Client Alert #10/2022: Promissory Agreement on the purchase of a property

Are you thinking of buying a property? Surely you have heard about the promissory agreement / Contrato de Arras.

What is the promissory agreement?

It is nothing more than a private agreement between buyer and seller, where the parties commit themselves to the future sale and purchase of a property. It is at this moment when the buyer gives the seller an amount of money, which can normally range between 5 or 20% of the price.

That said, do not sign a promissory agreement without first knowing the essential issues.

The contract must regulate, at least, the following aspects:

- Identification data of the parties.

- Identification of the property.

- Deadline to formalize the deed of sale.

- Total price, taxes and means of payment as well as the amount of the promissory agreement.

- Who assumes the expenses of the sale, registration and taxes.

- Essential conditions that will motivate the purchase.

There are three types of promissory agreement: confirmatory, penitential and penal. To this effect, it is important to emphasize that if the type is not determined, it is presumed that the promissory agreement is merely confirmatory.

Let us see, in brief, each of them:

Confirmatory Promissory Agreement (Arras Confirmatorias):

These are those by virtue of which, in the event of non-performance, the injured party may choose between:

- Demand performance of the obligation and request interest.

- To terminate the obligation and request compensation for damages caused. However, this does not imply that the confirmatory promissory agreement is considered as compensation for damages. In that case, we would speak of Penalty Promissory Agreement.

Penitential Promissory Agreement (Arras Penitenciales):

They must be expressly agreed and is the most common, because both parties give each other the opportunity to withdraw from the contract, that is:

- If the buyer withdraws, he loses the earnest money, since the seller has the right to keep it.

- If the seller is the one who withdraws, he must pay the buyer double the amount paid as promissory agreement.

Penalty Promissory Agreement (Arras Penales):

Like the Penitential ones, they must be expressly agreed and allow the parties to unilaterally withdraw from the sale, but with the difference that they may request compensation for the damages caused.

In Font & Yildiz, as expert lawyers in real estate law, we offer:

1. Analysis of the registry status of real estate.
2. Advice on the state of charges and encumbrances of real estate.
3. Advice on the registry cancellation of charges and encumbrances.
4. Assistance during the negotiation of the purchase or sale.
5. Advice in relation to the inclusion of clauses that grant a guarantee to the parties.
6. Advice on what type of Promissory Agreement / Contrato de Arras is more convenient for each occasion.
7. Consultations and formalities before the Property Registry.
8. Fiscal planning of the real estate investment.
9. Assistance in tax and administrative inspections in real estate investments or projects.