As in Belgium, there are several types of agreements to purchase a property in Spain. This article discusses the different agreements for Spain.
A reservation contract
We have already written veer about the reservation contract (contrato de reserva or contrato de opción de compra). This agreement is therefore very common in practice. With a reservation contract, you ensure that the seller can no longer offer the property for sale to third parties during an agreed period.
In exchange for this reservation, you usually pay a deposit. Within the reservation period, you can have the necessary legal and, if necessary, building surveys carried out. If legal or technical defects then arise, you can recover the deposit in full. If the sale goes ahead, the deposit will form part of the purchase price. However, this deposit will be lost if you cancel the purchase without valid reasons.
A reservation is therefore tantamount to an option. Indeed, with a reservation, the buyer is not bound to proceed with the sale. This is recommended in situations where the legal and/or technical situation of the property needs to be examined.
A promise to buy and sell
A promise to buy and sell (contrato de promesa de compra-venta) goes beyond a mere reservation or option. With a promise, the parties agree to proceed to the effective purchase within a certain timeframe. This is therefore a binding agreement, but can precede compromise.
Upon signing the pledge, the buyer pays an advance of 1% or 2% of the purchase price. This deposit is generally not recoverable. Unlike a reservation, if the seller defaults, the buyer has the option to:
- legally enforce the sale through the courts;
- or claim damages.
The seller's damages normally correspond to the advance payment. The buyer can claim double the sums already paid.
The advantage of a promise is that the buyer is legally certain that the sale will go ahead. For example, this is interesting when the buyer has obtained a good price and do not wish to lose the opportunity.
The compromise is the binding contract of sale (contrato de arras) as we know it in Belgium. This involves binding agreements on the buy-sell and you definitively buy the property. At the compromise, a deposit of usually 10% of the purchase price, minus any deposit, is paid.
What if the sale does not go through because of a unilateral termination? If so, Spanish law and case law provide a number of options.
The first possibility is that the down payment will not be regarded as damages for breach of contract (arras confirmatorias). Compensation is separate from the down payment. The aggrieved party has to prove his actual damages. In this case, the injured party can also enforce the settlement of the transaction.
The second possibility allows the down payment to be determined as damages (arras penales). If the buyer unilaterally cancels the contract, he loses the entire down payment. If the seller cancels the contract, the buyer is entitled to double the down payment. Both parties can also judicially enforce the transaction.
Finally, the third possibility: if the buyer cancels the agreement, he loses his down payment. If the seller cancels the agreement, he must pay double the down payment (arras penitenciales as regulated by Article 1454 of the Spanish Civil Code). Important condition: there is no possibility of enforcing the sale. In practice, this form of contract is common to buy a house as a foreigner in Spain.
Compromise is not mandatory
Know that it is not mandatory to work with a compromise in Spain. In theory, you can go straight to the notary after agreeing on the property and the price. In some files, for example, the compromise is skipped after reservation to save time.
In theory, you can go to the notary as soon as you have an agreement on the property and the price. Of course, this track is not recommended.
Lease-purchase or rental with option to buy
A hire purchase is an agreement where the buyer rents the property for an agreed term, and will later proceed to purchase. All or part of the rent is then offset against the final purchase price. This form of contract is useful in a situation where the buyer already wants the property before the deed is executed inhabitable. For example: the buyer needs to leave his current home and urgently needs accommodation.
Another form of contract is lease with option to buy (contrato de arrendamiento con opción de compra). Here, after the expiry of the agreed rental period, the tenant has the option to buy the property or not. This form of contract requires caution. For example, what happens if the tenant does not exercise the option to buy, but continues to occupy the house? To avoid conflicts, it is important to make clear agreements.
Buy with rental guarantee
In this scenario, you buy the property mainly as an investment. Upon purchase, you immediately give the property into the management of a rental company. This company guarantees you an agreed rental return. Often, you yourself will only be allowed to use the property for a few weeks a year.
Buying a house in Spain: the notarial deed
In a Spanish notarial deed, the notary only sets out the main agreements between buyer and seller. Who are the parties, what property is involved, who buys what titles, what is the price and how is the price paid? For example, it does not include who is responsible for building violations. Such arrangements are settled in the compromise. Also, the deed does not mention any agreements between the buyers themselves.
Know that a Spanish notary does not advise you. Learn more about the role of the notary in Spain here.
Did you questions about buying a house in Spain? Then feel free to get in touch via the form below or find out in advance What to look out for when buying in Spain.