cash. If the payment is delivered to brokers or lawyers in this way, legally it must not exceed €1,000, so a cash payment is not appropriate here in any case.

In these cases of tax evasion, the purchase price that is actually paid is higher than the purchase price that is ultimately specified in the notarial purchase deed, so the seller has less taxable income from the sale.

However, this simulated purchase price not only affects the taxes that the seller must pay, but is also used to calculate the taxes that the buyer must pay (Property Transfer Tax, ITP or documented legal acts, AJD), which is why the buyer would also evade taxes.

5. Signature of the public deed:

The down payment contract need to specify the date scheduled for signature by the parties of the public deed of sale in the notary. Especially in so-called "purchase options", the responsibility to make the appointment is the buyer who must demonstrably inform the seller in writing of the notarized appointment. If the buyer does not inform the seller in time, the amounts delivered to the seller can be lost as a down payment on the purchase.

The difficulty of being able to test the notification in case of dispute. Emails, phone calls, SMS, etc. are not a suitable method. A certified letter in writing with acknowledgment of receipt and content certificate (Burofax) is usually the only solution to receive conclusive confirmation.

However, if an appointment is made directly in the contract and a notary is chosen to sign, this type of problem can be avoided, since both the seller and the buyer know exactly when and where to sign the public deed of purchase. Since the notary fees are primarily paid by the buyer, the buyer can freely choose the notary he trusts. If it is necessary that other people besides sellers and buyers appear in the notarial deed (lawyers, translators, authorized representatives, etc.), it is advisable to find a suitable appointment in advance and record it directly in the contract.

From our law firm, we will be happy to help you analyze your specific case, carry out the necessary administrative acts for you and we will also be happy to present you with the corresponding tax returns. If you are interested or have specific question on the subject, we are available by email or phone.

Autor: 

 

LAWYER

Tel: (+49) 5105 60 89 964
Tel: (+34) 951 12 00 69
m.santos@s-s.partners
 
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