When buying a property in the UK you may be used to there being a purchase contract. When buying in Spain there may be several different types of contracts to sign and there may indeed be several in one transaction.
Unfortunately these different types of contracts are often confused even by people in the industry. It is vital that you understand the difference between the types of contracts as it is very easy to confuse them and accidentally commit yourself to buy the property when you aren’t ready to do so.
Your independent lawyer or solicitor should easily be able to tell you what type of contract you are signing and whether it is OK to sign so don’t sign anything until you have taken legal advice.
Option Contract (Contrato de Opcion de Compra)
It is unusual to actually have an option contract for the purchase of property in Spain but these can be useful from time to time. In return for a deposit the potential buyer effectively has first refusal on a purchase of a property for a certain period of time that is defined in the contract. The potential buyer can take up the option to buy the property at any time during that period but if they pull out they will lose the deposit. If, on the other hand they exercise the option to buy the property within the specified period of time but the seller is not in a position to sell then the buyer should get their money back.
Reservation Contract (Contrato de Reserva)
This is the most commonly misunderstood type of contract that we see in Spain. Reservation contracts were very popular in the boom times and were designed to make sure that a potential buyer could reserve the property without committing themselves to buy in times when properties were selling in Spain very quickly.
However, we still see estate agents who are selling property in Spain continuing to use Reservation Contracts as a way of tying in potential buyers before they return home. The reality is that in a slower market there should be no need to have a Reservation Contract but unfortunately buyers are put under quite a lot of pressure to sign one both by the agent selling the property but also by themselves as they don’t want to lose a property that they have fallen in love with.
A reservation contract should be a relatively simple document. In return for a small deposit (typically €3,000 - €6,000) the property is taken off the market for a certain period of time; generally a couple of weeks. The contract does not commit the buyer to buy but does commit them to sign a full purchase contract within that time.
In return the seller commits not to sell the property to anybody else during this period. In effect the buyer is simply committing to sign a full purchase contract at some point in the future. If they do not proceed then they (the buyer) will lose the deposit paid unless the reason for not being able to sign is the fault of the seller.
Unfortunately a lot of Reservation Contracts in Spain are drafted by Estate Agents who don’t understand the legal differences between a Reservation Contract and a Full Purchase Contract and therefore most of the so called Reservation Contracts that we see are actually just very poorly drafted and basic Full Purchase Contracts.
Just because it says reservation contract doesn’t mean that it is one!
We also often see Full Purchase Contracts where the words “Purchase Contract” are replaced with “Reservation Contract” and some people think understandably that this turns the Contract into a Reservation Contract. It doesn’t. Equally just because the contract that you are being presented with is very short this again doesn’t necessarily mean that it is a Reservation Contract. Therefore if you are presented with a Reservation Contract to sign and told that this is just a simple contract to reserve the property it is still vital that your solicitor looks at this contract and advises you accordingly.
Full Purchase Contract (Contrato de Compraventa)
This is similar to the sort of contract that you would get when buying a property in the UK.
The full purchase contract in Spain commits the buyer to buy the property and commits the seller to sell to the buyer. It sets out the price, the conditions, describes the property, sets out timescales for certain issues and so on.
It is normal in Spain to pay 10% of the purchase price when signing a Purchase Contract.
If you don’t then complete on the purchase and the failure to complete is yours then you will normally lose that deposit although sometimes the amount that you will lose will be limited to a percentage of the deposit.
If the seller fails to sell the property to you then you are entitled to your money back and in some cases you are entitled to double the deposit back (a clever mechanism designed to stop gazumping). The type of contract where the buyer gets double the deposit if the seller pulls out is called a “Contrato de Arras Penitenciales” (sometimes abbreviated to “Contrato de Arras”)
Prior to signing a purchase contract for a purchase of a property in Spain your lawyer needs to have not only negotiated the terms of the contract and made sure that it is suitable for you but also to have carried out all the appropriate checks on the property in terms of Land Registry, utilities, planning and the rest of their due diligence.
If you are buying a property in Spain and would like to discuss how we can assist then you can contact a UK based solicitor in our Spanish conveyancing team.
Disclaimer – International legal issues are a complex area of law and this information is no substitute for independent legal advice on an individual basis taking into consideration your personal circumstances and legal requirements. This information is provided to provide general information only and was correct at the time of publishing. The legal position in relation to international transactions can change frequently and this page may not have been updated following any changes in the law. You should therefore not rely on this information and should seek legal advice in relation to your personal circumstances.