Arras agreement (earnest money) in Spain – types and what happens when one of the parties withdraws
Buying a house or apartment in Spain is a process that ends with signing a notarial deed. Along the way, a number of documents must be signed. After agreeing on the price and terms of the transaction, the parties often conclude an agreement known as contrato de arras. This is one of the most important documents in the entire property purchase process in Spain because it stipulates the terms under which the property is reserved, when the finalization should take place, and what consequences the buyer or seller will face if they change their mind.
Although arras is often translated into earnest money, it is not the same legal solution. The key factor is the type of contract concluded and its specific provisions.
What will you find in the article?
- What is an arras agreement and why is it signed
- Arras versus Polish earnest money – why they are NOT the same
- Three types of arras: confirmatorias, penitenciales, and penales
- What happens if one party withdraws – consequences according to type of arras
- How much is the earnest money and what should an arras agreement include in practice
- FAQ
- Is an arras agreement the same as Polish earnest money?
- How much is the earnest money (arras) usually in Spain?
- What happens if I, as a buyer, withdraw from the arras agreement?
- What happens if the seller withdraws from the transaction?
- Will I get the earnest money back if the bank refuses me a loan?
- Which type of arras should be signed to be able to withdraw?
- What happens if the agreement does not specify the type of arras?
- How does an arras agreement differ from the notarial deed (escritura)?
What is an arras agreement and why is it signed
An arras agreement is a private preliminary contract concluded between the buyer and the seller of a property. Its purpose is to confirm the most important terms of the agreed transaction and to oblige the parties to further actions aimed at signing the notarial deed, called escritura pública.
In practice, the buyer hands over a certain amount to the seller as a reservation for the property. Thanks to this, the seller should stop offering it to other interested parties, while the buyer gains time to complete formalities: analyze documents, organize the transfer, prepare powers of attorney, or obtain financing.
A well-prepared contrato de arras limits the risk of misunderstandings. It should clearly indicate not only the price and finalization deadline but also the consequences of failing to meet the agreements. This is especially important because the earnest money when purchasing property in Spain constitutes a significant part of the buyer’s funds.
Arras versus Polish earnest money – why they are NOT the same
In Polish law, earnest money has a defined function and standard consequences unless the parties decide otherwise. Simply put: if one party does not perform the contract, the other may keep the earnest money received or demand its return in double the amount.
In Spain, however, the word arras does not automatically imply the same effects. It is a term used for different types of agreements which can function as confirmation of contract conclusion, a right to withdraw, or an additional security in the form of sanctions.
Therefore, simply stating in the document that the buyer pays “arras” is not enough. It is necessary to establish whether the parties conclude arras confirmatorias, arras penitenciales, or arras penales. This classification determines whether the buyer can withdraw, losing the amount paid; whether the seller can withdraw after returning double the amount; or whether the injured party may seek further claims.
Three types of arras: confirmatorias, penitenciales, and penales
Spanish practice distinguishes three basic types of arras. The choice should be made consciously, and the type of contract explicitly stated in its content. Lack of precision can lead to disputes about the rights and obligations of the parties.
1. Arras penitenciales – earnest money with the right of withdrawal
Arras penitenciales are the most common variant in residential transactions. They are regulated in Article 1454 of the Spanish Civil Code and allow both parties to withdraw from the transaction without being forced to finalize it.
If the buyer withdraws, as a rule they lose the amount paid. If the seller withdraws, they should return double the amount of the arras to the buyer. This solution thus provides flexibility, but at a cost.
It is advisable to explicitly state in the agreement that the parties conclude arras penitenciales and refer to Article 1454. This avoids later doubts about whether the payment indeed gave the right to withdraw from the contract.
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2. Arras confirmatorias – contract confirmation without the right to withdraw
Arras confirmatorias are confirmation of contract conclusion and part of the purchase price. They do not give one party a simple right to withdraw at the cost of losing the payment or returning double the amount.
If either party does not fulfill the contract terms, the other may demand performance of the obligation or contract termination and compensation for damages incurred. The scope of claims depends on the situation and the document’s provisions.
This variant may better protect the party intent on completing the transaction but is less flexible. Before signing the agreement, it is essential to make sure that the price, legal status of the property, payment schedule, and financing have been sufficiently verified.
3. Arras penales – function of liquidated damages
Arras penales serve as security and sanction. The stipulated amount may function similarly to liquidated damages in the event of breach by one party.
However, this is not the same as arras penitenciales. As a rule, arras penales do not grant an automatic right to freely withdraw from the contract. They can stipulate financial consequences of breaching its terms and, depending on the wording, do not exclude the possibility of pursuing additional claims.
Therefore, their content should be prepared with exceptional precision. It must clearly specify when the sanction applies, whether it limits the party’s liability, and whether the injured party may seek further compensation.
What happens if one party withdraws – consequences according to type of arras
Withdrawal from the arras agreement may have completely different consequences depending on its type:
- with arras penitenciales, the buyer usually loses the amount paid, and the seller returns it double;
- with arras confirmatorias, the injured party may demand contract performance or pursue claims arising from non-performance;
- with arras penales, the agreed sanction applies, while the document’s detailed provisions are important.
Special attention is required when the buyer plans to use financing. If the contract does not include a condition making the purchase dependent on obtaining a loan, a bank refusal does not automatically mean the return of the funds paid. Those considering a mortgage loan in Spain should ensure an appropriate conditional clause before handing over the arras.
How much is the earnest money and what should an arras agreement include in practice
There is no single legally specified rate. In practice, earnest money when purchasing property in Spain often amounts to around 10% of the agreed price but can be lower or higher depending on the parties’ arrangements and negotiation stage.
The agreement should primarily include:
- full details of the buyer and seller;
- a precise description of the property, including identifying data;
- the agreed sale price;
- the amount of arras paid and the method of payment;
- an unambiguous indication of the type of arras;
- the deadline for signing the notarial deed;
- information on who will cover costs and taxes related to the transaction;
- any suspensive conditions if necessary, for example, obtaining a loan;
- arrangements regarding equipment remaining in the property;
- rules of conduct in case of non-performance of the contract.
It is also worth checking current property encumbrances and the expected costs of property maintenance in Spain. Before signing the document, it is safe to verify its content with an independent lawyer who will assess the specific legal status and safeguard the buyer’s interests.
FAQ
Is an arras agreement the same as Polish earnest money?
No. Although arras is often translated as earnest money, in Spain it can perform different legal functions. The consequences depend on the type of arras and the exact content of the agreement.
How much is the earnest money (arras) usually in Spain?
It is often around 10% of the property price, but this is not a fixed legal rule. The amount can be negotiated by the parties.
What happens if I, as a buyer, withdraw from the arras agreement?
In the case of arras penitenciales, the buyer generally loses the amount paid. With other types of arras, the effects may include the obligation to perform the contract or liability for damages.
What happens if the seller withdraws from the transaction?
With arras penitenciales, the seller should return double the amount received to the buyer. In other cases, consequences depend on the contract terms and the nature of the breach.
Will I get the earnest money back if the bank refuses me a loan?
Not always. The return of funds is much easier to secure if the agreement contains an explicit financing condition on specific terms.
Which type of arras should be signed to be able to withdraw?
The most commonly chosen solution that provides the right of withdrawal is arras penitenciales. However, this type should be explicitly stated in the agreement.
What happens if the agreement does not specify the type of arras?
An interpretative dispute may arise. The mere use of the word arras does not determine that the parties concluded arras penitenciales, so the document should precisely specify the nature of the payment and the consequences of non-performance.
How does an arras agreement differ from the notarial deed (escritura)?
An arras agreement is a private agreement preceding the finalization of the purchase. Escritura pública is, on the other hand, the notarial deed on the basis of which formal ownership of the property is transferred.
Note: This article is for informational purposes only and does not constitute legal advice. For transaction security, we always recommend using the services of an independent Spanish lawyer who will verify the agreement’s content, the legal status of the property, and protect the buyer’s interests before signing documents and paying the arras.
