Embarking on the journey of reserving a property in Spain to rent or buy involves navigating through a myriad of legal intricacies, especially concerning reservation payments. As prospective investors or homeowners, understanding the nuances of Spanish rental laws and the associated costs is paramount.

In property transactions, it is common for an agreement to be reached between the seller and the buyer before the deed is signed. Let’s have a look at the details.

What is a Property Reservation Contract?

The property reservation contract represents, in addition to confirming the intentions of both the buyer and the seller, a bidirectional commitment that typically includes the ‘down payment for the purchase of a property,’ ensuring in some way that the real estate transaction will take place. This down payment corresponds to the money that the buyer advances to the seller as a reservation for the property subject to the transaction. Additionally, the signed document constitutes a formal agreement that legally binds the parties to proceed with the purchase when the conditions established therein are met.

Differences Between Reservation Contracts and Deposit Contracts (earnest money contract)

It can be somewhat confusing to distinguish between a property reservation contract and a deposit contract, as they may seem similar at first glance, but they are different concepts.

It is important to highlight the fundamental differences between a reservation contract and a deposit contract, both of which are very common in real estate transactions in Spain. Here I explain them clearly:

  1. Reservation Contract:
  • Purpose: This contract is used to temporarily withdraw a property from the market, ensuring that the buyer has a period of exclusivity to decide whether to proceed with the purchase. During this time, the seller agrees not to sell the property to another person.
    • Amount: A smaller amount, usually between 3,000 and 6,000 euros, is paid as a sign of intent to purchase.
    • Consequences of cancellation: If the buyer decides not to go ahead, he/she normally loses the money paid. If it is the seller who withdraws, he/she must return the amount received.
  1. Deposit Agreement (earnest money contract)
    • Purpose: This contract is established as a pre-contract by which the parties agree on the terms of the sale of the property and mutually assure each other of their intention to buy or sell. It is more definite than a reservation contract and precedes the contract of sale.
    • Types of Deposits (earnest money contracts):
      • Penitential Deposits (the most common): They allow either party to terminate the contract unilaterally, with the buyer losing the money delivered or the seller returning double the amount received, depending on who desists.
      • Confirmatory Deposits: They serve as part of the payment of the price and as confirmation of the contract, without the possibility of unilateral rescission without breaching the contract. If one of the parties withdraws, he/she cannot, as in the previous case, agree to forfeit the deposit or return the duplicate and forget about the contract; both, seller and buyer, have the right to demand in court that a) the sale be completed or b) request compensation for damages.
      • Penalty deposits: These are used as a guarantee of contract performance so that, if one of the parties decides not to buy or not to sell, the affected party can demand not only the retention of the deposit or its doubled return, but also take the case to court to force the completion of the sale or request compensation for the additional damages that the breach has caused.
    • Amount: Generally, a percentage of the sales price, commonly between 5% and 10%.
    • Consequences of cancellation: Depending on the type of deposit, the consequences may vary from losing the deposit to demanding the fulfillment of the contract or compensation.

Both contracts are essential tools in the preliminary stages of a real estate transaction, but it is crucial to understand their differences in order to choose the one that best suits the needs and security sought by the parties involved.

Benefits of a Deposit Contracts (earnest money contract)

If you are the buyer, the main advantage of the reservation contract is that it allows you to gain time from the moment you sign the purchase agreement, so you can search for a suitable mortgage knowing that there is a real commitment to sell the property by the owner and that there will be no significant changes in the previously agreed price.

If you are on the opposite side, that is, if you are the seller, you will also have an important advantage: to obtain time to carry out the necessary procedures, from repairs in the property to obtaining certain documents such as the energy certificate of the house. Additionally, you will know in advance when you will receive the money from the buyer.

Albir Abogados: Your Trusted Legal Advisors in Alicante

At Albir Abogados, we are more than just legal advisors; we are your dedicated partners committed to providing the most personalized and comprehensive legal assistance. Specializing in real estate law, inheritance law, litigation, and tax law, our team of Spanish and independent lawyers brings decades of collective experience to the table. With our main location in Altea and Alicante, we stand as a pillar of support for both local and international clients seeking expert guidance in navigating the Spanish legal landscape.

Understanding Reservation Payments to buy a property

Legal Framework and Compliance: The process of reserving a property in Spain is governed by specific legal regulations, including the Law for the Right to Housing. Our team at Albir Abogados stays abreast of these laws to ensure that your reservation process complies with all legal requirements, mitigating any potential risks.

Reservation Deposit Amounts: The reserve money will be set according to the sale price. Although it is not a fixed amount, it is usually between 1% and 5% of the total price of the property. For example, if you want to reserve a house valued at 250,000 euros, you will have to pay between 2,500 and 12,500 euros to the seller. As your legal advisors, we can provide insights into customary reservation amounts and negotiate favorable terms on your behalf.

Transparency and Accountability: Transparency in reservation payments is essential to avoid disputes and ensure a smooth transaction process. Our team works diligently to ensure that all financial transactions are transparent, with clear documentation outlining the terms of the reservation agreement.

Tax Implications: Understanding the tax implications of reservation payments is crucial for budget planning and compliance. We provide expert guidance on the tax obligations associated with property reservations, helping you navigate the intricacies of Spanish tax laws.

Legal Protections and Rights: As investors or homeowners, knowing your legal protections and rights concerning reservation payments is vital. Our team ensures that your interests are safeguarded throughout the reservation process, offering legal expertise and support every step of the way.

Renting: Implications for Apartment Reservations:

If you are looking to rent an apartment in Spain, tenants should be aware of the legal framework outlined above. While the law primarily focuses on rent or sale regulation, its provisions indirectly impact reservation payments and terms of the renting process as well.

Transparency and Fairness: The establishment of a State Reference System for Rental Price promotes transparency in the rental market, enabling tenants to make informed decisions regarding reservation payments and rental costs.

Tax Incentives: Landlords offering affordable rents may benefit from tax incentives, which could influence the amount tenants are required to pay for reservation deposits.

Stability in Rental Prices: The limitations on price increases and the extension of lease contracts contribute to rental price stability, providing tenants with predictability in their housing expenses.

Conclusion:

Reserving a property in Spain to rent or buy it, entails more than just making a financial commitment; it requires a thorough understanding of the legal framework and associated costs. With Albir Abogados by your side, you can navigate through the complexities of reservation payments with confidence and peace of mind. Contact us today to leverage our expertise and embark on a successful property reservation journey in Alicante and beyond.