When a real estate transaction is carried out, a deposit agreement is also executed. Although the term might be confusing, it is not a form of marriage but rather a sum of money that the buyer offers to the seller to reaffirm their intent to purchase. It serves as a payment guarantee within the time frame agreed upon by both parties.
So, what is the deadline for signing the deed after the deposit agreement? Executing this type of contract does not mean that the property is already in the name of the new owner; rather, it reflects their intention to buy. Let’s delve into all the details of what is required when formalizing the sale of a property.
What is a deposit agreement?
As mentioned, these types of agreements are made before purchasing a property and serve to show the buyer’s commitment to the seller. This ensures that both parties adhere to the agreed conditions for the future transaction. Since not all properties or contract conditions are exactly the same, it is necessary to have different types to choose the one that best suits our situation. These are:
Penitential deposit
Allows either party to withdraw from the contract without the need to justify their decision. If the buyer withdraws, they lose the deposit, and if the seller withdraws, they must return double the amount received to the buyer.
Confirmatory deposit
Acts as a confirmation of the commitment by both parties to fulfill the purchase contract. If either party retracts, the other can demand the contract’s fulfillment or rescind it with the right to claim damages.
Penal deposit
Establishes a specific penalty in the event of a breach of contract by either party. In addition, there is the possibility to demand the fulfillment of the contract or its resolution.
A deposit agreement provides greater legal security to both parties, ensures their commitment to the future sale, and establishes the consequences in case of a breach. Hence, it is commonly used when buying and/or selling property in Spain. Typically, the deposit agreement requires the buyer to pay a down payment of between 10% and 15% of the property price.
Parts of the deposit agreement
Before explaining the deadline for signing the deed from the deposit agreement, it is necessary to understand its components. It is crucial that both parties comprehend and agree on the terms of the future property sale. First, it is also necessary to determine if the type of transaction to be carried out is a swap, and subsequently review the deposit agreement based on the situation of both parties. Therefore, it is time to explain its usual structure:
Identification of the parties
This initial section must include the personal details of the buyer and the seller, including full names, addresses, and identification numbers (DNI, NIE, etc.).
Description of the property
Secondly, it is necessary to specify the details of the property being sold, including the address, area, main features, and cadastral references.
Sale price
Of course, the total agreed price for the property sale cannot be omitted. It should be noted that being a self-builder in Spain might mean a slight discount, something both parties will need to discuss.
Deposit amount
This section refers to the amount given to the seller as a deposit (between 10% and 15% of the property’s price).
Deadline for formalizing the sale
The deadline for signing the sales contract before a notary must be documented in writing. Similarly, the consequences of either party withdrawing from the agreement before the sale’s finalization must be agreed upon. This includes the forfeiture of the deposit by the buyer or the refund of double the deposit by the seller.
Type of deposit agreed upon
The deposit agreement specifies the type (confirmatory, penal, or penitential) and the legal consequences associated with each.
Obligations of the parties
The responsibilities and obligations of both the buyer and the seller until the sales contract is formalized.
Extension of the deadline
Although not necessarily used, the conditions under which the deadline for formalizing the sale can be extended are included.
Dispute resolution
Mechanisms for resolving any disputes that may arise concerning the deposit agreement.
Signatures of the parties
The final part of the deposit agreement concludes with the signatures of the buyer and the seller, and in some cases, a witness or notary.
Annexes
Any additional documents deemed relevant, such as a floor plan of the property or a copy of the title deed, will be added in this section.
In addition to all the points mentioned, other considerations must also be agreed upon, such as additional costs (who will cover the transaction costs) or clauses specifying the property’s condition at the time of sale, including any potential encumbrances or liens. This ensures that the deposit agreement is clear and precise, protecting the interests of both parties until the sale is formalized.
What is the deadline for signing the deed after the deposit agreement?
There is no fixed time set for signing the deed after the deposit agreement, although it is usually set at 90 days. During this period, both parties must agree on how long they need to finalize all the paperwork and pre-sale arrangements (such as securing the mortgage, vacating the property, determining the applicable VAT (especially if it is a new property), among others).
We usually recommend that, despite the typical 90-day period, the agreed-upon time should allow for all arrangements to be completed peacefully and without disputes. The agreed deadline is a maximum, but it does not prevent the property from being signed earlier. It can also be extended if the deadline approaches and neither party has completed the preparations. However, certain requirements must be met:
- Both buyer and seller must agree.
- Both parties must act in good faith and make every effort to meet the initial deadline.
- The possibility of an extension must be included in an annex to the deposit agreement.
What happens if the deposit agreement expires?
The deposit agreement has a specified term that must be respected by both parties until the sales contract is signed before a notary. The buyer and seller have until that date to organize all the paperwork and reach a mutually beneficial agreement. When the deadline expires, the following scenarios may occur:
- If the buyer has not cooperated to complete the sale, they will lose the deposit paid.
- If the seller fails to act and the contract expires, they must return double the amount received.
- Depending on the type of deposit signed, it may also be possible to demand the fulfillment of the contract and request compensation.
If we see that we are approaching this situation, it is best to propose an extension, especially if, for any reason, the process appears to take longer than agreed, and both parties wish to continue with the sale. The reasons for the extension and the good faith of the parties should be reconsidered. The reason is one of the most important points, as it will determine the establishment of a new deadline.
Consequences in the 3 types of agreement
If, despite all efforts by both parties to meet the deadline for signing the deed after the agreed deposit agreement, it passes without the sale being formalized, the effects stipulated in the deposit agreement will come into play. These will vary depending on the type agreed upon and whether the breach is by the buyer or the seller:
Deadline with confirmatory deposit
This is understood as the default if no other type is specified in the contract. In this case, the buyer gives the seller a sum of money as an advance payment on the total price of the property, which acts as a guarantee of the commitment to complete the sale. Its purpose is to ensure the future sale.
If the agreed deadline passes and the sale does not occur, it is considered a breach, and both parties may be obliged to fulfill the agreed commitment and claim damages, along with the payment of applicable interest.
Deadline with penal deposit
Penal deposits act as compensation for the party harmed by the other party’s breach. In this way, a sum is set that the party failing to comply with the contract must pay if the sale is not formalized. This amount may coincide with the deposit paid or be different.
The parties are also not released from their obligation to comply with the agreement and may be required to formalize the sales contract. It is necessary to specify in the contract whether the debtor can be released from the obligation by paying the penalty or if the creditor can demand both compliance with the obligation and the penalty (Article 1153 of the Civil Code).
Deadline with penitential deposit
This type is the only one expressly covered by the Civil Code. If a penitential deposit is agreed upon, both the buyer and the seller can withdraw from the contract without giving any reason before the agreed deadline expires.
In the event of withdrawal or breach of the obligation to formalize the sale by the deadline, the affected party will receive compensation. If the buyer fails, they will lose the money paid as a deposit. If the seller fails, they must return double the deposit amount to the buyer (Article 1454 of the Civil Code).
Due to the greater freedom this type of deposit offers to the contracting parties, jurisprudence interprets it restrictively and only considers it a penitential deposit if both parties have expressly stated so in the contract. Otherwise, it will be deemed a confirmatory deposit.
Are you planning a real estate transaction and unsure about the deadline for signing the deed after the deposit agreement or how it works? You need the assistance of a property management service and a team capable of resolving any other issues. At Blegal, we have all the tools and professionals you need to help you with a sale.
If you want us to start looking into your case, all you need to do is get in contact with our team, who will get to work to provide you with personalized assistance. Don’t hesitate to reach out!
