Deposit and Reservation Contracts in Spain: Arras Explained

How Deposits Work in Spain: The Basics

When you find a property you want to buy in Spain, the process of securing it typically involves two stages: a reservation and then a formal arras contract. This is quite different from the UK system where you make an offer, exchange contracts, and then complete — with no binding commitment until exchange.

In Spain, the arras contract is a legally binding agreement made between the buyer and seller that takes the property off the market, commits both parties, and involves a substantial deposit — typically 10% of the purchase price. Understanding how this works, and the different types of arras, is crucial to protecting your money.

This is arguably the most important legal stage of your purchase. Get it right, and you're protected. Get it wrong, and you could lose thousands of euros.

Stage 1: The Reservation Contract (Contrato de Reserva)

Before the formal arras contract, most estate agents in Spain will ask you to sign a contrato de reserva (reservation contract) and pay a reservation fee. This is particularly common in popular coastal areas where properties sell quickly.

The reservation contract is a short, simple document that typically:

• Takes the property off the market for a limited period (usually 2-4 weeks)
• Identifies the buyer, seller, and property
• States the agreed purchase price
• Requires a reservation fee of €3,000-€10,000 (sometimes more on expensive properties)
• Sets a deadline for signing the formal arras contract

Critical warning: The reservation fee is often paid to the estate agent, not the seller. This is normal practice in Spain, but it carries risk. If the agent's company goes into administration, your money could be at risk. Where possible, pay into your lawyer's client account instead, or ensure the agent holds it in a regulated escrow account.

Is the Reservation Refundable?

This depends entirely on what the contract says. Some reservation contracts state the fee is refundable if the buyer's lawyer discovers legal problems during due diligence. Others make it non-refundable from the moment you sign. Never sign a reservation contract without your lawyer reviewing it first. If the agent pressures you to sign immediately ("another buyer is interested"), this is a red flag — a reputable agent will give you 24-48 hours to have the document checked.

Stage 2: The Arras Contract (Contrato de Arras)

The arras contract is the main pre-completion agreement in Spanish property law. It sets out the terms of the sale, commits both parties, and defines what happens if either party pulls out. The deposit is typically 10% of the purchase price.

There are three types of arras under Spanish law, and the type you sign makes an enormous difference to your rights:

Arras Penitenciales (Penal Arras) — The Most Common

This is by far the most common type used in Spanish property transactions and the one your lawyer will normally recommend. Under Article 1454 of the Spanish Civil Code, arras penitenciales work as follows:

• If the buyer pulls out: You lose your deposit. The seller keeps the 10% as compensation
• If the seller pulls out: The seller must return double the deposit to the buyer. So if you paid €30,000 on a €300,000 property, the seller would have to pay you €60,000

This symmetrical penalty is what makes arras penitenciales attractive — it protects both parties. The seller is financially motivated not to accept a higher offer from another buyer after signing, because they'd have to return double your deposit plus potentially face additional claims.

Example on a €300,000 property:

• Deposit: €30,000 (10%)
• Buyer withdraws: Loses €30,000
• Seller withdraws: Must pay buyer €60,000 (original deposit returned plus an equal penalty)

Arras Confirmatorias (Confirmatory Arras)

These function as a payment on account — essentially a down payment towards the purchase price. The critical difference: neither party has the right to withdraw simply by forfeiting or returning the deposit. If one party tries to pull out, the other can sue for specific performance (forcing the sale to complete) or claim full damages — not just the deposit amount.

Arras confirmatorias are more binding and more aggressive. They're less common in standard residential transactions but sometimes appear in commercial deals or when the parties want maximum commitment.

Arras Penales (Penalty Arras)

These are similar to arras confirmatorias — the deposit acts as a penalty for non-performance, but the injured party can also sue for specific performance or additional damages on top of keeping or receiving the deposit. This is the most punitive type and relatively rare in residential transactions.

Key advice: Make sure your arras contract explicitly states which type it is. If it doesn't specify, Spanish courts will typically presume they are arras confirmatorias — which may not be what you want. Your lawyer should ensure the contract clearly states "arras penitenciales conforme al artículo 1454 del Código Civil".

What Should Be in the Arras Contract

A well-drafted arras contract should include all of the following:

• Full identification of both parties: Names, passport/NIE numbers, addresses
• Full description of the property: Address, Land Registry reference (finca registral number), catastral reference, and built/plot areas
• The agreed purchase price in euros
• The deposit amount and how it will be paid (bank transfer to the seller or held by lawyer)
• Type of arras — explicitly stated as penitenciales, confirmatorias, or penales
• Completion deadline: The date by which the escritura must be signed at the notary. Typically 4-8 weeks after the arras contract
• Conditions: Any conditions that must be met before completion (mortgage approval, satisfactory survey, resolution of legal issues)
• What's included: Furniture, appliances, fixtures — be specific
• Seller's declarations: That the property is free of debts, charges, and tenants; that community fees are up to date; that there are no pending legal disputes
• Penalty clauses: What happens if either party pulls out (as per the arras type)

Timeline from Reservation to Completion

Here's the typical progression:

• Week 1: Offer accepted. Reservation contract signed and reservation fee paid (€3,000-€10,000). Your lawyer begins due diligence
• Weeks 2-3: Lawyer completes checks (nota simple, debts, planning status, community fees). If everything is clear, the arras contract is prepared
• Week 3-4: Arras contract signed. 10% deposit paid (minus the reservation fee already paid). The property is now formally committed to you
• Weeks 4-10: Remaining steps: mortgage application (if needed), survey, utility checks, preparation for completion
• Week 8-12: Completion at the notary. Balance of the purchase price is paid. Keys are handed over

The entire process from offer to keys typically takes 8-12 weeks, though it can be faster (4-6 weeks for a cash purchase with no complications) or slower (3-6 months if there's a mortgage or legal issues to resolve).

How to Protect Yourself

Here are essential safeguards for UK buyers:

1. Never Sign Without Your Lawyer

This bears repeating: never sign any contract or pay any deposit without your independent lawyer reviewing the document first. The estate agent's urgency is not your emergency. A good property will wait 48 hours for a legal review. If it won't, you're better off losing it than signing a problematic contract.

2. Include Conditional Clauses

Your lawyer should include conditions (condiciones suspensivas) that allow you to withdraw with a full refund if certain conditions aren't met:

• Mortgage clause: "Subject to the buyer obtaining a mortgage of at least €X from a Spanish bank within Y weeks." If the mortgage is refused, you get your deposit back
• Legal due diligence clause: "Subject to the buyer's lawyer being satisfied with the legal status of the property within 14 days." This protects you if hidden legal problems emerge
• Survey clause: "Subject to a satisfactory structural survey." Less common in Spain but your lawyer can include it

3. Verify the Seller's Authority

Your lawyer should confirm that the person signing the arras is actually the owner (or has proper authority to sell). Check the nota simple from the Land Registry — this shows who the registered owner is. If the property is owned by multiple people (e.g., inherited by several siblings), all owners must either sign or grant a power of attorney to one representative.

4. Get a Receipt

When you pay the deposit, get a signed receipt confirming the amount, the date, the payer, and the payee. If paying by bank transfer, keep the transfer confirmation as proof of payment.

5. Understand What You're Signing

The arras contract will almost certainly be in Spanish. Your lawyer should provide you with a full translation and explanation of every clause before you sign. If anything is unclear, ask. There's no such thing as a stupid question when tens of thousands of euros are on the line.

The arras system is actually quite buyer-friendly compared to the UK system — where you have no legal protection until exchange of contracts. In Spain, the moment the arras is signed, both parties are financially committed. As long as your contract is properly drafted with appropriate conditions, the arras gives you strong protection and a clear path to completion.