Reservation and arras: what you sign

Before you transfer money for a home in Spain, make sure you know what you are signing: a reservation is not a receipt, and the deposit contract known as «arras» is not one thing but three, with very different consequences if one side pulls out. This guide is for buyers and sellers.

1. Why is a reservation not a receipt?

A reservation document is not proof that money changed hands. Depending on how it is worded, it can fix the price, the deadlines and what happens if one of the parties does not go ahead.

And the title decides nothing. A document headed «reservation» that includes a 10 per cent payment and penitential deposit clauses is, in practice, a deposit contract. Spanish courts look at the content, not the heading.

If what you really want is to reserve, the document should be written as a reservation: a short term, a modest amount, a duty to negotiate in good faith and no commitment to sell.

2. The deposit is not one thing, it is three

The default rule is what makes the difference: unless clearly agreed otherwise, a deposit is treated as confirmatory.

3. Confirmatory deposits

They confirm the contract exists. They open no way out.

Whoever backs out is not released by losing the money paid. The other party can demand that the contract be performed, or terminate it and claim damages (article 1124 of the Código Civil, the Spanish Civil Code).

The consequence worth understanding: the compensation can far exceed the amount paid. There is no «I lose the deposit and walk away».

4. Penitential deposits

They are the only ones that allow withdrawal. A buyer who pulls out loses what was paid; a seller who pulls out pays it back twice over (article 1454 of the Código Civil).

They are not presumed. The Supreme Court requires the express and unequivocal will of both parties, and quoting article 1454 is not enough on its own (STS 583/2018, de 17 de octubre, a Spanish Supreme Court judgment).

The mistake the Supreme Court penalises is one of drafting, not substance. A contract titled «penitential deposit» that then simply refers to article 1454 does not meet the standard.

The clause must state three things, separately and expressly:

1. That both parties may withdraw unilaterally.
2. The specific consequences: the buyer loses what was paid, the seller returns it doubled.
3. The period during which withdrawal is allowed.

5. Penal deposits

They set a penalty for breach, but they do not release the party in breach. The party that complies can demand performance of the contract and only as a fallback enforce the penalty.

• On the amount: when a penalty is expressly agreed for unilateral withdrawal in negotiated contracts, a judge cannot reduce it (STS de 11 de marzo de 2014).
• When drafting high penalties: if the penalty is expressly agreed for unilateral withdrawal, what was agreed applies. Outside that case, the judge keeps the power to reduce it under article 1154 of the Código Civil if the obligation was partly or irregularly performed.

6. Until when can you withdraw?

The right to withdraw under article 1454 is not indefinite, but the Supreme Court has not set a general time limit.

That is why the withdrawal period must be stated in the contract. Leaving it out opens an argument that one line could have avoided.

7. The imbalance the seller should know about

Paying back double is not a neutral clause.

In a rising market, if a better offer appears, walking away costs the seller twice what they received. Before signing a penitential deposit it is worth knowing exactly that.

And a point in the seller's favour: double is not mandatory. Article 1454 sets the default rule, but the parties can agree the amount. They can agree a different figure, or a cap. A seller who does not want to be exposed to double should negotiate it before signing, not after.

8. Mortgage finance: the clause almost nobody includes

The bank turning down your mortgage does not, on its own, get your money back.

The Supreme Court has held that the supervening impossibility that releases a debtor does not apply to someone who owes money (STS de 13 de julio de 2017). A buyer who cannot pay the price is not released: they have breached, or withdrawn. Either way, the money stays where it is.

The only protection is a financing condition written into the contract itself. It must set five points:

• Lenders: how many and which ones will be approached.
• Deadline: the date by which the bank's answer must be shown.
• Amount: the minimum capital or percentage requested, on market terms.
• Evidence: what proves the refusal (a written decision from the lender, not a conversation).
• Diligence: a duty to apply for the finance in good faith.

A badly drafted clause does not protect you. Courts have found the condition not met when the buyer applied for finance they knew would not be granted. Treating the obligation as met by a mere application, on any terms, would empty the condition of meaning.

9. Where does the money go?

It is the question most often answered verbally and least often in writing. Before you transfer, the document should state:

• Who receives the money: the seller directly, or the agency as a deposit.
• Which account it stays in and under what reference.
• On what conditions it is released to the seller, and what happens if the sale never reaches the deed.

Funds held by the agency as a deposit belong to the party it represents, not to the agency. Sending them anywhere else requires the owner's written authorisation.

At dhoce this point is in writing in every transaction.

10. If the buyer is a foreigner

Three things that shape the timetable and are best settled before signing the deposit, not after:

• NIE: the foreigner identity number, needed to sign the deed and to deal with Spanish banks. Getting it takes time: the deposit deadline must allow for it.
• Power of attorney: if the buyer cannot attend the signing, the power must be granted in advance and, if signed outside Spain, with a Hague Apostille and a sworn translation.
• Which version prevails: if the contract is bilingual, it must say expressly which version prevails if they differ. Without that clause, the argument ends up in court.

11. Before you sign and transfer, check

1. Which type of deposit it is, and whether the clause says so expressly.
2. What happens to the money paid and where it is held.
3. In which cases you can get it back, and in which you cannot.
4. Until what date withdrawal is possible.
5. What happens if you finally do not get the finance.

A good purchase does not start with finding a house. It starts with knowing exactly what you are signing.

Information document prepared by Grupo dhoce. It is not legal advice and does not replace a professional review of the specific contract. Every transaction has its own circumstances.