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Property in Spain: What you need to know before making a down payment

If you’re looking to buy property in Spain, you might have heard of or come across the concept of a ‘contrato de arras’ - but what is it, what rights does it give you, and what should you know before signing one?

making a down payment on a property in spain
The total price of both the deposit and full sale price should be accurately and clearly identified on the deposit contract. Photo: Josep Lago/AFP

In English contrato de arras translates to a deposit contract or deposit agreement and is an important, in most cases, essential, legal document to finalise an agreement for the purchase of a property in Spain. 

Although it may seem like another formality in the long process of finding and buying a property, it is an important contract that commits both buyer and seller to the sale, and formalises the initial deposit payment.

In Spain, the deposit to pay to seller when signing the contrato de arras is usually between 5 and 15 percent of the final agreed sale price, a sum that can only be cashed by the owner of the property being sold.

What is the purpose of a deposit contract in Spain?

The main purpose of an ‘arras‘ is to give peace of mind to all parties involved in a property sale, as the agreement contract confirms in writing that the terms agreed for the sale are respected.

Unlike the rental market, where you pay a fianza (deposit) that is returned to you when you leave the property, or if you pull out of renting it, contrato de arras are only for property purchases and work differently: if you sign the deposit contract and then ultimately decide against purchasing the property, then you will lose the amount of money that has been paid as a deposit. 

However if culpability lies with the seller and the transaction of the property doesn’t proceed as agreed, it is custom in Spain that the seller returns double the deposit amount paid in the contrato de arras.

What is normally included in a deposit contract in Spain?

The ‘arras’ usually contains several important details, including key information like personal details: signing one of these contracts ensures that both sides have the necessary documentation, both in terms of finance, representation, tax, citizenship, and so on. It also identifies and details the property itself, and any charges, limitations or other relevant financial circumstances – such as outstanding debts – on the property or land.

It of course includes the price to be paid at both the deposit and payment stage, or outlines a payment plan, and details on other possible payment options such as loans or mortgages. 

The arras also includes a time limit for the execution of the deed of sale, and makes absolutely clear that both buyer and seller are aware of what they are signing because this cannot be changed later unless there is a new agreement made. Once signed, that’s usually it – unless both parties desire a new agreement.

Writing up a contrato de arras 

If you Google contratos de arras you’ll be able to find countless templates, but it is always best to get help from a lawyer regardless of your level of Spanish. You want to be absolutely sure the arras is right and legally binding because although they are considered by many to be a mere reservation or formality, as you already know, there can be serious financial, and possibly legal, consequences if the conditions in this contract are broken by either party.

Another reason it’s better to go through a legal expert is because instead of agreeing and signing privately with the property seller, doing it with a lawyer means a notary or independent witness will be present and provide you with an additional guarantee, although they can also be signed at estate agents. 

The witness explains to all parties the conditions of the deposit contact so everyone can make an informed decision in full knowledge of the fact, as well as any deadlines to take account of. It is always best to get legal advice when signing a deposit contract because the regulation of these sorts of agreements is hit and miss in Spain, and therefore their scope can be broad, even more so when doing it directly with a seller, and especially so in a foreign country in a different language.

Make sure you get the nota simple

As we have outlined at The Local before, getting the nota simple is also very important when buying property in Spain. Many lawyers suggest getting a nota simple on the same day as when you sign the arras, as the legal and financial conditions of the property or seller could have changed since you first saw it.

Take a good look at the property before signing: Like getting the nota simple, it’s also very important that you give the property a once over before signing the deposit contract. Make sure you do a thorough review before putting pen to paper: make sure the lights work, and taps run; check that heating, and that there are no visible leaks or damage, and so on. This’ll save you potential problems down the road, and could save you time and money.

The price: The total price of both the deposit and full sale price should be accurately and clearly identified on the deposit contract to avoid any disputes down the road that could disrupt the sale. 

Loss of deposit:  It should be put in writing that if the buyer reneges on any of the commitments made in the deposit contract, they will lose the deposit. It should also state clearly that if it is the seller who does not comply with the conditions of the deposit contract, they must pay double the deposit.

By Conor Faulkner

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How to turn a bar, office or shop into a residential property in Spain

Commercial properties in Spain can be a lot cheaper than residential ones, but it’s not as straightforward as buying a former restaurant, office or shop and moving in. Here are the steps to follow and what you need to be aware of.

How to turn a bar, office or shop into a residential property in Spain

One of the tricks budget property hunters in Spain have been using in recent years is buying a local (commercial property), oficina (office) or nave (industrial unit) and transforming it into a vivienda (residential property) to live in or let out. 

It’s a trend that’s roughly doubled in big cities such as Madrid and Barcelona in the last five years. 

Buying a commercial property can work out to be 50 percent cheaper than a flat or house in Spain and there can be other advantages such as it being more open plan than Spain’s typical corridor-themed apartments as well having more money to invest in the renovation. 

Is it possible to turn a commercial property into a residential property in Spain?

Yes, in theory it is, but it’s not always possible. The rules relating to a change of property’s usage from commercial to residential or vice versa are determined by each municipality in Spain, so before you rush to buy un local, you have to do your homework first and be aware of some of the most common pitfalls.

It could be that the limit of residential properties per hectare has been surpassed already, or that without some major changes the property doesn’t meet the standards of size, rooms, space, height, layout, ventilation, air extraction or light of the town or city hall. 

It isn’t the most straightforward process and depending on the property and the individual municipal rules in place, it might just not be possible to live in the property or rent it out to others.

Living in a commercial property is illegal and may cause you problems such as not being able to activate water and electricity or register your padrón at the town hall.

Despite all the paperwork needed, flipping a bar or office and turning it into a home usually works out cheaper than buying a residential property in Spain. (Photo by ANDER GILLENEA / AFP)

Don’t be discouraged however, as in many cases it is possible to change the use of a property from commercial to residential and in regions such as Galicia authorities are currently facilitating the process to address the matter of empty abandoned stores and the lack of well-priced accommodation for young homeowners.

What are the steps to follow in Spain to change a property from commercial to residential?

Check the statutes of the community of owners: In order to make any changes within the community of neighbours, permission must be requested in advance. Beforehand, you can ask the comunidad president for a copy of the community statutes to see if the change of use from commercial to residential is mentioned.

READ ALSO: ‘La comunidad’ -What property owners in Spain need to know about homeowners’ associations

Request permission from the town hall: After getting the green light from la comunidad, you have to go to the ayuntamiento (town hall) of the town where the property is to find out if it’s possible to add another residential property to the finca (building). 

Even if this is confirmed, it doesn’t certify that the change of usage from commercial to residential is allowed, for which the town hall will ask you to provide an architect’s proyecto técnico or feasibility report based on municipal urban laws. You will only be allowed to swap from commercial to residential if the project meets the safety and habitability requirements of the Technical Building Code (Código Técnico de la Edificación).

Get the Building Licence: Known as licencia urbanística or permiso de construcción in Spanish, this is an official document required by the town hall for you to carry out a construction or renovation project. In other words, you’ll need this municipal authorisation to begin work on your future residential property, whether it’s major work or minor . 

Get the Certificate of Habitability: Once the renovation work is complete, you’ll need the cédula de habitabilidad to be able to move in or let the property out . The conditions for this are regulated by each regional government and again it’s an architect who must prepare a technical report in order for a town council technician to issue the certificate of habitability.

The certificate we need for the change of use is that of primera ocupación (first residential occupation), which has to include the usable surface area of ​​the home, rooms, address, location, maximum inhabitants etc.

How much does it cost to transform a commercial property into a residential one in Spain?

If for example it’s a 80m2 property with two rooms, the total would be about €50,000, according to property websites Idealista and Habitissimo, with the bulk covering renovation costs (€500/m2= €40,000) and the rest going to cover permits, architecture costs and taxes.