Contrato de Arras in Spain: Penitential, Confirmatory & Penal

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Buying or selling a property in Spain is, for most people, the most significant financial transaction of their lives. However, the excitement of finding the perfect home or the ideal buyer can quickly fade if the step preceding the public deed is not managed correctly: signing the reservation document. In the Spanish real estate market, this step is formalised through a pre-contract or contrato de arras (earnest money agreement), a legal instrument of vital importance that is often signed in a hurry and without understanding the serious legal consequences that each of its modalities entails. A mistake in drafting a single clause can mean the loss of thousands of euros or the obligation to buy a property under unfavourable conditions. Therefore, knowing the legal framework of the Código Civil (Civil Code) in depth is the best guarantee to protect your assets.

What is a contrato de arras and what is its legal framework in Spain?

A contrato de arras is a private agreement signed as a preliminary step to the sale of real estate (or, occasionally, in long-term lease agreements). In this document, the parties—buyer and seller—express their intention to carry out the transaction and, to guarantee compliance with the agreement, the buyer delivers a sum of money to the seller as a deposit or down payment.

Although it is a tool used daily in the Spanish real estate sector, the Código Civil does not contain a systematic and detailed regulation of all types of arras. In fact, the jurisprudence of the Tribunal Supremo (Supreme Court) has had to outline the nature and effects of each modality due to the brevity of our historical legislation. The reference regulatory framework is mainly based on the following pillars:

• *The Spanish Código Civil (Civil Code): Especially its Article 1454, which expressly regulates arras penitenciales* (penitential earnest money), and the articles relating to the breach of obligations (Article 1124) and the penal clause (Article 1152 and following).
• *The Ley de Enjuiciamiento Civil (LEC / Civil Procedure Act):* Which governs judicial proceedings in the event of disputes, contract enforcement, or monetary claims arising from breach of contract.
• *The Ley 12/2023, de 24 de mayo, por el derecho a la vivienda (Housing Right Act): Which, although it does not directly modify the nature of arras*, affects real estate management fees and the minimum information that must be provided to the buyer or tenant before signing any reservation document.

The three types of arras: Differences, regulation, and consequences

Legal doctrine and the jurisprudence of the Tribunal Supremo classify arras into three clearly differentiated categories. Choosing one or the other will determine what happens if one of the parties decides to back out, whether it is possible to demand specific performance of the contract, or what financial compensation corresponds to the damages caused.

1. Arras Penitenciales (or withdrawal earnest money)

These are the only ones expressly regulated in the Código Civil, specifically in its Article 1454, which states: "If earnest money or a deposit has been mediated in the contract of sale, the contract may be rescinded, with the buyer agreeing to lose them, or the seller to return them duplicated".

• Purpose: To allow lawful withdrawal from the contract. That is, either party can legally back out unilaterally in exchange for a pre-established financial penalty.
• Consequences for the buyer: If the buyer decides not to buy, they lose the amount delivered.
• Consequences for the seller: If the seller decides not to sell, they must return double the amount received to the buyer.
• Enforceability: Neither party can force the other to sign the sale before a notario (notary); the contract is terminated with the payment of the withdrawal "penalty".
• Key requirement: For the arras to be penitential, an express, clear, and unequivocal reference to *Article 1454 of the Código Civil** must appear in the contract. Otherwise, the courts will presume that it is another type of arras*.

2. Arras Confirmatorias (Confirmatory earnest money)

Arras confirmatorias do not allow unilateral withdrawal. Their function is to serve as proof or "confirmation" of the existence of an already perfected contract of sale. The amount delivered is considered the first down payment on the total price.

• Purpose: To ensure that the sale will take place, without giving the option to "repent" in exchange for money.
• Regulation: They are governed by the general rules of breach of obligations under *Article 1124 of the Código Civil***.
• Consequences in case of breach: If one of the parties fails to comply, the injured party can choose between two paths:

1. Demand specific performance of the contract (forcing the purchase or sale through judicial channels).
2. Request the resolution of the contract with compensation for damages (which must be proven and evaluated by a judge, and may be higher or lower than the deposit delivered).

3. Arras Penales (Penal earnest money)

These lie somewhere between the previous two and are configured as a guarantee of contract compliance through the establishment of a penal clause.

• Purpose: To establish in advance the valuation of damages in case of breach, but without granting the parties the right to withdraw unilaterally.
• Regulation: They are governed by *Articles 1152 to 1155 of the Código Civil*** (penal clause).
• Consequences in case of breach: The compliant party can demand the fulfillment of the contract in court and, additionally, claim the agreed penalty (which is usually the loss of the deposit or its double return). Unlike confirmatory arras, here it is not necessary to prove the amount of damages in court, as this has been fixed in advance in the contract.

Deadlines, amounts, and key figures in the contrato de arras

In the Spanish real estate market, managing figures and execution times is critical to avoid the expiration of rights or penalties for delay. The usual and legal financial and temporal scales are detailed below:

• *The amount of the arras: Although there is no legal minimum or maximum limit set by the Código Civil (the principle of autonomy of will of Article 1255 rules), standard market practice sets the amount of the arras* between 5% and 15% of the total purchase price. In most transactions, a standard of 10% is set.
• Validity period: This is the time granted to the parties to prepare the documentation, obtain bank financing, and go to the notary to grant the public deed. The usual practice in Spain is to set a period of between 30 and 90 calendar days. A period of 60 days is usually ideal when the buyer needs to apply for a mortgage loan.
• Extensions: If the deadline is about to expire (for example, due to bank delays in granting the mortgage), the parties can sign an extension annex. This document must be signed in duplicate by both parties before the original deadline expires, detailing the new deadline (for example, an extension of 15 or 30 additional days).

Practical examples with real figures

To understand the financial impact of choosing one modality or another, let's analyze two common scenarios in the Spanish market.

Example 1: Arras Penitenciales (Article 1454 of the Código Civil)

• Property: An apartment in Valencia valued at €200,000.
• Earnest money agreement: Arras penitenciales are signed with a 10% deposit, i.e., €20,000, and a 60-day period to sign the deed.
• Scenario A (Buyer breaches): Carlos, the buyer, does not get the mortgage and the contract does not provide for any safeguard clause. Upon reaching day 60, he cannot buy. Carlos loses the €20,000, which remains with the seller. The contract is terminated.
• Scenario B (Seller breaches): Elena, the seller, receives a better offer from another interested party for €230,000 within 30 days of signing. She decides to withdraw from the sale to Carlos. Elena must return to Carlos the €20,000 he delivered plus another €20,000 penalty. In total, Elena pays out €40,000 (returns double the deposit). The contract is terminated.

Example 2: Arras Confirmatorias (Article 1124 of the Código Civil)

• Property: A villa in Madrid valued at €400,000.
• Earnest money agreement: Arras confirmatorias are signed, delivering a €40,000 deposit.
• Scenario: After 45 days, the seller decides they no longer want to sell because they have changed their mind about moving. The buyer, who has already sold their previous home and hired a moving company, does not accept the return of the money. As these are arras confirmatorias, the buyer sues the seller demanding specific performance. The judge forces the seller to grant the public deed of sale for the agreed €400,000, and also sentences them to pay compensation for the damages caused (furniture storage costs and the buyer's temporary rent).

Practical steps: Step-by-step to sign a contrato de arras

To guarantee the legal certainty of the transaction, it is recommended to strictly follow this action protocol:

1. Prior property checks: Before transferring a single euro, request an informative Nota Simple (property registry extract) from the Registro de la Propiedad (Property Registry) (it must not be more than 10 days old) to verify who the real owner is and if the property has charges (mortgages, liens, or easements). Also request the latest receipt of the IBI (municipal property tax) and a certificate showing the seller is up to date with community of owners' payments.
2. Drafting the contract draft: Draft or commission a professional to draft a document clearly identifying the parties, the property (with its registry property number and cadastral reference), the total sale price, the amount delivered as arras, the maximum period to sign the deed, and, crucially, the *legal qualification of the arras** (citing the corresponding articles of the Código Civil*).
3. Signing the contract and paying the deposit: Proceed to the physical or digital signing of the document in duplicate (on all its pages). The payment of the deposit should preferably be made by nominative bank transfer or certified bank cheque, stating in the concept: "Pago arras contrato compraventa piso [Address] - [Buyer's Name]". Avoid cash payments to comply with anti-money laundering regulations.
4. Preparing the public deed: During the validity period of the arras, the buyer processes their financing and the seller prepares the documentation (energy efficiency certificate, cédula de habitabilidad (habitability certificate) if applicable, etc.). Both parties choose the notary office where the public deed will be signed.
5. Signing the Deed and handing over the keys: On the agreed date, the parties attend the notary. The amount delivered in the arras is deducted from the final sale price, with the buyer paying the remaining balance by bank cheque. The keys are handed over and ownership is transferred.

Mistakes you must avoid

• Using generic internet templates without reviewing the terminology: It is common to find contracts that mix the terms "arras penitenciales" and "confirmatorias" in the same text. In the event of a dispute, ambiguous drafting will force the parties to go to court so a judge can interpret their true intention, which will delay the process for years.
• Not planning for mortgage denial: If you are a buyer and need financing, it is a very serious mistake not to include a mortgage safeguard clause. This clause must specify that, in the event that the banking entities deny the loan to the buyer, the contract will be resolved without penalty, and the buyer will recover 100% of the money delivered.
• Signing without the representation of all co-owners: If the property belongs to three siblings through an inheritance, or to a married couple under the community property regime (gananciales), the contrato de arras must be signed by all co-owners (or by someone with a notarised power of attorney). If only one of them signs, the contract could be declared null or ineffective.
• Not precisely setting the distribution of purchase costs: Although the Código Civil establishes a default distribution, it is essential to detail in the contrato de arras who will assume the notary fees, registry fees, the Impuesto de Transmisiones Patrimoniales (ITP / Property Transfer Tax) or VAT, and the municipal capital gains tax (IIVTNU), to avoid last-minute arguments at the notary's office.

Frequently Asked Questions (FAQ)

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

As a general rule, if the contrato de arras is penitential and nothing to the contrary has been agreed, the buyer will indeed lose the money delivered if they do not obtain financing. To avoid this situation, a suspensive condition clause must be expressly included, stipulating that the validity of the contract is subject to the granting of the mortgage, forcing the buyer to present denial certificates from at least two or three banks to recover their deposit.

Can the arras be extended if the agreed period ends?

Yes, the arras can be extended by mutual agreement. For the extension to be fully valid and binding, it is essential to draft a written annex signed by both parties before the original period expires. This document must state the new deadline for signing. If the period expires without the extension or the deed having been signed, the party that was ready to comply can demand payment or resolution from the other, applying the agreed penalties.

What are the tax implications of the arras?

The delivery of the arras does not generate an immediate tax obligation for the Impuesto de Transmisiones Patrimoniales (ITP) or VAT, as it is considered a down payment for a future transfer. However, if the arras are rescinded (for example, if the buyer loses them or the seller returns them duplicated), that capital alteration must be declared in the IRPF (personal income tax) of the following tax year as a capital gain or loss in the general tax base.

Can I sign a contrato de arras for renting a home?

Yes, it is perfectly possible and legal. It is used to reserve a rental property while solvency documentation is gathered or the final contract is prepared. In this case, the underlying regulatory framework will be the Ley 29/1994 de Arrendamientos Urbanos (LAU / Urban Leases Act) and the Código Civil. The parties usually agree that the amount of the arras becomes, once the lease is signed, the monthly fianza (security deposit) or the first month's rent.

In summary

• Penitential earnest money (Art. 1454 CC) allows the parties to freely withdraw from the sale in exchange for losing the deposit (buyer) or returning it duplicated (seller).
• Confirmatory earnest money does not allow backing out; if one party breaches, the other can legally demand that the sale be completed.
• Penal earnest money sets an automatic compensation for breach, but retains the possibility of demanding specific performance of the contract.
• The usual amount of the deposit ranges between 5% and 15% of the property price, with 10% being the Spanish market standard.
• To protect the buyer, it is vital to include a mortgage contingency clause that returns the money if the bank denies the loan.
• Before signing, it is mandatory to perform basic registry checks through a Nota Simple to avoid surprises with charges or false ownership.

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.