Beware this Clause in Spanish Property Contracts

 

A particular clause or agreement within Spanish law, called “arras penitenciales”, allows either party in a contract to breach the contract with more limited liability than is normal. It is something to be wary of when purchasing property in Spain.

 

What are the “arras penitenciales”?

There is a specific agreement in Spanish law which name is “arras penitenciales”. This agreement  allows each party to breach a sale and purchase contract without any justified reason. The consequences of this breach are as follows:

a) If the seller breaches the contract they will pay back to the purchaser double the deposit,

b) If the purchaser breaches the contract then they will lose their deposit. A<

And there are no more consequences at all.

So if you really want to sell your property or you really want to buy a property I do not recommend to sign this specific and exceptional agreement “arras penitenciales”.

Use of this stipuation

I do not like them at all. This is just a personal opinion probably coming from the abuse of this specific contract made during the real estate boom years. I do not like them at all, despite the fact that on some occasions it could be useful. But these occasions are very rare in my opinion. I personally do not recommend it. If you really want to sell or buy a property the use of “arras penitenciales” could be and a waste of time and money.

The deposit given as “arras penitenciales” is usually very small. The parties are therefore not strongly committed to honour the contract as the consequences will be limited only to the small deposit. During the boom years this agreement was frequently used as the sellers did not want to commit to sell completely, as they knew that somebody else could come offering more money. A higher selling price would more than cover the penalty derived from the “arras penitenciales”.

This agreement is an exception to the general principle to honour the contracts because it allows any party to pull out without a justified reason. And this is the risk.

My advice

If you really want to either buy or sell a property and are offered an option to sign an agreement of “arras penitenciales” avoid it if possible. If there are specific conditions you wish to make the contract subject to, they can be specified in a straight sale and purchase contract. The “arras penitenciales” option, in my opinion, is too risky.

Thank you 

Thank you for your time and attention and I hope this information is of use. You are very welcome to share if you liked it.

Warning

Please, note that this is general information. This is not specific legal advice. It is advisable to seek legal advice for any specific legal issue.