Once you have chosen the best property for you and your family in Spain, you should get in touch with a Real Estate lawyer to advise you during the purchasing process. The length of the process depends on the kind of property, its characteristics and the taxes associated with it. Our real estate legal advisors will guarantee a trouble-free proceeding.
Your real estate lawyers will provide you with advice before the purchase of the property. They will recommend that you sign a private contract established between Purchaser and Seller in which the property, its price and the terms are clearly stated. You could either sign an earnest money contract or a private contract with an option to buy a property, which is also known as an option-to-purchase agreement. Both of them are legally binding, but it would be best for you to get acquainted with their differences.
Difference Between An Earnest Money Contract And A Private Contract With An Option To Buy A Property In Spain
Both the earnest money contract and the private contract with an option to buy a property are pre-purchase contracts. Most people might be more acquainted with the earnest money contract. It is commonly used to settle on the purchase of a property.
The Purchaser benefits more from an earnest money contract, while the Seller does so from a private contract with an option to buy a property. In the case of the former, both parties are to settle on the decision of buying or selling the property under certain pre-determined conditions; however, in the case of the latter, the decision of purchasing the property is to be made by the Purchaser. Thus, the seller loses some rights after signing this kind of contract. We will now explain each of the contracts in depth.
What Is An Earnest Money Contract?
An earnest money contract is a private, legally binding document, signed between two parties: the Purchaser and the Seller. Its purpose is to secure a property purchase, along with a deposit fee which is to be arranged between both parties. Should there be a breach of contract by one or both parties, a penalty would be imposed on them, following conditions established under the Article 1454 of the Spanish Civil Code. If the Purchaser breaches the contract, they will lose the deposit fee; if the Seller is the one who breaches the contract, they will reimburse the other party with twice the deposit fee.
There are three kinds of earnest money contracts:
- Security deposit: This kind of contract is used for confirming the purchase, that is, the deposit fee is subtracted from the total amount of the purchase. Under no circumstances does this kind of contract give any of the parties the right to termination.
- Forfeitable earnest money deposit: With this kind of contract, the deposit fee is used should there be a breach of contract, regardless of which party is responsible for the breach. Thus, the non-breaching party will be compensated with the deposit fee. When the Seller is the breaching party, the Purchaser may demand the purchase to take effect, whereas when the Purchaser breaches, the Seller may keep the deposit fee and demand the purchase to be suspended.
- Double-rate cancellation penalty: This kind of contract is the most commonly used in Real Estate and property purchase. In case of contract abandonment, neither one of the parties is required to justify their withdrawal. The Seller has the right to receive offers from other potential purchasers and the Purchaser has the right to continue with their property search. If the Purchaser breaches the contract, they will lose the deposit fee; if the breaching party is the Seller, they will reimburse the Purchaser with twice the deposit fee.
What Is A Private Contract With An Option To Buy A Property In Spain?
Unlike any kind of earnest money contract, a private contract with an option to buy a property in Spain is a one-sided binding document for the Seller, with which the Purchaser is granted the right to decide whether or not the property purchase is to become effective within a maximum of four years and under certain pre-determined conditions.
This kind of contract is not covered by the Spanish Civil Code, but it is valid for the purposes of the Spanish Land Registry following conditions established under Article 14 of the Spanish Mortgage Regulations.
This is a pre-purchase contract in which conditions for the purchase are stated. This kind of contract is drafted following case law and serves as purchase confirmation. It only requires the Assignee (Purchaser) to express their will to sign for the purchase to be made effective by the Assignor (Seller), without needing any further action. (Case Law about Private Contracts with an Option to Buy a Property in Spain).
Whether you are a Purchaser or a Seller, Savloir Real Estate Legal Services recommends that you receive proper advice from one of our specialists before signing any kind of pre-purchase contract, as they are legally binding and may be detrimental to you should there be any disagreements or abandonment.
Joaquín Pons, Savloir CEO.
Main Characteristics Of A Private Contract With An Option To Buy A Property In Spain
- After signing this kind of contract, the Assignor (Seller) will be required that the purchase be made effective should the Assignee (Purchaser) express their will to do so. However, the Purchaser may waive their right to continue with the purchase.
- The terms for the property purchase will be established beforehand. Once the Purchaser expresses their will to buy the property, the purchase is made effective, henceforth the property will have to meet the general requirements.
- The agreed upon property price for the purchase is also to be established in the contract.
- The term for the purchase to be made effective by the Assignor (Seller) is to be determined in the contract as well. The Assignee (Purchaser) may express their will to purchase the property at any given time within that term to the Assignor (Seller). This will make the purchase effective, without any further actions being necessary.
- Optionally, should any of their parties express their will to provide/be provided with a premium, it will also be established in the contract.
Registering Your Private Contract With An Option To Buy A Property In Spain In The Land Registry
A private contract with an option to buy a property in Spain ensures protection of both the Seller and the Purchaser of the bona fide in the property purchase. This contract may be registered in the Spanish Land Registry, provided it meets the conditions established under Article 14 of the Spanish Mortgage Regulations, particularly:
- That an explicit agreement is reached between both parties regarding to the registration of the property.
- That the price of the property is clearly stipulated
- That the term for the purchase to be made effective does not exceed four years.
If you wish to sign any kind of pre-purchase contract on the Costa Blanca or anywhere else in Spain, we recommend you contact a Real Estate Attorney first. Savloir offers the best and most personalised legal services.
Joaquín Pons, Abogado Inmobiliario en Savloir Legal Advisor
