Introduction: The Purchase Option as Security — A Valid Tool or a Prohibited Trap?
In times of economic hardship, the need to obtain liquidity quickly may lead individuals to accept financing solutions that, under an appearance of legality, conceal legal transactions with serious consequences. One of the most sophisticated and potentially harmful mechanisms is the use of a purchase option over a property, not as a preparatory agreement for a future sale, but as an atypical security for a loan that may end with the loss of ownership for a value substantially below market price.
The following will explain how these operations work, what the «pactum commissorium» usually hidden within them consists of, and what is the position of our courts and of the Directorate-General for Legal Security and Public Faith (Dirección General de Seguridad Jurídica y Fe Pública, DGSJFP) on the matter.
Two Key Concepts: Purchase Option vs. Pactum Commissorium
To understand the issue, we must first differentiate between two legal concepts:
- The purchase option:This is a contract by which one person (the grantor) gives another (the option holder) the unilateral right to purchase an asset (generally a property) within a certain period and for a price previously agreed upon. In Catalonia, this concept is regulated by Articles 568-8 to 568-12 of the Civil Code of Catalonia. Case law has defined it as a pre-contract, leaving in the option holder’s hands the decision to activate the purchase agreement, which is already defined in its essential terms. It is a lawful legal instrument and, in many cases, a useful tool for planning real estate transactions.
- The pactum commissorium: This is an agreement whereby, if a debtor fails to pay his debt, the creditor may directly retain the asset given as collateral, without following the legal enforcement procedures (judicial or notarial auction). This practice is expressly prohibited in Spanish common law under Articles 1859 and 1884 of the Civil Code. The reason for this prohibition is to protect the debtor from abuse, preventing the creditor from appropriating an asset whose value may be far higher than the outstanding debt, thereby resulting in unjust enrichment.
The problem arises when the purchase option is distorted and used as a means to circumvent the prohibition of the pactum commissorium.
Why Are These Operations Abusive? The Modus Operandi
The structure of these operations is complex, and although there are many variants, a common pattern is as follows:
- Creation of a unilateral purchase option: The debtor (grantor) signs a contract granting a purchase option over his home in favor of the lender (option holder). The contract sets a high premium that, in reality, is not consideration for the right itself but the capital of a hidden loan. It is also agreed that the option holder may exercise the purchase option unilaterally, without the active cooperation of the grantor at the time of execution, provided that the agreed conditions are met. For this purpose, an irrevocable power of attorney is often granted in the deed in favor of the option holder.
- The hidden loan: The true nature of the operation is recorded in a second deed, in a private contract that remains undisclosed or is inferred implicitly. Frequently, “management fees” of disproportionate amounts are added under the pretext of paying off prior encumbrances (mortgages, liens), but they are in fact concealed interest.
- Deterrent penalty clause: A clause is often included allowing the debtor to “cancel” the option if he finds another buyer, but only by paying a penalty, again hiding interest, often of a usurious nature.
- Consequences for the debtor:
- Scenario 1 (Payment of usurious interest): The debtor manages to sell the property to a third party, but to release the asset he must pay the penalty clause, losing a significant portion of the property’s value in the form of usurious interest.
- Scenario 2 (Pactum commissorium in action): If the debtor cannot repay the loan or sell the property, the lender exercises the purchase option. The lender acquires ownership for the agreed price, deducting the initial “loan” and the inflated “management fees,” thus acquiring the property for a residual value far below its real market worth.
- Scenario 1 (Payment of usurious interest): The debtor manages to sell the property to a third party, but to release the asset he must pay the penalty clause, losing a significant portion of the property’s value in the form of usurious interest.
This operation has nothing to do with an ordinary purchase option agreement; it is in fact a private and abusive enforcement mechanism.
The Position of the Courts and the DGSJFP
The legality of these arrangements has been the subject of intense legal debate:
- The High Court of Justice of Catalonia (TSJC), in rulings such as No. 12/2019 of February 18 and No. 16/2019 of February 28, recognizes the validity of purchase options used as security, provided there is complete transparency in the deed and no hidden pactum commissorium.
- The Spanish Supreme Court, for its part, takes a restrictive stance, systematically annulling any agreement that indirectly violates the prohibition of forfeiture, such as in Judgment 77/2020 of February 4, on the grounds that it breaches a rule of public policy.
- The Directorate-General for Legal Security and Public Faith (DGSJFP), the top authority regarding Notaries and Registrars, adopts an equally restrictive view, refusing to register purchase options when there are indications that their true purpose is to secure a loan, as they may conceal a prohibited pactum commissorium. However, this criterion has been softened by recognizing the so-called“pactum marcianum” , that is, an agreement under which, if the creditor appropriates the asset in payment of the debt, an objective valuation of the asset must necessarily be carried out and any surplus after satisfying the debt must be returned to the debtor — thereby avoiding unjust enrichment.
The Role of the Notary
In this complex scenario, the Notary’s role must emerge as a fundamental pillar in safeguarding legality and protecting consumers. Our function is not merely formal but includes a duty to ensure the legality of the acts and agreements documented in our offices. The Notary has the duty to:
- Inform and advise: Explain to the parties, particularly the more vulnerable one, the scope and legal and economic consequences of the transaction they intend to formalize.
- Ascertain the parties’ true intent: Ensure that the contract reflects their genuine will and does not conceal a prohibited, simulated, or fraudulent agreement.
- Refuse authorization: Decline to authorize deeds that include unlawful, fraudulent, or public-policy-violating clauses, such as a concealed pactum commissorium.
However, the sophistication and complexity of certain contractual structures can sometimes make fraud detection difficult. The intention to circumvent the pactum commissorium prohibition is often disguised under a façade of legality that may not be readily apparent — even to the Notary at the time of execution or to the Land Registrar upon review. The parties may present the operation as a legitimate real estate transaction, concealing the underlying loan relationship.
Conclusion: Prevention as the Best Protection Tool
Purchase options used as security represent dangerous ground, especially for individuals and families in economically vulnerable situations or with limited access to traditional financing channels. This figure sits on the delicate line between the free exercise of contractual autonomy and the prohibition on creditors appropriating an asset automatically, without a fair procedure that ensures economic balance between the parties.
The validity of these agreements therefore depends on a case-by-case analysis by the courts, which must determine whether the contractual structure conceals a fraud upon the law, a simulation, or an abuse of rights. The key to distinguishing a lawful agreement from a void one lies in the inclusion of mechanisms that guarantee fairness, such as the so-called pactum marcianum.
For this reason, when dealing with atypical financing structures that involve granting a purchase option over a property as security, it is imperative that all parties act with the utmost caution. In an increasingly complex legal and financial environment, prevention — through rigorous and specialized legal advice — stands as the most effective tool for protecting consumer rights and upholding legal certainty.
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The Option to buy under guarantee It is a legal figure used in notarial, civil, and commercial spheres that allows for the securing of obligations through the granting of a conditional right of acquisition. Unlike a mortgage or pledge, Option to buy under guarantee does not immediately constitute a real right, but rather a faculty agreed between the parties that only materialises when the option holder exercises the right within the agreed timeframe. This mechanism is characterised by offering a flexible and effective guarantee without contravening the prohibition of the commisory pact established in Article 1859 of the Civil Code.
In notary practice, the Option to buy under guarantee It is used to provide legal certainty to transactions between individuals or companies, protecting both the creditor and the debtor. The jurisprudence of the Supreme Court has repeatedly recognised its validity as long as it does not imply automatic transfer of ownership and maintains the possibility of restitution or redemption by the debtor. Thanks to its contractual configuration, this instrument allows the guarantee to be adapted to the needs of each legal relationship, avoiding the costs and rigidities inherent in a traditional mortgage.
From a fiscal and registration point of view, the Option to buy under guarantee it can be registered in the Property Register to provide publicity against third parties, and its formalisation in a public deed grants full legal guarantees. It is an agile, transparent and modern alternative that reinforces the security of legal transactions and contributes to the efficiency of preventive justice.
The Option to buy under guarantee ultimately, it constitutes a legitimate and useful tool for the fulfilment of obligations, provided that it is used with balance, in good faith and under the supervision of a notary who ensures the legality of the agreement.
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