The arras deposit contract: what you risk

This is the moment the purchase becomes real. It is also the point at which most buyers sign a document they have not fully read, in a language they do not speak, under time pressure from a viewing trip.

The three types

Penitential arras allow either party to withdraw at the fixed cost described above, and this is the form used in most residential transactions. Confirmatory arras are simply a part payment of the price and give no right to withdraw, so the other party can demand completion. Penal arras act as a pre-agreed penalty while still allowing the innocent party to demand performance. The contract must say which type applies.

What to check before you sign

A fresh nota simple confirming the seller is the registered owner and listing every charge. Confirmation that any mortgage will be cancelled and how. The exact completion date and what happens if either side needs to move it. The list of fixtures and furniture included, item by item. And the condition that returns your deposit if the mortgage is refused, which is not automatic and has to be written in.

Where the money should sit

Paying a ten per cent deposit into a private account before your lawyer has seen the registry entry is the most common expensive mistake in a cross border purchase. The safer arrangement is a client account held by a lawyer or the notary, released on completion. On a 500,000 euro property that ten per cent is 50,000 euros, which is not an amount to place on trust after a two day viewing trip.

A reservation agreement with a smaller sum, often 3,000 to 10,000 euros, is frequently signed first to take the property off the market while the checks are done.

The mortgage condition

Spanish lenders take 4 to 8 weeks to issue a binding offer, and a valuation can come in below the purchase price, which reduces the amount lent. If the arras contract has no financing condition and the loan falls through, the buyer forfeits the deposit even though the failure was not their fault. The condition should state the loan amount required and a date by which it must be confirmed.

The figures decide how much care is warranted. On a 500,000 € purchase the deposit is 50,000 €, the reservation beforehand 3,000 € to 10,000 €, and the period to completion 30 to 90 days. A mortgage offer takes 4 to 8 weeks inside that window, which is why the financing condition and the completion date have to be set against each other rather than agreed separately.