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The deposit contract is a type of private pre-contract; which is the commitment to carry out a subsequent sale of a property.

01 The deposit contract: do not confuse.

It can be confused very easily with other types of contracts that do not in force the same things or in the same way.

A Private sales contract.

A private sales contract is a contract that is signed between the buyer and the seller, it is not mandatory, but the law considers it a valid contract and all parties are obliged to comply with everything that is expressed in it. However, it is almost always done when one buys or sells, in order to ensure the sales purchase.

For more information about this type of contract we have attached a link, in relation to this type of contract:

https://competaproperties.com/en/blog/81-what-is-the-private-purchase-contract.html

B Deposit contract.

The deposit contract is a private agreement where the parties agree on the reservation fee for the sale of the property, paying the stipulated sum. It is part of the pre-contracts, because what is being contracted is the obligation to sign a private sales contract in the future, as we mentioned in the previous point. In addition, when using the deposit contract, it is taken into account that the contract may be terminated by the buyers cancelling it, or that the seller is legally obliged to return twice the amount received.

C Purchase option contract.

It is considered to be a pre-contract, in which one party grants the other the exclusive right to decide on the conclusion or not of the sales contract.

02 The deposit contract: types.

There are several types of deposits below we will explain in what they consist of.

A Confirmatory.

They are a confirmation, a payment on account of the price, but if one of the parties rejects the signed contract, the other party may demand compliance. In the case that the contract does not specify what type of deposit is being signed, then the law will understand that they are confirmatory.

Article 1124 of the Civil Code, pre-supposes that the faculty will resolve the obligations when one of the parties does not fulfill what corresponds to them.

The wronged party may choose between demanding compliance or the resolution of the obligation. You can also ask for the resolution, even after having opted for compliance, when it is impossible.

The Court will decree the resolution that is claimed, in the absence of justified causes that authorize it to indicate the terms.

It is specified in the contract in the stipulations section, point 2 where the purchaser expresses interest in the acquisition.

B Penitentials.

The penitential deposits, consist of the payment of a quantity of money from one party to another, it being understood that any of the parties can desist from the contract, on one side losing the deposit that they had paid or alternatively on the other side returning twice the amount that has been received.

According to Article 1454 of the Civil Code it is assumed that "If they had mediated a deposit in the sales purchase contract, the contract may be rescinded by the buyer who will lose the deposit, or the seller has to return double the amount."

It is specified in the contract in the stipulations section, point 2 where the purchaser expresses interest in the acquisition.

C Penalties.

They are what are configured as a penal clause.

According to article 1152 of the Civil Code, they assume that obligations with a penal clause will substitute the penalty for the compensation of damages and the payment of interest in case of a non-compliance, if nothing else has already been agreed.

It is specified in the contract in the stipulations section, point 2 where the purchaser expresses interest in the acquisition.

03 The deposit contract: signature

The deposit contracts are not obligatory; but it is much better to do them because they are usually one of the most important steps prior to the formalization of the sale. In many occasions the purpose is that one of the parties, or both, feel more secure from the moment in which an agreement is reached until the signing of the sales purchase at the Notary.

A Who signs.

If you are married you can sign in the following ways:

• Joint marital property basis: Only one of either of the two must sign stating that he/she signs on behalf of both.

• Marriage with a separate property regime: both must sign the contract.

• Unmarried partners: it is the same case as a marriage with a separate property.

If it is a company, it will be signed as follows:

The legal representative of that company must sign and they must give proof of representation for the company.

B What this document commits us to.

The buying party agrees that if you cancel the sale, you will lose the amount paid as a deposit, but will not have any other penalty.

The selling party agrees that if it decides not to continue with the operation and renounces the sale, a penalty will be fixed.

C Do I have to pay an amount?

Regarding the amount of the deposit contract, the Spanish law does not set any fixed amount and must be freely agreed by both parties. However, it will be advisable to establish a more or less high amount depending on the interest the buyer has in the property, given that, in the case that the seller backs out, they should return twice the amount.

In any case, the amount must be in a registered form. That is, by cheque or transfer indicating the name of the recipient and the concept for which the amount is paid.

The amount paid on signature of the deposit contract will be deducted from the amount to be paid for the sales purchase. This means, that the deposit amount will be deducted from final price for the acquisition of the property.

D Things that the contract should include.

Parties: Buyer, seller and necessary data of each party.

1. Seller in the case of a marriage with assets: both spouses must sign.

2. Seller in the case of a society: The representative must identify him/herself with the necessary documents to carry out the operation.

3. An individual represented by a third party: the power of attorney must be mentioned and verified.

4. Buyer in case of a joint marital property basis: the signature of one of the two is enough.

5. Buyer in case of a society: must identify with the documentation that recognizes the signer as a representative of the company.

Estate or property.

1. Full description: A description of the home that is being sold must be made. It is recommended that you include the location where the dwelling is, the street, floor, door and surface. If the apartment is sold with a parking space or a storage room, it must be mentioned and described.

2. Registration: It is not normal, but it is important. It will be the proof that the buyer will have that the seller is who he claims to be and that there is nothing hidden (burdens, encumbrances) that he does not know about. The most important thing to check is the ownership, description and status of if the property has any charges.

3. Charges: Checking this is very important. If there are any, it must be expressively stated in the agreement reached by both parties. Thus, the buyer can be subrogated in the charges that exist. Or, on the contrary, it can be agreed that the seller obliges himself to cancel them before the final sales purchase.

Conditions of the sales-purchase.

1. Deposit. This is the payment of the deposit. There are no predetermined quantities.

2. Terms for the purchase option. The term is fixed between both parties, according to the agreement they reach.

3. Financing. As a rule, it has been adopted the inclusion of a clause that guarantees that the deposit will be returned to the buyer if he/she is not granted the mortgage financing.

4. Price. It is advisable to set a specific date to pay the rest of the price. It is recommended that the payment of the rest of the price coincides with signing at the Notary and this must be stated.

5. Expenses. The law recommends that the buyer is responsible for everything except the Tax on the Increase in the Value of the Land (Plusvalía) and those originated by the intervention of a real estate agent.

04 The deposit contract: breach of contract.

According to the Spanish legislation, if the one who breaks the agreement is the buyer, the buyer will lose the deposit which has been provided by him/her at the signing of the Deposit Contract. On the other hand, if the person who fails to comply with the agreement is the seller, the latter must not only return the deposit given by the buyer, but must return double the amount.

A Breach of contract by the buyer.

There are several motives, but below we have mentioned some of the most common reasons:

One of the motives can be because the buyer has seen another similar property at a lower price that makes them change their mind.

Another reason may be because the documentation is not in order and there are problems that cannot be solved according to current legislation. (For example, obtaining the AFO)

Consequences for the motives mentioned above:

According to Spanish law, for the first reason mentioned above, the buyer loses the contributed amount.

According to Spanish law, for the second reason mentioned above, the amount paid by the buyer is returned to the buyer.

B Breach of contract by the seller.

There are several motives, but below we have mentioned some of the most common reasons:

The reason can be because the seller changes his mind and decides not to sell.

Another reason may be because the seller receives a higher offer.

It can also be because they do not grant the necessary financing that the buyer needs for the sale.

Consequences for the motives mentioned above:

According to the Spanish law for these reasons there are penalties for the breaching party, meaning that the seller has to return the amount paid for the deposit, duplicated.

C Hidden faults.

The hidden faults in a sale are a serious defect that was not originally in sight, it was unknown by the buyer at the time of purchase, and that it has become unfit for use or diminishes its usefulness so much that the buyer would not have bought it or paid less for it.

In order for hidden faults to occur, the following requirements must occur:

1. There must be a hidden fault, which is not visible and is not knowable.

2. The fault must be serious, in such a way as to make its use improper or diminish its usefulness so much that the buyer would not have bought it or paid less.

3. The fault must be pre-existing upon the sale.

4. The buyer has the evidence.

5. The action is extinguished six months after the sales completion. This term means that, if in six months from the purchase we have not demanded judicial reorganization, we lose the right to demand it.

Consequences.

The consequences would be the following:

If the faults known to the seller are destroyed, the seller will suffer the loss and must return the price and pay the contract costs, with the damages.

If the seller did not know the hidden faults or defects, they should only reimburse the price and pay the contract expenses that the buyer had paid. Keep an eye on this, because the fact of whether the seller knew or not the hidden defects or flaws, will be a matter to clarify before the courts, and therefore, we must prove it.

05 The deposit contract: what happens if I do not do it.

The deposit contract is not obligatory; but it is better to do it. There are many risks as there always are but if you do not make a deposit contract, it will be more likely that the sale will not go ahead if there is any disagreement between both parties, etc ...

As you can see, the deposit contract is a tricky and complex issue that you should not face alone. Either in the company of your advisor; or, preferably, a lawyer, you should ask yourself what kind of contract to do and if it is the best option you have.

And above all do not forget to share it if you think that this article is interesting.

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