Question :

Dear lawyer,

I signed a purchase deposit contract as a seller, on it was agreed that if I do not fulfil the contract I must return double the deposit received. Now, we have an appointment to go to the notary, but I do not want to sell. I have informed the buyer that it is my intention not to sell and return double the money given, but he says that he does not agree, and I must sell the house. Is that correct? What should I do?

Dear Reader,

Thank you for your enquiry, but to order to advise correctly we must see the contract. In any case, I understand that the legal key in your case, is to determine if on your reservation or deposit contract (which should be a purchase contract), you agreed a penalty clause / deposit or what is called in Spanish Law, arras penitenciales or penitential deposit.

Criminal arras / deposit or penalty clauses are those for which there is agreed a penalty or how the buyer or seller shall compensate should they not fulfill the contract to the other party, but the clause does not mean or authorize any of the parties of the contract to terminate the contract unilaterally, always the other party that wants to fulfil the contract, if it is possible, could enforce the agreement.

For its part, the arras “penitenciales” or penitential deposits, are those by which the parties agree the possibility to unilaterally terminate the deposit agreement, reservation or purchase contract, paying an amount without the other party being able to force the fulfilment of the contract. Jurisprudence and legal doctrine require these kind of clauses to be drawn very clearly, and they are regulated in the article 1454 of the Spanish Civil Code, which reads:

“If earnest money or a deposit should have been provided in a contract of sale and purchase, the contract may be rescinded by the purchaser by agreeing to forfeit the earnest money or deposit, or the seller to return it in duplicate.“

For example, if in your contract it states something similar to:

The parties agree that in case of breach of the contract the seller must compensate the buyer paying the money back in duplicate. In case of a breach by the buyer, he will lose the amount paid.

In this case, this would be a penalty deposit or clause in which the parties agree that if you do not fulfil the contract as vendor, you must compensate with the amount agreed. But this clause does not entitle you to terminate the contract unilaterally or rescind it, so that if the buyer still wants to buy, you can be forced to sell the property and respect what was agreed in the contract, even if you do not want to.

If instead, in your contract it says something like:

The parties agree under Article 1454 of the Civil Code, that any party may unilaterally terminate the contract. If it is rescinded by the buyer, he will lose the money paid, and if is the seller, he must return the money received in duplicate.

In this case, we would have a “reservation” or purchase containing a penitential deposit, and therefore, if you choose not to sell the property and unilaterally terminate the contract signed, you could do so, by returning the double the money received, the other party could not force you to sell.

Although both clauses have similar wording, their legal effects are very different. It is essential when buying or selling, to make sure that you receive expert legal advice, and that the wording of the agreements that you sign protect your rights and interests. If you’re buying or selling a property in Spain, please contact us.

The information provided in this article is not intended to be legal advice, but merely conveys general information related to legal issues.

Carlos Baos (Lawyer)

Spanish Law firm solicitor attorney barrister.

Alicante, Denia, Costa Blanca Marina Alta

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