Arras Contract in Spain: What You Sign Before Buying Property

🇪🇸 Read the original in Spanish

Buying a property in Spain is, for most people, the most significant financial transaction of their lives. However, the excitement of finding the perfect home often pushes buyers to sign a preliminary document without fully understanding the true scope of its clauses: the contrato de arras (earnest money contract). This document, which is often mistaken for a simple reservation or "señal" (holding deposit), is actually a binding contract with deep legal and financial implications that can cost you thousands of euros if things do not go as planned. In this detailed guide, written by the legal team at AbogadoAI, we explain everything you need to know before putting your signature on an earnest money contract in Spain, ensuring your investment is fully protected by law.

What is an Earnest Money Contract and What Are You Actually Signing?

The contrato de arras is a private document signed by the buyer and the seller of a property before formalising the escritura pública de compraventa (public deed of sale) before a notario (notary). Its main purpose is twofold: on one hand, it guarantees the commitment to carry out the transaction, and on the other, it serves as the delivery of a sum of money (the "señal") as a down payment on the final price of the property.

Although people often talk about the "contrato de arras" as a single concept, Spanish Civil Law distinguishes between three very different types. The choice of one or the other will determine what happens if either party decides to back out of the deal.

1. Arras penitenciales (Penitential or Withdrawal Earnest Money)

These are the most common in real estate transactions in Spain. Their main characteristic is that they allow either party to unilaterally withdraw from the contract, but subject to a very clear financial penalty.

• Regulation: They are expressly regulated under *Article 1454 of the Código Civil (Civil Code)*.
• Consequences: If the buyer backs out, they lose the amount delivered. If the seller withdraws, they must return double the amount received.

2. Arras confirmatorias (Confirmatory Earnest Money)

These do not allow for unilateral withdrawal. They are not an "emergency exit" that you can use by paying a fine, but rather the confirmation and first payment of a sale that is already considered definitive.

• Regulation: They fall under the general rules of contracts in the * Código Civil (Articles 1124 and 1258)*.
• Consequences: If one of the parties defaults, the other can legally demand the fulfillment of the contract (forcing the purchase or sale) or its termination, in both cases with compensation for damages to be assessed by a judge in accordance with the * Ley de Enjuiciamiento Civil (Civil Procedure Act)*.

3. Arras penales (Penal Earnest Money)

These function as a guarantee of contract compliance. A sum of money is established which will be lost or returned doubled in the event of a breach. However, unlike penitential earnest money, the compliant party can still demand that the sale be formalised in addition to claiming the penalty.

• Regulation: They are governed by *Articles 1152 to 1155 of the Código Civil*** (penalty clause).

Deadlines, Amounts, and Key Figures in the Earnest Money Contract

For an earnest money contract to be secure and balanced, it is essential that the parties agree on a series of quantitative and time-based variables. These are the standard figures and deadlines in the Spanish real estate market:

• The amount of the earnest money: There is no legal minimum, but commercial custom and legal practice place this figure between 10% and 15% of the total sale price of the property. For a €200,000 home, the arras usually range between €20,000 and €30,000. In cases of self-build properties or those with very long delivery times, this percentage may vary.
• The validity period: This is the time that elapses between the signing of the arras and the signing of the public deed before a notary. It is customary to set a period of between 60 and 90 calendar days. This period is necessary for the buyer to obtain mortgage approval and for the notary to prepare all the documentation.
• Extensions: If the deadline is about to expire (for example, due to bank delays in the valuation), the parties can sign an extension annex, which is usually for an additional 15 or 30 days, by mutual agreement.

Practical Examples: The Real-World Impact of Arras

To understand how these underlying rules work in real life, we analyse two very common scenarios with concrete figures.

Example 1: Withdrawal with Penitential Earnest Money (Art. 1454 CC)

• Case: Carlos wants to buy Sofía's apartment, valued at €180,000. They sign a contract for * arras penitenciales and Carlos delivers the amount of €18,000 (the 10%*).
• Scenario A (The buyer defaults): Carlos finds another house he likes more and decides not to buy Sofía's apartment. As these are arras penitenciales, Carlos loses the €18,000, which remains in Sofía's hands. The contract is terminated with no further consequences.
• Scenario B (The seller defaults): Sofía receives an offer from a third party who offers her €210,000 for her apartment. She decides to break the contract with Carlos. As these are arras penitenciales, Sofía must return to Carlos the €18,000 he delivered, plus another €18,000 as a penalty. In total, Sofía transfers €36,000 to Carlos (double the amount delivered).

Example 2: The Problem of Mortgage Denial

• Case: Laura signs a contract for arras confirmatorias for a €150,000 apartment, delivering €15,000. She does not include any suspensive clause regarding financing.
• Outcome: Laura's bank denies the mortgage. Since these are arras confirmatorias and this contingency was not foreseen, the seller can demand in court that Laura buy the property or sue her for damages. If they had signed arras penitenciales without a mortgage clause, Laura would have automatically lost the €15,000 with no possibility of reclaiming it.

Practical Steps: Step-by-Step to Sign Safely

If you are going to buy a property, do not just sign the first draft provided by the estate agency. Follow this step-by-step procedure to guarantee maximum legal security:

1. *Request the Nota Simple (property registry filing): Before handing over a single euro, go to the Registro de la Propiedad (Land Registry) — either physically or online — and request an up-to-date Nota Simple of the property. You must check who the real owner is (all owners must sign the earnest money contract) and whether the property has any charges (outstanding mortgages, liens, or usufructos* / life estates).
2. Verify the urban planning and community status: Request the latest receipt for the Impuesto sobre Bienes Inmuebles (IBI - property tax) from the seller, as well as a certificate from the homeowners' association (comunidad de propietarios) proving that they are up to date with the payment of ordinary and extraordinary community fees (derramas).
3. Draft and include the "Financing Clause" (Suspensive Clause): If you need a mortgage to buy, it is vital to include a clause stating that, in the event that two or three banks deny financing in writing, the contract will be terminated without penalty, and the seller must return 100% of the money delivered.
4. Signing the document and bank transfer: The contract must be signed in duplicate by all buyers and sellers (or their legal representatives with a notarised power of attorney). The payment of the arras should preferably be made via bank transfer (indicating "Payment arras property [Address]" in the reference) or via a registered bank cheque, so that there is unequivocal proof of payment.
5. Preparation of the Public Deed: Once signed, the buyer chooses the notary's office where the contract will be elevated to a public deed. The earnest money contract and the property documentation are sent to the notary so they can prepare the final signing within the agreed timeframe.

Common Mistakes to Avoid

• Not specifying the type of arras: If the contract uses the word "arras" or "señal" in a generic way without citing *Article 1454 of the Código Civil or detailing the consequences of withdrawal, Supreme Court jurisprudence usually interprets them as arras confirmatorias***. This means you will not be able to freely back out by losing the money; you could be legally forced to buy through the courts.
• Signing with only one owner when there are several: If the property belongs to a married couple under the gananciales (community property) regime, to several heirs, or to a co-owning couple, all of them must sign the earnest money contract. The signature of only one of them does not bind the others and can invalidate the transaction, leaving you in a highly vulnerable position.
• Not planning for the status of the property's charges: The contract must clearly state that the property will be delivered "free of charges, encumbrances, tenants, and occupants". If the seller has an active mortgage, it must be clear that this will be financially and register-cancelled at the exact moment of signing the public deed, with the cancellation costs borne by the seller.
• Handing over cash without control: Spanish legislation on the prevention of money laundering limits cash payments. Furthermore, handing over cash without a perfectly signed and detailed receipt is an endless source of legal conflicts. Always use traceable bank payment methods.

Frequently Asked Questions (FAQ)

What happens if the buyer does not get the mortgage? Do they lose the money?

Yes, as a general rule, if the buyer does not obtain the necessary financing within the agreed timeframe, they will lose the money delivered as earnest money (if they are arras penitenciales) or they can be sued (if they are arras confirmatorias). The only way to avoid this is to expressly include a suspensive financing clause in the contract that conditions the validity of the contract on the approval of the mortgage loan.

Are taxes paid when signing the earnest money contract?

At the time of signing the earnest money contract, the final taxes of the sale (such as ITP - Property Transfer Tax or IVA - VAT) are not settled. However, the amount delivered as arras is subject to taxation. If the property is a new build, the amount of the arras incurs 10% VAT, which the buyer must pay at that moment. If it is a resale property, the payment of the arras is a down payment on the final price, and the Impuesto de Transmisiones Patrimoniales (ITP) will be settled after the signing of the public deed based on the total value.

Can an earnest money contract be extended if the deadline runs out?

Yes, but it strictly requires the written mutual agreement of both parties. A verbal agreement or a WhatsApp message is not enough. An "Extension Annex to the Earnest Money Contract" document must be drafted, specifying the new deadline for signing before the notary, signed by all the original parties. If one party refuses to extend, the contract expires on the date initially agreed, with the corresponding consequences of breach.

What happens if the property has hidden defects after signing the arras?

If, after signing the arras and before the public deed, the buyer discovers serious defects in the property that were not visible to the naked eye (structural damp, aluminosis, serious pipe issues), this constitutes a breach of the obligation to deliver the property in the agreed state. The buyer can demand the termination of the contract with the return of the arras or demand a proportional reduction in the price, relying on the warranty against vicios ocultos (hidden defects) regulated in the * Código Civil***.

Summary

• The earnest money contract is not a mere reservation formality, but a binding pre-contract with immediate financial and legal consequences.
• There are three types of arras (penitential, confirmatory, and penal); if you want to have the option to withdraw by losing the money or demanding double, you must expressly cite *Article 1454 of the Código Civil***.
• The standard amount of the arras ranges between 10% and 15% of the sale price, with a formalisation period of between 60 and 90 days.
• To protect your money if you need financing, it is mandatory to incorporate a suspensive clause for mortgage denial.
• Before signing, always check the ownership and charges of the property by requesting an *updated Nota Simple*** from the Land Registry.

General legal information, not personalised legal advice. For your specific situation, ask your question for free at AbogadoAI — answers grounded in Spanish law (BOE), in English.

This is general information, not legal advice. Verify on the BOE or consult a lawyer for your specific case.