These preliminary agreements, often only one or two pages long, are frequently presented as a "reservation agreement", although they are in fact a legally binding preliminary contract. By signing such an agreement, you already undertake to purchase the property at a specified date under the conditions set out in the contract. A "reservation agreement" drafted and presented by a real estate agent can therefore quickly become a legal pitfall, particularly with regard to the deposit.

Although the notarial deed of sale will only be prepared and signed at a later stage, the provisions agreed upon in the preliminary contract are already legally binding. As a result, there is often very little room for negotiation when the final notarial deed is executed. When purchasing through a real estate agent, these agreements are frequently prepared by the agent. Having the contract reviewed by a lawyer is therefore particularly important, as real estate agents are generally neither independent nor impartial and often lack the legal expertise required to properly protect the buyer's interests.

In general, particular attention should be paid to the following aspects of the preliminary contract:

1. Take the Due Diligence Results into Account

The findings of the due diligence should be incorporated into the contract so that both parties formally acknowledge them. In particular, the contract should clearly identify the owners, the property itself, and any registered charges or encumbrances. If there are doubts regarding the property's planning or building law compliance, it is advisable to obtain an urban planning certificate (Ficha Urbanística) from the local municipality and have it attached to and signed as part of the contract.

2. Who Signs the Preliminary Contract?

Although less common today, preliminary contracts were often signed by real estate agents on behalf of the sellers in the past. This practice should be avoided, as it may be impossible to prove in the event of a dispute whether the agent had sufficient authority to act on the seller's behalf. In Spain, a person signing on behalf of another can only prove such authority through a notarised power of attorney. Even if the sellers are present when signing, you should always request copies of their identity cards or passports and attach them to the contract.

3. Who Receives the Deposit?

As a general rule, the deposit forms part of the purchase price and should therefore be paid directly to the seller. However, in some cases, the real estate agent or one of the lawyers involved may act as an escrow holder. If the payment is not made directly to the seller, this arrangement should always be recorded in writing and expressly approved by both buyer and seller.

If the deposit is paid to the seller's lawyer, the lawyer will usually act as an escrow agent and hold the funds until the completion of the sale before the notary. If the notarial deed is signed as agreed, the lawyer transfers the deposit to the seller as part of the purchase price.
If the transaction does not proceed, the lawyer will either return the deposit to the buyer if the seller is responsible for the failure, or transfer it to the seller if the buyer is responsible. The wording of these contractual clauses is crucial, as only certain types of deposit clauses provide a genuine right of withdrawal. In other cases, the innocent party may still be entitled to enforce the purchase agreement in court, even if the deposit has already been forfeited.
Regardless of who receives the payment, a bank certificate confirming the holder of the bank account specified in the contract should always be attached.

4. How Should the Deposit Be Paid?

The deposit should never be paid in cash. Where payment is made to a real estate agent or lawyer, Spanish law generally prohibits cash payments exceeding €1,000, making cash an unsuitable method in almost every case.
Cash payments to private individuals should also be avoided, as they are sometimes used to conceal part of the purchase price. In such cases of tax evasion, the actual purchase price exceeds the amount stated in the notarial deed, allowing the seller to reduce the taxable gain from the sale.
However, declaring an artificially low purchase price not only affects the seller's taxes. The declared price is also used to calculate the taxes payable by the buyer, such as Property Transfer Tax (ITP) or Stamp Duty (AJD). Consequently, the buyer may also become involved in tax evasion.

 

5. When Is the Notarial Deed Signed?

The preliminary contract should always specify a fixed date for signing the notarial deed of sale. This is particularly important in so-called purchase option agreements (opción de compra), where the responsibility for arranging the completion date often rests solely with the buyer. Depending on the wording of the agreement, the buyer may be required to notify the seller in writing of the chosen completion date within a specified period. Failure to provide timely written notice may result in the complete loss of the deposit.

In practice, proving that such notification was given can be difficult. Emails, telephone calls, text messages, and similar methods are often insufficient evidence in the event of a dispute. A registered Burofax with proof of delivery and certified content is generally the safest way to obtain legally valid proof of notification.

If the contract already specifies a fixed signing date and names the notary before whom the deed will be executed, these issues can largely be avoided, as both parties know exactly when and where completion will take place. Since notarial fees are generally borne by the buyer, the buyer is free to choose the notary. Where additional parties, such as lawyers, translators or bank representatives, need to attend the signing, it is advisable to agree on a suitable date in advance and include it directly in the contract.

Further information on buying property in Spain can be found in our blog section Property: Buying and Ownership.

Our law and tax firm will be pleased to assist you in analysing your specific situation, completing all necessary administrative procedures, and preparing and filing the relevant Spanish tax returns. If you have any questions or require legal advice regarding property purchases in Spain, please do not hesitate to contact us by email or telephone.

Author:

María Santos
Lawyer
CEO, Partner, Legal Director
info@sspartners.es
Tel: (+34) 951 12 13 06
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