In the field of real estate transactions in Spain, arras contracts are a fundamental pillar, providing a framework of security and commitment between buyer and seller prior to the completion of the purchase.

An arras contract is a private contract between a buyer and a seller made before the formalization of the purchase agreement. In this contract, both parties agree to proceed with the future sale of a property, establishing the basic conditions of the transaction.

What is an Arras Contract?

In an arras contract, the buyer pays a sum of money towards the total price of the property. This payment serves as a sign of good faith and commitment. Although not mandatory, this type of contract is highly significant for both parties, as it provides mutual assurance that the transaction will proceed as planned.

Through this agreement, the seller commits to selling the property, and the buyer agrees to pay the price under the agreed conditions within a specified timeframe.

Essential Content of an Earnest Money Agreement

While an earnest money agreement may include various details, it is essential that it contains at least the following elements:

● Personal information of the seller and buyer: Full identification of both parties.

● Description and identification of the property: Details of the property to be purchased.

● Final purchase price and payment method: The agreed total and how the payment will be made.

● Amount of money paid upfront: The down payment, which will be deducted from the final price.

● Deadline for formalizing the purchase agreement: A maximum date for signing the final contract.

● Reasons for extending the deadline: Circumstances that may justify an extension.

● Causes for contract termination: Conditions under which the agreement may be nullified.

● Commitment to sign a public deed, if applicable: Agreement on whether the contract will be formalized before a notary.

● Allocation of transaction expenses: How the costs will be divided between the parties.

● Signatures of the buyer and seller: Acceptance and consent from both parties.

Types of Arras Contracts

There are three main types of arras contracts, each with distinct legal characteristics and consequences: confirmatory, penal, and penitential earnest money agreements.

1) Confirmatory Arras: Reinforced Commitment

Confirmatory arras serve as an advance payment towards the purchase price, integrating it into the total transaction and solidifying the purchase agreement. In the event of a breach, the affected party may demand the fulfillment of the contract as well as compensation for damages, underscoring the seriousness of the commitment made.

2) Penal Arras: Economic Safeguard

Penal arras establish financial compensation in the event of unilateral withdrawal from the purchase agreement, penalizing non-compliance. If the buyer defaults, they forfeit the earnest money paid. If the seller defaults, they must return double the amount received. This arrangement does not preclude the possibility of enforcing other contractual obligations.

3) Penitential Arras: Flexibility and Protection

Penitential arras allow either party to withdraw from the contract, compensating the other party accordingly. If the buyer withdraws, they forfeit the mount paid. If the seller withdraws, they must return double the amount received. This type of agreement offers a balance between flexibility and protection for both parties.

Choosing the Right Type of Arras Contract

Selecting the most suitable type of arras contract depends on multiple factors, including the degree of commitment between the parties, the need for protection against breaches, and the specifics of each real estate transaction.

It is crucial that both buyers and sellers fully understand the legal implications of each type of earnest money agreement before signing. Consulting with an expert in real estate law is essential to making informed decisions that accurately reflect the interests and needs of each party.

Conclusion

Arras contracts are an indispensable tool in real estate transactions in Spain, providing clarity and security to the process. Choosing between a confirmatory, penal, or penitential arras contract should be done carefully, considering the specifics of each case to protect the interests of all parties involved.

This careful selection facilitates a smooth path toward the successful completion of the transaction, reinforcing trust and legal security in the Spanish real estate market.