Introduction: The Figure of the Arras in the Sale and Purchase
The contract of sale is one of the most common types of contract in legal and economic transactions. Within its configuration, the earnest money is an accessory element of great importance, especially in the preliminary phase of the contract.
However, although it is common to hear about the signing of an earnest money contract prior to going to the Notary to formalise the public deed of sale, the truth is that the legal figure of the "earnest money contract", as an autonomous contract, does not exist in our law, but what exists is the arras pactas an ancillary agreement to a main contract, the most common and where earnest money is most commonly found in the contract of sale.
This article will analyse the nature and typology of earnest money, focusing on its regulation in Catalan civil law and, in particular, on the figure of the notarial deposit of penitential earnest money in Catalonia, a mechanism that reinforces the guarantees for the contracting parties, especially for the purchasing party.
Typology of Arras and their General Regulation
The doctrine and case law basically distinguish three types of earnest money, depending on the function that the parties attribute to them in the contract:
- Confirmatory Arras: These are those that are given as a sign of the conclusion of the contract and proof of its perfection. They function as an advance payment of the price and reinforce the existence of the contractual link. In the event of performance, the amount delivered is imputed to the price. If one of the parties fails to perform, the other party may demand the forced performance of the contract or its termination, with the corresponding compensation for damages, without the confirmatory deposits limiting this compensation, although they may be retained on account of the same.
- Arras Penitenciales (or withdrawal): This type of earnest money allows either of the parties to lawfully dissociate themselves from the completed contract, the party who delivered them (buyer) losing them or the party who received them (seller) returning them in duplicate. Given their exceptional nature, case law has insisted that they must be clearly and unequivocally agreed; otherwise, they are presumed to be confirmatory.
- Arras Penales: They function as a guarantee of the fulfilment of the contract, so that, in the event of breach attributable to the person who delivered them, the latter will lose them, and if the breach is attributable to the person who received them, they must be returned doubled (or in the agreed amount). Unlike the penitential clauses, they do not entitle to withdraw from the contract, but operate as a penalty clause, setting an indemnity for non-performance, and always with the possibility of claiming the performance of the agreed obligation.
The Arras in the Civil Code of Catalonia: Article 621-8
The Sixth Book of the Civil Code of Catalonia, relating to obligations and contracts, regulates the deposit in its Article 621-8. This regulation presents important particularities:
- Presunción de Arras Confirmatorias: El apartado primero del Artículo 621-8 establece que "The delivery by the buyer of a sum of money to the seller is understood as a confirmatory deposit, that is to say, as a sign of conclusion and on account of the price of the sale". This is the general rule in Catalonia, in line with the traditional interpretation that, in the absence of a clear agreement, the arras are confirmatory.
- Arras Penitenciales: El apartado segundo del Artículo 621-8 regula las arras penitenciales, indicando que "must be expressly agreed".. If the buyer withdraws, he loses them, "unless the withdrawal is justified in accordance with the provisions of article 621-49".. If it is the seller who withdraws, he must return them doubled. This requirement of an express agreement is consistent with case law and with other foral regulations, such as Law 467 of the Law approving the Compilation of Foral Civil Law of Navarre, which also requires an express agreement for the earnest money to have a penitential character.
The Notarial Deposit of Penalty Deposits in the Sale and Purchase of Real Estate in Catalonia
One of the most significant innovations of the Civil Code of Catalonia in this area is the regulation of the notarial deposit of penitential deposits in the sale and purchase of real estate, contained in the third section of Article 621-8. This mechanism seeks to provide greater legal security for this type of agreement.
- Application requirements:
- It must be a purchase and sale of real estate.
- The earnest money must have been agreed as penitential.
- The penitential earnest money agreement must be for a maximum period of six months.
- The arras must be deposited with a notary.
- Procedure and formalisationThe notary's intervention is key. The deposit is formalised in a deed before a notary, and this This circumstance "may be recorded in the land register".
- Effects of notarial deposit and registration: The main consequence of the registration is that "the property is subject to its return". This means that the property itself secures the seller's obligation to return the earnest money (doubled, if he withdraws) or the obligation to apply the earnest money to the price if the sale is consummated. This security interest provides a very strong guarantee to the buyer.
- Action by the notary in the event of withdrawal: Article 621-8.3 is clear on this point: "In the event of withdrawal, the notary must hand over the deposit to the person concerned". The notary acts as an impartial third party who holds the funds and distributes them according to what has been agreed and the circumstances of the withdrawal.
- Extinction of the registration condition: The affectation of the immovable property is extinguished in the following cases, according to Article 621-8.3:
- "Once sixty days have elapsed after the agreed term, unless there is a previous annotation of demand by the purchaser. In this case, the affectation is cancelled ex officio".
- "When the buyer withdraws and the seller provides evidence of such withdrawal".
- "When the sale is registered".
- Advantages of the notarial deposit: This system offers multiple advantages:
- Greater legal certainty: Both parties have the certainty that the funds are in the custody of an impartial legal professional.
- Reinforced guarantee for the buyer: The security interest in the property is a powerful guarantee, especially if the seller withdraws and has to return the security deposit doubled.
- Transparency: The procedure is clear and legally regulated.
- It facilitates the resolution of conflicts: Notarial intervention can speed up the delivery of the earnest money to whoever is entitled to it in the event of withdrawal, avoiding litigation.
Tax Implications of the Notarial Deposit of Deeds in Catalonia
The Catalan legislator has sought to encourage the use of this notarial deposit mechanism by means of tax benefits. Article 642-5 of the Catalan Tax Code, which is part of the consolidated text of the legal precepts in force in Catalonia in the field of assigned taxes, establishes a significant rebate: "They can enjoy a 100 % rebate on the gradual payment of the stamp duty tax in the form of documented legal acts the notarial public instruments in which the deposits of penitential deposits referred to in Article 621-8 of the Civil Code of Catalonia are formalised, as well as the other notarial documents that may be executed for their cancellation in the registry".
This tax exemption significantly reduces the costs associated with the notarial formalisation of the earnest money deposit and its cancellation, which should encourage its use and thus the security of real estate transactions.
Practical Considerations and Conclusions
The figure of earnest money, although traditional, continues to be of vital importance in modern contracting, especially in the real estate sector. The Catalan regulation, with its presumption of confirmatory earnest money and the requirement of an express agreement for penitential earnest money, provides clarity.
The mechanism of the notarial deposit of penitential deposits in the sale and purchase of real estate, provided for in the Civil Code of Catalonia, is a particularly valuable tool. It offers an extra guarantee and legal security, protecting the interests of both parties, but with particular emphasis on the position of the buyer. The assignment of the property to the return of the deposit and the intervention of the notary as depositary and executor of the agreement in the event of cancellation are elements that minimise risks and potential conflicts between the parties.
For legal practitioners, it is essential to properly advise their clients on the nature and implications of the different types of earnest money. The wording of the earnest money agreement must be clear and unequivocal to avoid any interpretative disputes. In Catalonia, when penitential earnest money is agreed in the sale of a property for a period not exceeding six months, the option of a notarial deposit, in addition to being fiscally advantageous, is highly recommended due to the security and protection it confers.
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Deposits in the contract of sale: what are they and what are they for?
When we talk about real estate sales and purchases, one of the most important concepts -and also the most unknown for many people- is that of earnest money in the contract of sale. This pre-agreement can make a big difference in terms of commitment, penalties and legal certainty.
At Notaría Vía Augusta 4We explain clearly what types of arras exist, how they are applied and what legal implications they entail for both parties.
What are arras?
The deposit is an amount of money that the buyer gives to the seller as a deposit at the time of signing a private purchase contract. Its main function is to ensure the commitment of both parties until the final signing at the notary's office.
There are three types of arrasand each has different legal consequences:
Confirmatory ArrasThey act as an advance payment on the final price.
PenaltiesThe agreements: they involve a financial penalty if either party fails to comply.
Penitential arras: they allow you to withdraw from the contract, but with the loss of the amount paid or a duplicate refund.
Why is it important to sign them correctly?
Because their wording and type determine whether the purchase and sale can be enforced, whether there is a right to compensation or whether one of the parties can withdraw without further consequences.
Therefore, before signing any document or handing over any money, it is advisable to consult a notaryThe contracting authority may verify that the terms and conditions faithfully reflect the will of both parties and are in accordance with the law.
✔ In brief
The earnest money in the contract of sale are a key step prior to the public deed.
Define rights and obligations before signing at the notary's office.
Advice is essential to avoid misunderstandings or legal problems later on.
At Notaría Vía Augusta 4We help you to understand and draft correctly all types of private contracts and pre-sale documents.
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Why are earnest money important in a sales contract?
The earnest money in the contract of sale not only represent an economic guarantee, but also fulfil a fundamental legal function. Their inclusion in the contract makes it possible to clearly establish the commitment of both parties and to avoid possible future disputes. Many people sign a private contract without really understanding the legal scope of the earnest money in the contract of saleThis can have important consequences if one of the parties decides to withdraw from the agreement.
It is customary for the buyer to pay a deposit of arras when the initial contract is signed, but it is not always correctly specified whether it is a penitential arras, confirmatory arras o criminal arras. Each of these types of earnest money in the contract of sale has different effects and can determine whether or not there is an obligation to continue the operation, or whether compensation is due.
Therefore, it is essential to have professional advice when drafting or signing any document related to the earnest money in the contract of saleensuring that all conditions are clear and legally valid.