What is a deposit contract and what types of them are there in Spain?

When you sign a purchase-sales document for a property, you are compromising yourself through an important document of obliged fulfilment. Therefore, the first contract you will sign, even though it is just a pre-contract, is a deposit contract; it is equally important as a final contract. With this in mind, it is important that you know the different modalities and functions of each of these types of contracts.

A deposit contract is addressed in the Civil Code under Article 1454. It is a legally binding contract in which the parties agree upon a reservation of the purchase-sale of a property based on a deposit. In other words, it is a purchase agreement for property made between the purchaser and the seller on the right to reserve the property for a certain sum.

There are three different types of deposit contracts; the type you will use depends on the consequences of non-fulfilment of one or both of the parties:

• The security deposit contract.

This contract confirms that both parties are bound to the sales agreement through a payment on account. Its function is to confirm the existence of the sales agreement and stipulates the guarantee of the purchase at the price agreed upon; it does not give parties the right to withdraw or terminate the contract.

In the case of non-fulfilment of the contract by either of the parties, the other party may either choose to claim the fulfilment of the contract or the termination thereof. The economic compensation may not necessarily be the sum paid in advance; it could be higher or lower, depending on the damages suffered and the good or bad faith of the non-fulfilling party. Damages must be proven in each case.

• The earnest money contract.

This type of contract supposes the guarantee of an anticipated settlement of possible damages in case of the non-fulfilment of the contract. This is a contract that pre-determines the possible settlement of an economic compensation, in which the party affected by the non-fulfilment may either require the fulfilment of the contract or the termination thereof. The compensation of said damages is determined in court by a judge.

• Double-rate cancellation penalty contract.

Double-rate cancellation penalties are the modality that allow both parties, sellers and purchasers alike, to unbind themselves from a contract in the case of a non-fulfilment of obligations.

If the seller does not fulfil the obligations set out in the contract, then he must repay double the amount he has received as economic compensation for damages. If the purchaser does not fulfil his obligations of payment or other terms set forth in the contract, he will waive the payment and/or lose the sum paid up to that date.

If you are considering purchasing or selling your property, do not hesitate to contact one of our experts in tax advisers and conveyancing lawyers of our Firm in Marbella. 

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