When you decide to buy or sell a property, one of the first steps is usually signing the arras agreement. But what exactly is this document, and why is it so important?
What Is an Arras Agreement?
The arras agreement is a preliminary contract between the buyer and seller, where both parties commit to formalizing the property purchase. In this document, the buyer pays an amount of money as a down payment or guarantee towards the final price. The arras agreement is generally regulated under the Spanish Civil Code, Title IV.
What Is an Arras Agreement Used for?
The main purpose of this agreement is to secure the transaction while final procedures and necessary documentation are completed. This contract serves to:
- Guarantee the commitment of both parties.
- Reserve the property until the public deed is signed.
- Set the terms of the transaction (price, deadlines, penalties, etc.).
- Protect both parties in case of non-compliance.
Types of Arras Agreements
In Spain, arras agreements can take different forms, although the most common types are:
Penitential Arras
These allow either party to withdraw from the agreement but include a penalty. Typically:
- If the buyer withdraws, they forfeit the amount paid.
- If the seller withdraws, they must return double the amount received.
Confirmatory Arras
These confirm the firm commitment to complete the sale. If one party breaches the agreement, the other may demand either fulfillment of the contract or compensation for damages.
Specific Regulation in Catalonia
In Catalonia, arras agreements are specifically regulated in Book Six of the Civil Code of Catalonia (Law 3/2017, of February 15th). The following articles are particularly relevant:
- Article 621-8: Regulates penitential and confirmatory arras agreements.
- Article 621-49: Regulates buyer protection in the event of loan denial.
In practice, penitential arras are the most commonly used both in Catalonia and the rest of Spain, as they offer flexibility to both parties.
Additionally, Catalan law includes an important exception:
“If the buyer can prove that three different financial institutions have denied the mortgage loan, the arras agreement can be canceled without penalty, and the full deposit must be refunded.”
In Catalonia, contracts often include the following clause:
“This agreement qualifies as Penitential Arras, pursuant to Article 621-8 section 2 of Book Six of the Civil Code of Catalonia.”
Regarding financing, contracts may also include:
“Pursuant to Article 621-49 of Law 3/2017 of Book Six of the Civil Code of Catalonia, the BUYER declares to have a pre-approved mortgage loan for the purchase of the property, and accordingly, the BUYER…”
What Should an Arras Agreement Include?
It is essential that the arras agreement covers key aspects such as:
- Complete information of both buyer and seller.
- Detailed description of the property.
- Total purchase price.
- Amount paid as arras deposit.
- Deadline for signing the public deed.
- Consequences in case of breach.
Conclusion
The arras agreement is an essential tool to ensure security during the property buying process. Signing it with clarity and professional advice helps prevent problems and allows both parties to proceed confidently.
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