Selling a house in Spain : sales contract and clauses
Jos Deuling, Saturday, 25 May 2013
This article is part of a series of seven articles about selling a property in Spain. The other articles in the series cover the following topics:
Hire a lawyer to draw up the contracts
Selling your property in Spain is a complicated process with pitfalls. Normally, the estate agent will guide you through the process. And if you have a professional agent all will be fine. Yet you read in the literature and on the Internet that you should hire a lawyer for the legal aspects of the sale.
The cost of a lawyer amounts between 1 and 1.5% of the sale price. Some lawyers also charge a flat rate of 2500 euro. You can deduct the costs from the capital gains tax. Ask your lawyer for a VAT invoice.
Preliminary and final purchase contract
If a buyer is found, you will take the house off the market. The buyer pays a deposit of 3000 euros and signs a preliminary contract, a Contrato de Reserva. The Contrato the Reserva contains a clause obliging the buyer to pay a deposit of 10% of the sale price within 15 to 21 days. The buyer needs this period to complete his mortgage. His lawyer can do further research into the home. If mortgage and research are completed, nothing stands in the way of the sale. If the buyer makes the down payment of 10%, then the final purchase contract, the Compraventa will be drawn up. However, if the buyer doesn’t make the down payment within the specified period, the seller will receive the deposit of 3000 euros. This is reasonable. The house has been taken off the market, so the seller hasn’t been able to negotiate with other potential buyers in this period.
In the preliminary and final purchase contract are included: selling price, penalty clauses and the date on which the last payment has to be made.
Promesa de Compraventa and Contrato de Arra
There are 2 other contracts you may encounter. The Promesa de Compraventa which contains the promise ('Promesa') that the property will be sold and the Contrato the Arras, an agreement on the selling date.
Always add contract clauses
We have seen one of the penalty clauses above. If the buyer is too late with the 10% down payment, he loses the deposit of 3000 euros. But beware, if the seller withdraws from the sale, he must pay 6000 euro, twice the deposit. A withdrawal can happen if the seller is left with a residual debt, and the bank doesn’t agree to the sale. After the collapse of the Spanish housing market, many sellers are left with a residual debt. So it is wise to contact your bank before you put your house up for sale. You just have to know beforehand if your bank won’t block the sale.
Penalty clauses apply to both parties, buyer and seller! They ensure that the buyer and seller can't rescind the contract without costs. When the Spanish housing market was still booming, clauses ensured that sellers didn’t sell their homes for a higher price to another person. Now it's the opposite. The seller's market has given way to a buyer's market. Penalty clauses ensure that the seller is compensated if the buyer fails to fulfill his obligations.
If the buyer wants to pay in installments, you can include a clause in the contract that the buyer will lose the money if he doesn’t pay the full amount within the agreed term. If the buyer already paid 150,000 euros but is unable to meet the final installment of 50,000 euros, you would be 150,000 euros richer in theory. It doesn't actually work out like that. And it wouldn’t be reasonable. The buyer would take the matter to court. The judge will, in all fairness, pass judgment taking into account the period that the buyer has lived in the house and the costs made by the seller. The judge will ignore the penalty clauses and determine a reasonable compensation. Such litigation is often a lengthy process. During this period, you can't put your home up for sale.
If the buyer or seller gets sick just before the signing of the final contract and can't be present at the signing, it would be unreasonable if either would have to pay a fine. A clause in the preliminary contract should guarantee this. This clause is based on Article 1105 of the Spanish Civil Code : "the cancellation is caused by extraordinary circumstances, which could not have been avoided, even if all reasonable measures had been taken." The signing of the purchase contract is moved to a later date. There must be a doctor's statement as evidence that the buyer or seller couldn’t attend the transfer of the title deed.
The purchase contract usually has a clause stating that the seller is responsible for all property related costs until the final purchase contract is signed. You should think of gas and light, water charges and the cost of the community of owners (Comunidad de Propietarios). The community of owners costs are costs for the maintenance of the communal garden, the swimming pool, lifts and internal common areas.
You should include clauses in a contract against would-be buyers, who move in to your house, refuse to pay and don’t want to leave.
Some additional tips :
This article is part of a series of seven articles about selling a property in Spain. The other articles in the series cover the following topics:
Hire a lawyer to draw up the contracts
Selling your property in Spain is a complicated process with pitfalls. Normally, the estate agent will guide you through the process. And if you have a professional agent all will be fine. Yet you read in the literature and on the Internet that you should hire a lawyer for the legal aspects of the sale.
The cost of a lawyer amounts between 1 and 1.5% of the sale price. Some lawyers also charge a flat rate of 2500 euro. You can deduct the costs from the capital gains tax. Ask your lawyer for a VAT invoice.
Preliminary and final purchase contract
If a buyer is found, you will take the house off the market. The buyer pays a deposit of 3000 euros and signs a preliminary contract, a Contrato de Reserva. The Contrato the Reserva contains a clause obliging the buyer to pay a deposit of 10% of the sale price within 15 to 21 days. The buyer needs this period to complete his mortgage. His lawyer can do further research into the home. If mortgage and research are completed, nothing stands in the way of the sale. If the buyer makes the down payment of 10%, then the final purchase contract, the Compraventa will be drawn up. However, if the buyer doesn’t make the down payment within the specified period, the seller will receive the deposit of 3000 euros. This is reasonable. The house has been taken off the market, so the seller hasn’t been able to negotiate with other potential buyers in this period.
In the preliminary and final purchase contract are included: selling price, penalty clauses and the date on which the last payment has to be made.
Promesa de Compraventa and Contrato de Arra
There are 2 other contracts you may encounter. The Promesa de Compraventa which contains the promise ('Promesa') that the property will be sold and the Contrato the Arras, an agreement on the selling date.
Always add contract clauses
We have seen one of the penalty clauses above. If the buyer is too late with the 10% down payment, he loses the deposit of 3000 euros. But beware, if the seller withdraws from the sale, he must pay 6000 euro, twice the deposit. A withdrawal can happen if the seller is left with a residual debt, and the bank doesn’t agree to the sale. After the collapse of the Spanish housing market, many sellers are left with a residual debt. So it is wise to contact your bank before you put your house up for sale. You just have to know beforehand if your bank won’t block the sale.
Penalty clauses apply to both parties, buyer and seller! They ensure that the buyer and seller can't rescind the contract without costs. When the Spanish housing market was still booming, clauses ensured that sellers didn’t sell their homes for a higher price to another person. Now it's the opposite. The seller's market has given way to a buyer's market. Penalty clauses ensure that the seller is compensated if the buyer fails to fulfill his obligations.
If the buyer wants to pay in installments, you can include a clause in the contract that the buyer will lose the money if he doesn’t pay the full amount within the agreed term. If the buyer already paid 150,000 euros but is unable to meet the final installment of 50,000 euros, you would be 150,000 euros richer in theory. It doesn't actually work out like that. And it wouldn’t be reasonable. The buyer would take the matter to court. The judge will, in all fairness, pass judgment taking into account the period that the buyer has lived in the house and the costs made by the seller. The judge will ignore the penalty clauses and determine a reasonable compensation. Such litigation is often a lengthy process. During this period, you can't put your home up for sale.
If the buyer or seller gets sick just before the signing of the final contract and can't be present at the signing, it would be unreasonable if either would have to pay a fine. A clause in the preliminary contract should guarantee this. This clause is based on Article 1105 of the Spanish Civil Code : "the cancellation is caused by extraordinary circumstances, which could not have been avoided, even if all reasonable measures had been taken." The signing of the purchase contract is moved to a later date. There must be a doctor's statement as evidence that the buyer or seller couldn’t attend the transfer of the title deed.
The purchase contract usually has a clause stating that the seller is responsible for all property related costs until the final purchase contract is signed. You should think of gas and light, water charges and the cost of the community of owners (Comunidad de Propietarios). The community of owners costs are costs for the maintenance of the communal garden, the swimming pool, lifts and internal common areas.
You should include clauses in a contract against would-be buyers, who move in to your house, refuse to pay and don’t want to leave.
Some additional tips :
- Beware of verbal agreements. A verbal agreement is legally binding in Spain.
- If you sell your old house and buy a new one, add to the sales contract an adequate period up to the transfer of the property. It is not sure whether your new home will be completed on time. I think this clause is not relevant at the moment given the current situation of the Spanish housing market. There is plenty on offer. Which buyer would like to wait a few months until the seller can move to his new home?
- Drafting of contracts must be done accurately. It is important that you know exactly which agreements are made. It may be useful to hire an English speaking lawyer who will assist you during the sales process.
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