Deposit Contract

Published on 15/11/2006 in Buying Process

Know Your Rights!

There is a very important principle of contractual law in the Spanish Civil Code that states: ”The contracting parties can establish all the agreements, clauses and conditions that they may find necessary, provided they are not against the Law, the morals or the Public Order” .  It is called the “Autonomy of the will Principle”.

Taking that into account can help us to understand what the truth is in that “an agreement is a Law between parties”. For the peace of mind of consumers (purchasers of properties) , Spanish Law regarding abusive clauses is very clear and these abusive clauses are a very important limit to the autonomy of the will as they are considered against the Law.(Please see a list of Null and Void Clauses). Anyhow, play your part in the negotiation (with the assistance of a good lawyer) in order to use this freedom for the protection of your rights and a smooth purchase process.  For example when signing a deposit contract.

The deposit contract is a contract by which one party (the buyer) is obliged to pay to the other party (the seller) an amount of money as a deposit or guarantee for the fulfilment of a sales contract, and this party (the seller) is committed to sell the house to that person within a determined deadline and according to the conditions agreed thereby. The conditions agreed regarding the return of monies paid, cancellation… need to be balanced and equivalent between parties in order to be respectful with the standards of the protection of the Consumers´ rights.  Any abusive clause is coinsidered null and void and not enforceable.

The above mentioned contract must gather, in detail, the main aspects of the agreement that has been reached, such as the full identification of seller and buyer, plus enough, official and clear identification of the property (Nota simple required, click here for more information), definition of the contract which is being signed, agreed price, method of payment (expressing if any amount is delivered as a deposit or on account of the price); who will pay the expenses and taxes, time within the public deed needs to be signed, etc… The more in detail and tight, the more peaceful your purchase process will be. It is also important to bear in mind that there is very recent legislation on Information requirements when selling houses in Andalucia (please see: http://www.costaluzlawyers.es/eng/?p=22 and http://www.costaluzlawyers.es/eng/?p=24 )

The return of amounts handed as a deposit will depend on the fulfilment of the conditions agreed in the deposit contract. It is very advisable to have a compensation clause that will avoid further discussions on this important matter. There is big room for negotiation here. Remember the aforementioned principle on “Autonomy of the will” in Contractual Law.

On the other hand, if it is the seller who is not complying with the agreed deadline, or decides not to sell without a justified reason or to sell the house to a third party, he will have to compensate you according to what is stated in the deposit contract.

In the case that the sale is finalised within the agreed deadline, the deposit will be considered an advanced amount on account.

It is needed to pay a lot of attention to this contract as it is as important as the sales contract itself and you can be committing yourself to conditions that will determine the purchase at a very high level.

Written by: Maria de Castro

About the author:

Maria de Castro is a Spanish Lawyer and the Director of the Law Firm www.costaluzlawyers.es.

Costa Luz Lawyers are contract and consumer real estate law specialists covering all parts of Spain. You can contact Maria at mldecastro@costaluzlawyers.es




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