Protect Your Deposit: The Essential Guide to Spanish Property Earnest Money Contracts
The Contrato de Arras (earnest money deposit contract) is one of the most critical documents in Spanish property transactions—yet many international buyers sign it without fully understanding their rights, obligations, and the risks of losing their deposit. This comprehensive guide explains how the Arras works, the three different types, and the protective measures you must take to safeguard your investment.
The Problem: Costly Misunderstandings About Your Deposit
When international buyers purchase property in Spain, many dangerous misconceptions lead to loss of deposits and legal disputes:
- «My deposit is just a formality—it will be returned if the sale falls through» – Wrong. Depending on the contract type, you can lose 10% (or more) of your purchase price.
- «The real estate agent explained the contract, so I understand my rights» – Agents may not have legal training and often oversimplify or misrepresent terms.
- «The deposit is held in escrow, so it’s safe» – Not always. Many deposits are held by agents or sellers directly—with unclear refund conditions.
- «If the seller doesn’t complete, I’ll automatically get my deposit back» – False. You must prove the seller wrongfully breached, which requires court action.
The reality? Thousands of international buyers lose deposits every year due to unclear contract terms, inadequate legal review, and unfamiliarity with Spanish property law.
The Agitation: What Happens When Things Go Wrong
Scenario 1: Buyer Loses Deposit (You)
You sign a penitential arras contract for a €500,000 property. You pay a €50,000 deposit (10%). Before completion, you discover:
- The mortgage application is denied (legitimately—bank’s decision, not your fault)
- The property has undeclared works or building violations
- Serious structural issues become apparent during inspection
Without protective clauses in your contract, you could lose the entire €50,000 deposit—even though you’re not at fault.
Scenario 2: Seller Doesn’t Complete
You pay the €50,000 deposit. The seller changes their mind and refuses to sign the final deed. Under the arras penitenciales rules, the seller should return €100,000 (double).
But what if the seller claims they never agreed to penitential terms? Or claims you breached? You may spend €10,000-€20,000 in legal fees fighting for your deposit in court—a process that takes 6-12 months.
Scenario 3: Unclear Deposit Holder
You pay the deposit to the real estate agent. Weeks later, the sale stalls. The agent says they’ve already transferred the money to the seller. Now you must contact the seller directly, the agent won’t respond, and there’s no written agreement about who holds or returns the deposit.
Result: Your €50,000 is inaccessible, and establishing liability becomes a nightmare.
The Solution: How Lextax Protects Your Deposit
Lextax specializes in protecting international buyers in Spanish property transactions—ensuring your Contrato de Arras includes all necessary protective clauses, your deposit is securely held, and your legal position is bulletproof.
Our services include:
- Pre-signature contract review – We analyze every clause, identify risks, and negotiate protective terms
- Deposit protection structure – Escrow accounts with lawyers or notaries
- Due diligence before signing – Ownership, permits, registry checks, taxes
- Mortgage and condition clauses – Essential for protecting you if mortgage approval fails
- Litigation support – If deposit disputes arise
What Is the Contrato de Arras? The Basics
Definition
The Contrato de Arras (also called “contrato de depósito” or deposit contract) is a private agreement signed before the final deed (Escritura de Compraventa) that commits both buyer and seller to a property transaction.
Key characteristics:
- Legally binding on both parties
- Buyer pays a deposit (usually 10%)
- Reserves property exclusively
- Sets conditions, deadlines, and breach consequences
Is It Mandatory?
Not legally, but practically yes. Almost all Spanish property transactions use an Arras because it provides clarity, security, and legal consequences.
The Three Types of Arras Contracts: Know the Difference
Spanish law recognizes three distinct types of Arras contracts, each with very different consequences if either party withdraws.
Type 1: Arras Penitenciales (Penitential/Cancellation Deposit)
What it means: Either party may withdraw from the contract, but with financial consequences.
Legal framework: Regulated by Article 1454 of the Spanish Civil Code
Consequences of withdrawal:
| If the Buyer Withdraws | If the Seller Withdraws |
| Buyer forfeits the entire deposit | Seller must return double the deposit to buyer |
| No court action needed | No court action needed |
| Clear, immediate consequence | Clear, immediate consequence |
Example: You pay €50,000 on a €500,000 property. You change your mind and withdraw. You lose the €50,000. Alternatively, the seller refuses to complete. The seller must return €100,000 to you (the original €50,000 plus an additional €50,000 penalty).
When to use: Most common in Spain. Offers flexibility to both parties and protects them from bad faith. However, penitential arras only work if the contract explicitly states withdrawal rights—otherwise courts may interpret it as confirmatory.[17][15]
Type 2: Arras Confirmatorias (Confirmatory Deposit)
What it means: The deposit confirms the contract and is treated as part of the purchase price. Neither party has an automatic right to withdraw.
Legal framework: Regulated by Article 343 of the Spanish Commercial Code
Consequences of breach:
- If the buyer breaches, they lose the deposit (and may be sued for additional damages)
- If the seller breaches, the seller must return double the deposit (and may be sued for additional damages)
- BUT: The parties are bound to complete the contract—they cannot simply walk away
Key difference: Unlike penitential arras, confirmatory arras do not give automatic withdrawal rights. If you change your mind (without valid legal reason), you’re breaching the contract and are liable for damages beyond just losing the deposit.[17]
When to use: When both parties want a binding, enforceable commitment. Common when either party has invested significant time or money in the transaction.
Type 3: Arras Penales (Penalty Deposit)
What it means: The deposit acts as a predetermined penalty clause for breach, independent of any withdrawal right.
Consequences:
- If the buyer breaches, they lose the deposit (and remain liable for additional damages under the penalty clause)
- If the seller breaches, they must return double the deposit (and remain liable for additional damages)
- No right of withdrawal—the clause is purely punitive for breach
When to use: Less common in residential sales; sometimes used in commercial transactions or complex developments where both parties want clear penalty terms.
What MUST Be Included in Your Contrato de Arras
A properly drafted Arras contract protects both parties and minimizes disputes. Here are the essential elements your contract must contain
1. Identification of Parties
- Full legal names of buyer(s) and seller(s)
- Identification numbers (Passport, NIE, National ID)
- Addresses and contact details
- Confirmation that each party has the legal right to sign
2. Complete Property Description
- Full street address and municipality
- Cadastral reference (referencia catastral)—the official property registry number. Verify this matches the seller’s deed
- Property type (apartment, villa, commercial, etc.)
- Square footage (built and land area)
- Any existing charges or encumbrances (mortgages, liens, easements)
- Important: Ensure the description matches the seller’s current ownership deed. Mismatches indicate ownership issues.
3. Purchase Price and Deposit Terms
- Total agreed purchase price (clearly stated)
- Deposit amount paid as Arras (usually 10%, but negotiable)
- Deposit holder – Who holds the money? (Lawyer, notary, agent, or seller?)
- Conditions for release – When is the deposit released to the seller? (At final deed, or upon any breach?)
- Refund conditions – Under what circumstances does the buyer get the deposit back?
Critical protection: Always require the deposit to be held in escrow by a neutral third party (lawyer or notary), not by the agent or seller directly.
4. Type of Arras and Withdrawal Terms
- Explicitly state which type: Penitential, confirmatory, or penal
- Clearly define withdrawal rights – Can either party withdraw? Under what conditions?
- Specify consequences – What happens if each party withdraws? (Forfeiture of deposit, doubling, additional damages, etc.)
Critical point: Spanish courts interpret withdrawal rights narrowly. If the contract is ambiguous, courts will likely treat it as confirmatory (binding, no automatic withdrawal right), not penitential.
5. Completion Deadline and Timeline
- Final deadline for signing the Escritura (final deed) – typically 60-90 days after Arras
- Extensions – Can the deadline be extended? On what terms?
- Realistic timelines – Account for NIE processing (if applicable), mortgage approval (30-60 days), notary availability, etc.
Best practice: Build in 1-2 weeks of buffer time, especially during summer when notary/registry schedules are tight.
6. Conditions Precedent (Suspensive Conditions)
These are CRITICAL to protect your deposit. Include protective clauses such as:
- Mortgage Financing Condition:
- «This contract is conditional on the buyer obtaining a mortgage for [€X] at [interest rate/terms] from [bank(s)] within [X days]»
- «If the mortgage is denied for reasons beyond the buyer’s control, the contract is dissolved and the deposit refunded in full»
- Why? Protects you if the bank denies your mortgage application.
- Clean Title Condition:
- «Seller warrants the property is free of mortgages, liens, and charges, except [specify any known encumbrances]»
- «Any mortgages or liens must be discharged before or simultaneously at the final deed. If not, buyer may rescind and deposit is refunded»
- Why? Ensures the seller actually owns the property unencumbered.
- Urban Planning/Building Permit Condition:
- «Property must have a valid certificate of [occupancy/first occupation] showing compliance with planning regulations»
- «If the council denies or fails to issue the certificate, buyer may rescind and deposit is refunded»
- Why? Protects you from purchasing a property with illegal construction.[6][7]
- Cadastral-Registry Match Condition:
- «Registered property must match the cadastral records within [agreed tolerance, e.g., 5%]»
- «If discrepancies exceed tolerance, buyer may rescind or renegotiate price»
- Why? Some properties are registered smaller than actual size. Protects you from undisclosed property variations.[7][6]
- Inspection and Defects Condition:
- «Buyer has [X days] to conduct professional inspections»
- «If material defects are discovered, buyer may rescind or negotiate repairs, with deposit refunded if rescinded»
- Why? Gives you a contractual exit if the property has serious structural or mechanical issues.[6][7]
7. Cost Allocation
Clearly specify who pays for:
- Notary fees (typically seller pays ~€400-€800 depending on price)
- Property Registry fees (buyer typically pays ~€200-€300)
- Transfer Tax (ITP or VAT) (varies by region; typically 6-10% of purchase price—usually buyer’s responsibility)
- Stamp Duty (typically 0.5%, usually buyer’s responsibility)
- Plus Valía Municipal (seller tax on property appreciation—varies by municipality)
- Any other costs (legal fees, surveyor fees, inspections, etc.)
Why it matters: If costs are unclear, disputes arise at the notary, delaying completion and creating leverage for either party to back out.
8. Signatures and Witnesses
- Both buyer and seller must sign and date the contract
- Consider having witnesses (optional but recommended for international buyers)
- Ensure both parties retain signed copies.
How to Protect Your Deposit: 8 Critical Steps
Step 1: Before You Sign—Conduct Due Diligence
Get a «Nota Simple» (property extract) from the Spanish Land Registry showing:
- Current registered owner (must match seller’s identification and deed)
- Any mortgages, liens, or charges on the property
- Any pending legal actions or encumbrances
Obtain a cadastral printout and compare with the registered property:
- Verify square footage matches (or understand discrepancies)
- Check for undeclared extensions or annexes
Verify urban planning compliance:
- Obtain a «certificado de primera ocupación» (first occupancy certificate) or «licencia de actividad» (activity license if commercial)
- Confirm no building violations or legal proceedings
Check property tax status:
- Request proof the property tax (IBI) is up-to-date
- Request proof of community/HOA payments (if applicable)
Have a professional inspection:
- Hire a surveyor to inspect structural condition, MEP systems, and identify defects
- Document findings in writing
Step 2: Ensure Protective Clauses Are Included
Do NOT sign an Arras contract without these:
- Mortgage condition: Right to rescind if mortgage is denied
- Clean title warranty: Seller confirms unencumbered ownership and must discharge any liens before closing
- Urban planning certificate: Right to rescind if certificate is denied or property has violations
- Inspection period: Right to rescind if serious defects are discovered
Red flags if these clauses are missing:
- You lose your deposit if circumstances beyond your control (e.g., mortgage denial) prevent completion
- You could inherit the seller’s mortgage debts
- The property could have undeclared building violations
Step 3: Specify the Deposit Holder
CRITICAL: The deposit must be held in escrow by a neutral third party, not by the agent or seller.
Best practices:
- Lawyer’s escrow account (most common and safest)
- Notary’s account (acceptable; notaries are regulated professionals)
Never accept:
- Deposit held by real estate agent (conflict of interest; agent may release to seller if sale stalls)
- Deposit held directly by seller (risk of fraud or insolvency)
- Cash payments (impossible to trace or recover)
Contract language: «The deposit of [€X] shall be held in escrow in the attorney’s client trust account [lawyer’s name], pending satisfaction of all conditions precedent or completion of the purchase. The deposit shall be released to [seller/buyer] only upon [specify conditions].»
Step 4: Negotiate Realistic Timelines
The standard 60-90 day completion timeline is reasonable, but adjust for your circumstances:
- First-time buyers with mortgages: 90 days (allow 30-45 days for mortgage approval)
- Cash buyers: 60 days
- International buyers requiring NIE: Add 2-4 weeks
- Complex properties (new builds, commercial): 120+ days
Build in buffer time, especially for summer months when notaries and registries have limited availability.
Step 5: Get Legal Review BEFORE Signing
Never rely on the agent’s explanation. Have a Spanish lawyer review the contract to:
- Ensure all protective clauses are included and properly drafted
- Verify property details match the seller’s deed
- Confirm deposit terms and holder
- Assess your legal exposure if you withdraw vs. if the seller withdraws
- Identify missing or problematic clauses
Cost: €300-€600 for contract review (well worth it to protect a €50,000 deposit).
Step 6: Request a Preliminary Title Report
Ask your lawyer to obtain a full title report showing:
- Current ownership and seller’s legal standing
- All encumbrances (mortgages, liens, easements)
- Any pending legal proceedings
- Tax compliance status
This takes 3-5 business days and costs €100-€200—far cheaper than discovering title defects after you’ve paid the deposit.
Step 7: Understand the Specific Type of Arras You’re Signing
Before signing, confirm in writing:
- Is this penitential (either party can withdraw with penalty), confirmatory (binding, no withdrawal right), or penal (penalty clause)?
- If the contract is ambiguous about your withdrawal right, Spanish courts will assume it’s confirmatory (binding)—meaning you have no easy exit.
Step 8: Document Everything in Writing
- Keep copies of the signed Arras contract, deposit receipt, and all correspondence with the seller/agent
- Obtain written confirmation of which third party holds the deposit
- Request written confirmation when conditions precedent are met or not met (e.g., mortgage decision)
- Document any changes to the contract—always in writing, signed by both parties
Red Flags: When to Walk Away
If you encounter any of these red flags before signing, seriously reconsider the purchase:
- Seller or agent refuses written confirmation of deposit holder – Risk of fraud
- No escrow account offered—deposit held by agent or seller directly – Risk you can’t recover it
- Seller’s title is unclear or disputed – You could inherit legal claims
- Property has building violations or undeclared works – Expensive to remediate; municipalities may force demolition
- Seller refuses protective clauses (mortgage condition, clean title, inspection period) – Seller knows something is wrong
- Unrealistic completion timeline (e.g., 30 days for mortgage + NIE + inspections) – Set up to fail
- Notary fees or taxes not clearly allocated – Risk of surprise costs at closing
- Seller or agent pressure to pay deposit before legal review – Classic fraud signal
Frequently Asked Questions (FAQ)
How much should I pay as a deposit?
Typically 10% of the purchase price, but this is negotiable. Some sellers accept 5%; some may request 15% for new developments.
Best practice: 10% is standard and balanced.
Can I recover my deposit if the seller doesn’t complete?
Yes—if the seller wrongfully breaches. Under penitential arras, the seller must return double the deposit. However:
- You may need to prove the seller’s breach in court (if the seller disputes it)
- Legal proceedings can take 6-12 months
- You’ll incur legal fees (€5,000-€20,000 for litigation)
Best protection: Include clear conditions precedent in the contract so the seller’s breach is obvious and undisputed.
What happens if I can’t get a mortgage?
If the Arras includes a mortgage condition clause: You can rescind the contract and get your deposit back in full. Without this clause: You may lose your deposit entirely.
Always negotiate a mortgage condition clause, even if you’re confident about approval.
Can the seller keep my deposit if I change my mind?
Yes—with penitential arras, you forfeit the deposit if you withdraw. With confirmatory or penal arras, you lose the deposit and may be sued for additional damages.
Exception: You can rescind if conditions precedent aren’t met (e.g., you discover building violations, seller can’t provide clear title).
Who holds the deposit—the agent, lawyer, or seller?
Best practice: A neutral third party (lawyer or notary) in an escrow account. Never let the agent or seller hold it directly.
Contract language: «Deposit held by [lawyer’s name] in escrow account [account number], to be released upon [specify conditions].»
What if there’s a dispute about the deposit?
Without clear contract terms: You’ll need to file a civil lawsuit, hire a lawyer, and fight for 6-12 months. Cost: €5,000-€20,000+.
With clear protective clauses: The other party’s obligation is obvious, making litigation easier or unnecessary.
Prevention is key: Invest in proper legal review before signing.
Is the Arras mandatory?
No. You could sign a simple purchase agreement without an Arras. However, an Arras provides better protection and clarity, so it’s highly recommended.
Why Choose Lextax for Arras Contract Protection?
Lextax specializes in protecting international buyers and sellers in Spanish property transactions—ensuring your Contrato de Arras is bulletproof and your deposit is secure.
Our Services:
- Pre-signature contract review – We analyze every clause and negotiate protective terms
- Deposit structure and escrow – We arrange secure deposit holding with lawyers or notaries
- Due diligence coordination – We verify title, encumbrances, permits, and tax compliance
- Condition precedent drafting – We include protective clauses for mortgage, title, permits, and inspections
- Litigation support – If disputes arise, we represent you in deposit recovery actions
- Multilingual guidance – We explain terms clearly in English, ensuring no confusion
We make sure you understand every provision, every risk, and every right before you sign.
Conclusion & Call to Action
The Contrato de Arras can protect your deposit or expose you to devastating loss—the difference is in the details. Understanding the three types, including protective clauses, securing proper escrow, and obtaining legal review before signing are the keys to safeguarding your investment.
Don’t let a €50,000+ deposit disappear due to unclear terms, hidden title defects, or inadequate legal protection. Let Lextax review your Arras contract and ensure you’re protected at every step.
Contact Lextax today for a comprehensive Arras contract review and deposit protection consultation—because peace of mind begins with clarity and legal security