In Spain, confirmatory deposit contracts (arras confirmatoria) are legal agreements commonly used in real estate and commercial transactions. They confirm and guarantee both parties' intention to commit to a future purchase/sale transaction.
Confirmatory deposits play a key role in guaranteeing and securing the parties involved. Understanding what they are and how they differ from other deposit types is essential for those involved in contractual agreements.
What are confirmatory deposits?
Confirmatory deposits guarantee that a home purchase contract is executed, especially in the case of real estate. It refers to an amount of money that the buyer gives to the seller as part of the agreed price, and that is used to confirm that both parties are committed to the transaction.
Confirmatory deposits have a series of characteristics that differentiate them from other types of deposits:
- They do not allow unilateral withdrawal from the contract. If either party wants to terminate the contract, they must go to court and show just cause.
- They do not impose a penalty for non-performance but rather compensation for damages. The breaching party has to return the deposit and compensate the other party for the damages caused.
- They cannot be lost or returned but are integrated into the final price of the contract. They are, therefore, neither an additional expense for the buyer nor an extra income for the seller.
Confirmatory deposits are an interesting option to ensure the purchase is successful, but they also require more responsibility and commitment from the contracting parties.
Confirmatory deposit model
CONFIRMATORY DEPOSIT CONTRACT
The following is hereby agreed between [Seller's name], with ID number [Seller's ID number], hereinafter referred to as the "Seller", and [Buyer's name], with ID number [Buyer's ID number], hereinafter referred to as the "Buyer":
Object: Both parties undertake to complete the property transaction for the property located at [property's full address].
Deposits: The Buyer delivers the sum of €[deposit amount] as a confirmatory deposit and advance payment of the sale price.
Non-performance: In the event of non-performance by either party, the affected party may demand the performance of the contract or its termination with damages.
Price: The agreed price for the transaction is €[total amount].
Signed in [City], on [Date].
Seller's signature Buyer's signature
Confirmatory deposit types
According to Article 1454 of the Civil Code, confirmatory deposits are those that "are given as proof of the contract's execution and as part of the price". There are three types:
- Ordinary confirmatory deposits: This is the most common deposit type and consists of an amount of money the buyer gives the seller when signing the contract. This amount is deducted from the final price and ensures that both parties execute the contract.
- Special confirmatory deposits: This type of deposit is agreed for specific cases, for example, off-plan properties or reserving a property. These deposits may have specific conditions, such as a handover date, a form of payment or a penalty clause.
- Confirmatory deposits with the option to buy: This type of deposit occurs when the buyer can exercise or not the right to buy the property under the contract. In this case, the deposit is not delivered as part of the final price.
Difference between confirmatory, penal and penitential deposits
According to Spanish law, confirmatory deposits reinforce the contract of sale, so if one of the parties does not comply with what has been promised, the other party can request that the contract be executed or cancelled and ask for compensation for the damages caused. These deposits do not give the option to back out but ratify it.
Penitential deposits, on the other hand, allow either party to withdraw and give the option to cancel the contract without having to explain why, but with the condition of returning the money received or losing it, depending on whether it is the buyer or the seller who changes their mind. These deposits offer a withdrawal option with a penalty.
Penal deposits are paid to ensure contract execution, setting a fine in the event of non-performance. If the buyer breaches the contract, they lose the deposit; if the seller breaches the contract, they must return double the deposit amount. The amount paid as a penalty deposit is not deducted from the final purchase price but added to or subtracted, as the case may be.
When are confirmatory deposits lost?
When a property purchase contract is signed with a confirmatory deposit, the parties undertake to perform what they have agreed.
If the buyer does not comply, they lose the money they gave the seller. If the seller fails to perform, they must pay back double the money they received. These are the usual consequences unless otherwise stated in the contract.
For these consequences to apply, one of the parties would have to commit a serious breach, i.e. the party who failed to perform did so of their own free will without a valid reason.