Preliminary Purchase Contract in Spain: Everything You Need to Know

When purchasing property in Spain, understanding the preliminary purchase contract—often referred to as the “contrato de arras” or “pre-contract”—is essential for a smooth transaction. This legal instrument serves as the initial agreement between buyer and seller and sets down the groundwork for the entire property acquisition process. Whether you are a local resident or a foreign buyer navigating Spain’s real estate market, this exhaustive guide provides an in-depth explanation of the preliminary purchase contract, shedding light on its types, purposes, legal implications, and practical issues. Read on to grasp all facets of this crucial step in Spanish property transactions.

Table of Contents

1. Understanding the Preliminary Purchase Contract
2. Purpose and Importance of the Preliminary Purchase Contract
3. Types of Preliminary Purchase Contracts in Spain
4. Key Elements of a Preliminary Purchase Contract
5. The Legal Framework in Spain
6. Deposit Arrangements and the Arras
7. Buyer and Seller Obligations
8. Process of Signing the Preliminary Contract
9. Common Risks and How to Avoid Them
10. Moving from the Pre-Contract to the Final Deed
11. Specific Implications for International Buyers
12. Taxation and Fees Involved in Preliminary Contracts
13. Tips for Successful Transactions
14. Frequently Asked Questions
15. Conclusion

---

Understanding the Preliminary Purchase Contract

The preliminary purchase contract in Spain, typically named the “contrato de arras,” is a pivotal written agreement that outlines the initial understanding between the property buyer and seller. It works as a manifestation of both parties’ intentions and binds them to the essential terms of the transaction, laying the foundation for the definitive sale deed (escritura pública de compraventa).

Unlike the final contract, which is formalized in front of a notary and registered with Spanish authorities, the preliminary purchase contract is a private legal document. However, its legal power should not be underestimated. Upon its signing, the contract becomes legally binding, subjecting both parties to its terms and potential penalties in case of breach.

This pre-contract governs not only property acquisitions by Spanish nationals but also almost every sale involving non-resident or foreign buyers. It provides essential legal security and clarity during the period between agreeing on a sale and the formal transfer of ownership.

The Role of the Preliminary Contract in Spanish Real Estate Transactions

In Spain, real estate transactions move through several stages:

1. Initial negotiations: informal agreement on price and terms
2. Preliminary purchase contract (contrato de arras) or reservation agreement
3. Due diligence and legal checks
4. Formal signing of the public deed before a notary
5. Registration of ownership at the land registry (Registro de la Propiedad)

The preliminary contract bridges the gap between negotiations and the notarized sale, offering a legal mechanism for securing the transaction.

Purpose and Importance of the Preliminary Purchase Contract

The preliminary purchase contract serves several crucial purposes in Spanish property transactions:

• Securing the Sale: It confirms the serious intent of both parties and prevents the seller from offering the property to other buyers.
• Protecting Both Parties: By setting out the main terms, such as price and completion date, it protects both the buyer and seller from unfair conduct or surprise changes.
• Setting the Stage for Legal Due Diligence: With a pre-contract in place, the buyer can complete property checks and arrange financing while knowing the property will not be sold to someone else.
• Clarifying the Consequences of Withdrawal: The contract details the penalties involved if either party withdraws, thus minimizing legal disputes and misunderstandings.

Without a properly structured preliminary contract, buyers and sellers are at greater risk of disputes, misunderstandings, and even financial losses. Particularly for non-resident buyers, who may not be familiar with Spanish laws, the preliminary contract is a key safeguard in the buying process.

Types of Preliminary Purchase Contracts in Spain

Not all preliminary purchase contracts in Spain are the same. The most common forms include:

1. Contrato de Arras (Correctly: Contrato de Arras Penitenciales)

This is by far the most widespread type. The “contrato de arras penitenciales,” outlined in Article 1454 of the Spanish Civil Code, allows both parties to agree upon a deposit (usually 10% of the purchase price) as a guarantee for performance. Either party can withdraw from the agreement before final completion, but must pay a penalty—if the buyer backs out, they lose the deposit; if the seller withdraws, they must return double the deposit. This deposit acts both as advanced payment and a penalty.

2. Contrato de Arras Confirmatorias

This version means the deposit forms part of the price and simply confirms the sale, without the right to freely withdraw (only breach of contract as cause). Neither party can walk away without consequences—it must be proven in court as a breach to recover damages.

3. Contrato de Arras Penales

Here, the deposit is both part-payment and penalty. If either party defaults, the contract remains enforceable, and the non-defaulting party may sue for specific performance or damages.

4. Option Contract (Contrato de Opción de Compra)

This is less common for residential property, but sometimes used in commercial deals or for buyers needing additional time. It grants the right (but not the obligation) to buy the property within a certain period for a fixed price, in exchange for a consideration.

Which type of contract suits your situation will depend on your needs and negotiation with the seller, but the contrato de arras penitenciales is the default in most residential property purchases.

Key Elements of a Preliminary Purchase Contract

While each contract should be tailored to the specific transaction, certain key elements must be included for it to be legally sound and effective. Below are the crucial sections:

1. Physical and Legal Identification of the Property
   • Full address, property description, land registry reference, cadastral identification.
   • Inclusion of all annexes: storage, garage spaces, etc.
2. Parties to the Contract
   • Complete personal information for buyer and seller.
   • Clear reference to ownership or selling rights of the seller.
3. Purchase Price and Payment Structure
   • Agreed sale price in euros.
   • Detailed breakdown of payment installments or timing, including deposit amount and final payment date.
4. Deposit Arrangement (Arras)
   • Amount and terms of the deposit, specifying how and when it is paid (often by bank transfer or certified check).
5. Completion Date (Escritura Date)
   • Planned date or deadline for signing the public deed before the notary.
   • Conditions under which an extension can be requested.
6. Distribution of Costs
   • Who pays for notary, registry, and tax costs (typically, buyer pays most, seller pays capital gains tax and plusvalía).
7. Encumbrances and Debts
   • Declaration that the property will be free of unpaid taxes, community fees, mortgages, or encumbrances at the time of final sale.
8. Fixtures, Fittings, and Movables
   • A list of included items (kitchen appliances, furniture, etc.).
9. Legal Disclaimer and Representation
   • Seller’s representation about absence of hidden defects and legal disputes.
10. Signatures and Identification
    • Full signatures, sometimes before witnesses or a solicitor.

Adding further clauses to address particular concerns (such as obtaining a mortgage, repair works, or specific delivery conditions) is strongly recommended. Use of a bilingual contract is advisable for international buyers.

The Legal Framework in Spain

Spain’s legal system provides robust support and regulation for preliminary purchase contracts. Relevant legal provisions include:

• Civil Code (Código Civil): Article 1454 deals specifically with “arras penitenciales.” Articles 1124, 1152, and related sections govern contractual obligations, penalty clauses, and remedies for breach.
• Urban Leases Law (Ley de Arrendamientos Urbanos): May be relevant for properties under rental-contract purchase agreements.
• Mortgage Law (Ley Hipotecaria): Covers issues involving encumbrances, mortgages, and property registration.
• Consumer Protection Law: Offers final consumers certain safeguards, especially for off-plan and new-build properties.

While the preliminary contract is a private document, Spanish courts fully recognize and enforce its terms. Misunderstandings about its force are common among international buyers, but Spanish case law consistently holds that parties are bound by their signed commitments.

The Importance of Legal Review

Given the legal nuances and the financial stakes, it is prudent to involve a qualified property lawyer (“abogado”) who can draft, review, or translate the contract. Legal professionals ensure that the contract is fully compliant, unambiguous, and enforceable in Spain.

Deposit Arrangements and the Arras

The deposit – commonly called “arras” – plays a central role in Spanish preliminary property contracts. It serves as both part-payment and a safeguard for performance.

How Much is the Arras Deposit?

The standard amount is 10% of the agreed purchase price. However, the parties can freely agree on a different figure, particularly in custom or high-value transactions.

Types of Arras and Their Effects

• Arras Penitenciales (Penitential Depsit):
  • Buyer withdrawal: Buyer forfeits deposit.
  • Seller withdrawal: Seller returns double the deposit to the buyer.
• Arras Confirmatorias (Confirmatory Deposit):
  • No unilateral withdrawal. Breach leads to court claim for damages or specific execution.
• Arras Penales (Penal Deposit):
  • Similar to confirmatory, but explicitly identifies the deposit as a penalty for breach.

Paying the Deposit

The deposit is usually paid by bank transfer to the seller, real estate agent, or legal professional holding the money in escrow. Always ensure a documented receipt is provided, and do not pay cash unless absolutely necessary and safe. It is highly recommended that the deposit be held by a trusted third-party (e.g., solicitor’s client account), especially in high-value or complex transactions.

Buyer and Seller Obligations

Once the contract is signed, both parties have binding obligations that must be fulfilled for the transaction to proceed:

Buyer’s Obligations

• Paying the agreed deposit within the stipulated timeframe.
• Securing financing (if required) for the remainder of the purchase price.
• Completing all necessary legal checks (due diligence) and obtaining an NIE number (Número de Identificación de Extranjero) if foreign.
• Attending the notary on the scheduled completion date and paying the balance.

Seller’s Obligations

• Removing any encumbrances, such as existing mortgages or legal claims, before completion.
• Providing up-to-date documentation (Nota Simple, community fee certificates, energy certificates, etc.).
• Delivering the property in the agreed-upon condition (vacant possession, free of tenants, with all installations and appliances functioning unless otherwise agreed).
• Paying their share of costs (plusvalía municipal, capital gains tax).
• Attending the completion in front of the notary and signing the public deed of sale.

Process of Signing the Preliminary Contract

The actual process of concluding a preliminary purchase contract involves several formal steps, each of which should be handled diligently to avoid later complications:

1. Agreement on Terms:
   • Buyer and seller negotiate key points: price, timing, deposit amount, inclusions, and contingencies (such as subject to mortgage or satisfactory property survey).
2. Drafting the Contract:
   • Often undertaken by the estate agent, lawyer, or one of the parties. It’s advisable to use standard models adapted to the transaction.
3. Review and Amendments:
   • Each party must carefully review the draft. Legal translation and advice are highly recommended for non-Spanish speakers. Amendments are made to reflect any negotiation points or specific requirements.
4. Signing:
   • Document is signed (usually in duplicate) by both parties, with at least one copy for each. Signing typically occurs at the estate agent’s office, a solicitor’s office, or even remotely.
5. Payment of Deposit:
   • Buyer pays the deposit by agreed method, and the recipient provides a formal receipt.
6. Due Diligence Period:
   • The buyer, often through their lawyer, verifies ownership, debts, permits, community charges, and status at the land registry. This period also allows time to arrange mortgage finance.

At completion, the preliminary agreement is superseded by the public deed of sale (escritura), but remains vital if any dispute arises before that stage.

Common Risks and How to Avoid Them

While the preliminary purchase contract offers protection, various pitfalls and risks can affect buyers and sellers. Awareness and careful planning minimize these risks:

1. Hidden Debts or Encumbrances

Properties may have unpaid debts—such as mortgages, community fees, or local taxes—that buyers could become liable for. The preliminary contract should require the seller to clear all debts prior to completion, with legal clauses specifying remedies.

2. Unclear Completion Conditions

If the contract is ambiguous about completion dates, legal obligations, or included fixtures, disputes can arise. Insist on detailed, unambiguous wording covering all terms, dates, and inclusions/exclusions.

3. Unqualified or Untrustworthy Sellers

Signing with a seller who lacks proper ownership rights can render the contract void. Verify ownership at the land registry and request recent Nota Simple documentation before signing.

4. Deposit Sent Without Contract or Receipts

Never send money before the contract is signed and an official receipt is provided. Avoid cash payments, and if possible, use escrow.

5. Language and Understanding Barriers

Misinterpretations often arise if parties are not fluent in Spanish legal terminology. Demand a bilingual contract where appropriate, and seek independent translation if necessary.

6. Missing Legal or Building Documentation

Ensure all relevant property and owner documentation (land registry, licenses, energy performance certificate, etc.) is available and correct before signing.

7. Lack of Contingency Clauses

Include “subject to mortgage approval,” “subject to satisfactory survey,” and other relevant conditions as needed, to allow withdrawal in case of genuine barriers (with refund of deposit).

Moving from the Pre-Contract to the Final Deed

With the preliminary contract signed and deposit paid, the buyer and seller continue through the steps required for full completion. Here’s how the process unfolds:

1. Legal Due Diligence: Buyer’s solicitor confirms property is free of charges, checks planning permissions, building status, and tax/fee payments.
2. Obtaining Mortgage (if needed): Buyer finalizes mortgage approval and coordinates payment arrangements with their bank.
3. NIE Number and Funds Transfer: International buyers ensure they have a Spanish tax identification number (NIE), necessary for legal property transfer, and arrange transfer of remaining funds to a Spanish bank account.
4. Setting Completion Date: Both parties agree a convenient date for signing the public deed at the notary’s office.
5. Signing the Public Deed (Escritura Pública de Compraventa): Both parties attend the notary and sign the title deed. Buyer pays balance of the price and receives keys.
6. Registration and Payment of Taxes: The buyer (or their legal representative) pays all relevant taxes and submits the deed for registration at the land registry, formalizing ownership.

The preliminary contract ensures that this process is orderly, with legal consequences for unnecessary delays or withdrawal.

Specific Implications for International Buyers

Spain has always attracted foreign investors and expatriates to its property market. International buyers face specific considerations during the pre-contract stage, including:

• Language Barriers: Legal Spanish can be complex. Always insist on a translation and consult a bilingual lawyer.
• Obtaining NIE Number: Required for all property buyers not resident in Spain, this can take several weeks to organize.
• Foreign Currency Transfers: Exchange rates and bank charges should be planned in advance for deposit and final payment.
• Remote Signing and Representation: Power of Attorney (POA) can be granted to a trusted professional in Spain to handle documentation if the buyer cannot travel for signing.
• Additional Due Diligence: Foreign buyers may need more detailed checks for ownership, local planning regulations, and rural/urban land classifications.
• Understanding Cross-border Taxation: Tax residence and inheritance laws can be affected by purchase. Early legal and tax advice is vital.
• Dealing with Developers (Off-Plan Buys): When purchasing off-plan, special contracts and consumer protections apply, including guarantees for refunding deposits in case of developer default.

Taxation and Fees Involved in Preliminary Contracts

Understanding the financial obligations linked to preliminary contracts can help buyers and sellers avoid surprises. Below are the main taxes and costs to consider:

For the Buyer:

• Purchase Taxes:
  • Resale Property: Transfer Tax (Impuesto sobre Transmisiones Patrimoniales, ITP), varies by region (typically 6-10%).
  • New Build Property: VAT (IVA, currently 10%) and Stamp Duty (AJD, typically 1-1.5%).
• Notary and Registry Fees: Around 0.5% to 1.5% of the transaction value.
• Legal/Agent Fees: Lawyer’s fees (usually 1% to 2%). Estate agent’s fee is normally paid by the seller.
• Bank Fees: For issuing cheques or bank guarantees.

For the Seller:

• Plusvalía Municipal Tax: Local capital gains tax based on the increase in land value during ownership.
• Income Tax: Non-residents pay a capital gains tax on sale proceeds. Tax retentions may apply when seller is not tax-resident in Spain.

On the Preliminary Contract itself:

Typically, signing the preliminary contract does not generate tax liability unless a substantial period elapses between signing and final sale. Upon execution of the public deed, taxes as above become payable. For off-plan contracts or reservation agreements, ensure a bank guarantee backs deposits under Law 57/68 (Ley 57/1968).

It is essential that both parties factor in all costs and taxes to avoid financial strain during completion.

Tips for Successful Transactions

To ensure your preliminary purchase contract process in Spain leads to a successful property acquisition, follow these best practices:

1. Engage a Qualified Lawyer Early: From the earliest stages, work with a reputable, independent property lawyer familiar with Spanish and international transactions.
2. Insist on Full Documentation: Review Nota Simple, cadastral certificates, habitability licenses, and receipt of all community and utility payments before signing.
3. Tailor the Contract to Your Needs: Add contingencies for mortgage approval, results of survey, or other relevant factors. Avoid generic templates that don’t reflect your interests.
4. Use Secure Methods for Deposit Payments: Preferably pay into a lawyer’s escrow or client account, never direct to private sellers unless fully verified.
5. Check Seller Authority: Confirm ownership and selling rights at the land registry. If dealing with a developer or company, ensure authorized representatives are involved.
6. Carefully Specify Completion Timelines: Avoid open-ended deadlines. Clearly set a date and precise conditions for extensions.
7. Demand Receipts and Signed Copies: Always get copies of all contracts and formal receipts for every payment.
8. Be Clear on Penalties and Consequences: Ensure all parties understand the effects of withdrawal, how deposits are handled, and the circumstances for double refund.
9. Language Accessibility: Demand an English version or certified translation of the contract if you are not a Spanish speaker.
10. Monitor Timelines Diligently: Delays can have legal and financial consequences. Stay proactive in arranging all legal, financial, and logistical steps. Never assume more time will be granted unless formally agreed.

Frequently Asked Questions

1. Can I withdraw from the preliminary contract if I don’t get a mortgage?

Only if a specific clause is included (condition precedent) allowing withdrawal in such cases. Otherwise, the standard penalties apply. Always negotiate a “subject to finance” clause if you need a mortgage.

2. Are preliminary contracts obligatory in Spain?

No, in theory you can proceed straight to the notary for sale, but pre-contracts are almost universally used and strongly recommended to protect both parties.

3. Who usually holds the deposit?

It varies. The seller, their lawyer, or the real estate agent may hold the deposit. For highest security, ask your own lawyer to hold funds in trust until completion.

4. What happens if the property is found to have legal or physical defects after signing?

If defects breach the seller’s guarantees or representations, legal remedies (including recovery of deposit and damages) are available. However, the onus is often on the buyer to carry out due diligence prior to signing.

5. Are estate agent reservation contracts the same as preliminary purchase contracts?

No. Reservation contracts (contrato de reserva) are less formal and usually only remove the property from the market for a short period pending signing of the formal preliminary contract. They do not always have full legal force.

6. Is it possible to negotiate a lower deposit?

Yes, but expect resistance unless you offer strong reasons. Most sellers will expect 10%, though lower figures (5%) are often used for off-plan properties or where buyer still needs mortgage approval.

7. Can the preliminary contract be notarized?

Yes, you may sign before a notary (contrato privado con fe notarial), but it is not obligatory. The full transfer of ownership only occurs via the public deed (escritura pública).

8. What if one party refuses to complete despite the contract?

Legal action can be initiated for damages, performance, or recovery of deposit/multiple deposit as stipulated in the contract. Litigation can take time, so mediation is often encouraged.

9. Are verbal preliminary contracts valid?

Technically, contracts may be verbal under Spanish law, but in property sales they are difficult to prove and enforce. Always insist on a written and signed document.

10. Is an NIE number needed at contract stage?

Not for signing the preliminary contract, but it is essential for completion (notary signing and taxes). Arrange your NIE as soon as your purchase intention is known to avoid delays.

Conclusion

The preliminary purchase contract in Spain is the linchpin of any real estate transaction, providing binding security for both buyer and seller. Its function goes far beyond a mere formality—by establishing essential terms, protecting deposits, and setting legal penalties for default, it aligns expectations and enables a dependable sales process.

Whether you are buying a holiday villa, urban apartment, or rural retreat, taking the time to negotiate a thorough preliminary contract—backed by tailored legal advice—will safeguard your interests, minimize risk, and pave the way for a successful, stress-free completion.

For international buyers, attention to language, cross-border requirements, and local legal nuances is especially important. Always seek professional advice, insist on transparency and clarity, and remember that informed preparation is the key to smooth property ownership in Spain.

Disclaimer: This article is for informational purposes only and does not constitute legal advice. For personalized guidance, consult a Spanish-qualified property lawyer.