SUMMARY OF THE ARTICLE
1.- Paying the seller directly. A risk worth knowing.
In Spain, it is common to pay 10% of a property’s price, or a smaller reservation amount, directly to the seller or the estate agency. Unlike in other countries (United Kingdom, Germany, France, etc.) that money is not always protected until completion.
2.- Any signed document creates obligations.
A common view is that there is no harm in signing a reservation agreement and paying a small amount to take a property off the market. However, it does not matter what the document is called (reservation agreement, arras, etc.). Signing any document and paying any amount can commit both parties to a transaction more than is sometimes appreciated.
3.- Our recommendation.
Before paying any amount, it is advisable to carry out at least the minimum legal checks on the property and, whenever possible, make payment conditional on those checks proving satisfactory. This can help prevent later difficulties.
It is a common situation. You find a property you like. And the real estate agent, or the seller themselves, ask you to pay a sum to “secure” the deal. Sometimes this is a small reservation of €1,000 or €3,000. “Simply to take the property off the market”. In other cases, you are asked to pay 10% of the purchase price directly, on signing the reservation or arras contract. It is common to hear that “nothing will happen” if you change your mind later. In this week’s article, we explain why that assumption deserves some caution.
Payment on signing the reservation or arras contract.
The practice is different in other countries around us. In the United Kingdom, for example, the deposit is usually held by the seller’s solicitor, who cannot release it until completion takes place. In France, the Notary plays a greater role in the process, and the buyer generally pays the deposit into an account from which, during the first 10 days, they may withdraw without losing it. But in Germany, protection comes from a different source: until signing before a Notary, the commitment is not usually considered binding. This differs sharply from common practice in Spain, where, as noted, reservation and arras contracts are often signed too lightly, without knowing the legal consequences this may carry.
Any signed document creates obligations.
It is worth bearing in mind that, whether called a reservation or an arras contract, a document signed by both parties, setting out the purchase price, the property details and a deadline for completion before the Notary creates real obligations for both sides. In other words, even if you, as the buyer, change your mind, withdraw, and accept losing the deposit already paid, you may not be able to walk away from the contract without further consequences.
Depending on how the document is drafted (and the wording of the type of penalty agreed) the seller could potentially demand performance of the contract. That is, that you go ahead with the purchase, rather than accept financial compensation (generally losing the amounts paid). For this reason, signing any document without having it reviewed beforehand by a lawyer is a serious mistake. You should know exactly what you agree to, however simple the document may appear at first glance.
When is it safe to pay 10% of the purchase price? Our recommendation.
At White & Baos Lawyers, we do not recommend handing over any amount until at least the minimum legal checks have been carried out. Since some checks are not immediate and can take time, it is important to make the deal expressly conditional on those checks proving satisfactory. It is also essential to verify who holds the account you are paying into. Be wary of anyone who insists that “nothing will happen” if you sign and pay straight away. Caution and proper advice beforehand are key to avoiding problems later.
Conclusion.
Agreeing to pay 10% of the purchase price, or any other amount as a reservation, can create real legal obligations. If not handled carefully, it is a genuine risk to your money. Expert legal advice before signing can help you avoid difficulties that are hard to resolve later. At White & Baos Lawyers, we can review your contract before you sign, so you know exactly what you are committing to. Do not hesitate to contact us.
The information provided in this article is not intended to be legal advice but merely conveys information relating to legal issues.
Carlos Baos (Lawyer)
White & Baos.
Tel: +34 966 426 185
E-mail: info@white-baos.com
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