The Spanish arras contract: what it is and what pulling out costs

The short answer

A Spanish arras contract is the deposit paid to reserve a home before the deed is signed. What decides what happens if someone changes their mind is not the amount but one line of the clause: only a penitential deposit under article 1454 of the Civil Code lets you pull out at a known price. With a confirmatory or a penalty deposit no exit has been bought, and the other side can require the whole sale to go ahead.

Thirty-four words from 1889

The article holding all of this up is shorter than its reputation suggests. In full:

Si hubiesen mediado arras o señal en el contrato de compra y venta, podrá rescindirse el contrato allanándose el comprador a perderlas, o el vendedor a devolverlas duplicadas.¹

If earnest money has been paid in a contract of sale, the contract may be rescinded by the buyer accepting its loss, or the seller returning it doubled. That is the whole provision. The consolidated text published by the Official State Gazette carries a single version, in force since August 1889: it has not been touched in a hundred and thirty-seven years.¹

It is worth noticing what it does not say. It does not define a deposit. It sets no amount, maximum or minimum. It sets no deadline. And above all it does not distinguish kinds of deposit. The three that everyone names, and the argument about which applies when the contract is silent, were built by the Supreme Court on top of those thirty-four words.

The three kinds, and what really separates them

The useful way to see them is not by what they cost but by what they permit.

Penitential deposits are article 1454 in its purest form: either side may undo the sale by paying a price both know in advance, and neither can force the other to continue.¹

Confirmatory deposits are the opposite. The money is a plain advance on the price and buys no right to leave, so whoever pulls out is simply breaching a contract. That brings in article 1124, which treats the power to terminate as implied in reciprocal obligations and lets the injured party choose between requiring performance and terminating, with damages and interest in either case.² Article 1451 finishes the job: a promise to buy or sell, where there is agreement on the thing and the price, entitles the parties to require performance of each other.²

Penalty deposits are a penalty clause under articles 1152 and following. The penalty replaces damages and interest for non-performance, unless otherwise agreed.³ But the next article adds the condition almost nobody reads: the debtor may not free themselves from performing the obligation by paying the penalty, except where that right has been expressly reserved to them.³

The same money, three different worlds

Here is the point of the whole page, and numbers make it clearer than definitions.

A 240,000 euro home. The buyer pays 12,000 euros of arras, 5 per cent of the price. They change their mind and want out.

• If the deposit is penitential, they lose 12,000 euros and the deal is over.
• If it is a penalty deposit with a penalty equal to the sum paid, they lose the same 12,000 euros.
• If it is confirmatory, there is no sum at all they can pay to leave.

The first two are identical on the bank statement and opposite in every other respect. With the penitential deposit the buyer bought their freedom. With the penalty deposit they bought nothing: article 1153 does not let them escape performance by paying the penalty, so the seller may take it or, if they prefer, require the buyer to go through with the purchase.³

The same article 1153 sets the limit from the other direction in its second sentence: nor may the creditor demand performance and the penalty together unless that power has been clearly granted to them.³ So if the contract reserved it clearly, the seller can claim both at once.

Returning double is not a double punishment

The symmetry of article 1454 is almost always read wrongly. When it is the seller who withdraws, they transfer 24,000 euros on a 12,000 euro deposit, which looks twice as harsh as forfeiting 12,000.

It is not. Of those 24,000 euros, 12,000 were the buyer's already and merely go home. The real cost of withdrawing is 12,000 euros for each side, and the provision is written precisely so that it is.¹

Knowing that changes a negotiation. Raising the deposit does not squeeze the seller harder than the buyer: it squeezes both equally, and whoever proposes raising it is making their own exit dearer by the same amount.

And if the contract does not say

This is the uncomfortable part, and also the part most often repeated wrongly. The line that circulates everywhere is that if nothing is said, the deposit is penitential. The reality is that there is no safe answer, and the best demonstration comes from the Spanish judiciary's own dictionary.

The Diccionario panhispánico del español jurídico, published by the Royal Spanish Academy and the General Council of the Judiciary, quotes the Supreme Court's First Chamber both ways, in two adjacent entries under the same term:

• Under arras penitenciales it records that where the parties say nothing about the deposit in the contract, or its kind is not stated, it is understood to be the right of withdrawal in article 1454.⁵
• Under arras confirmatorias it records that the Chamber's doctrine is that deposits must be read restrictively, as a plain advance on the price serving precisely to confirm it.⁶

The more recent line is the restrictive one. The Supreme Court judgment of 17 October 2018 calls article 1454 an exceptional provision requiring a restrictive reading of the contractual clauses, and adds that a bare mention of the article is not enough to make a deposit penitential: the clause has to state clearly what each party may do.

The practical consequence is the only one that matters: if your contract does not say which kind the deposit is, you do not have an answer, you have a lawsuit. And writing the kind into the contract costs nothing.

When a developer is selling

Between two private individuals, article 1255 governs: they may agree whatever terms and conditions they see fit, provided they are not contrary to law, morality or public order.⁴

Where the seller is a business and the buyer a consumer, a control appears that does not exist between individuals. Article 87.2 of the consolidated Spanish Consumer Act declares unfair, for a lack of reciprocity contrary to good faith, the retention of amounts paid by the consumer on withdrawal without providing for an equivalent payment if the trader withdraws.⁷

Read that twice, because it describes word for word the clause a professional seller writes when it says the buyer forfeits the deposit and says nothing about itself. Article 85.6 adds the control over terms imposing a disproportionately high penalty on a consumer who fails to perform.⁷

It is worth noting that a properly drafted penitential deposit is already reciprocal, because article 1454 itself makes the seller return double. The problem arises when someone drafts a one-way deposit.

Buying off-plan: the guarantee is not optional

If the home is still being built there is another layer, and it is the kind you check before transferring anything. The first additional provision of the Spanish Building Act obliges anyone promoting the construction of homes who intends to obtain money from buyers to do two things at once:⁸

1. Guarantee, from the moment the building licence is obtained, the return of the amounts paid plus statutory interest, through surety insurance or a joint bank guarantee from a credit institution, in case the construction does not start or does not reach completion by the agreed handover date.
2. Receive those amounts through a credit institution, in a special account separate from any other funds of the developer, which may only be drawn on for the needs of the construction.

The guarantee extends to the sums contributed including the applicable taxes, plus statutory interest.⁸ The credit institution must, on its own responsibility, require that guarantee before opening the account. If you are asked for an off-plan deposit with none of this in place, the law is not being followed.

The mortgage that does not arrive

This is the case that most often ends badly and the easiest to avoid. If the contract says nothing and the bank refuses the mortgage, the lack of financing does not release you: you remain the party in breach, with whatever consequences the kind of deposit you signed carries.

Article 1105 only excuses events that could not have been foreseen, or that were foreseen but unavoidable, beyond the cases the law or the obligation itself names.⁴ A bank turning down an application is perfectly foreseeable.

The fix fits in two lines: a condition unwinding the contract and returning the deposit if the financing is not obtained before a set date. Article 1255 allows it without any difficulty⁴ and agreeing it costs nothing. Set the date with room to spare, because the deadline for the notary is often shorter than a bank takes to decide.

A worked example with real numbers

Take the whole purchase and follow it to the end, which is what this page's calculator does with its opening state.

A 240,000 euro home. A 12,000 euro deposit, 5 per cent. It is the buyer who pulls out.

In the penitential case nothing is transferred: the money is already with the seller and there it stays. The buyer has lost 12,000 euros and is free.

In the confirmatory case the seller returns the 12,000 euros if they choose to terminate, because it was an advance on the price, and may additionally claim whatever damages they can prove, which is not a figure anyone can predict. Or they may not terminate at all: enforce performance and collect the 228,000 euros still owing.

In the penalty case the buyer hands over 12,000 euros, exactly as in the first, and remains exposed to being required to buy.

Now change one thing, which side changes its mind. With a penitential deposit, if it is the seller who pulls out, they transfer 24,000 euros to the buyer, who is 12,000 euros better off. The seller loses 12,000: exactly what the buyer would have lost.

What your contract should say

You do not need to be a lawyer to read the parts that matter. Four things, in this order:

1. The kind of deposit, spelled out. Citing article 1454 is not enough. Say whether the parties may withdraw and what happens if they do.
2. The notary date, and what happens if it arrives with nothing signed.
3. What happens if there is no mortgage, with a deadline for finding out.
4. Who pays what at completion, so that argument does not surface at the end.

And if you are buying off-plan, ask for the policy or guarantee number and the special account before transferring the first euro.⁸