Avoid risks in the models of “earnest money contract” in the sale of real estate in Catalonia

Abogado en Derecho Inmobiliario

Javier Ruiz

26 de November de 2024

This article reflects on some of the risks of using “a model contract” in the sale and purchase of a property located in Catalonia, and aims to identify some of the most common mistakes that are commonly repeated, which may be of interest both for real estate agencies that use model contracts, as well as for individuals who want to buy or sell a property.

1) Eliminates the articles of the Civil Code in a sale and purchase of real estate located in Catalonia.

If you are in the process of buying or selling a property in Catalonia and the model contract you are reading or using contains references to articles of the Civil Code and/or uses concepts such as “hidden defects and eviction” -to name a few-, it is important for you to know that these concepts obey a regulation that is no longer generally applicable to the sale and purchase of real estate in Catalonia.

In Catalonia we have our own regulation, the Sixth Book of the Civil Code of Catalonia (CCCat), which is common law and is applied preferentially, with some exceptions. The Civil Code (CC) has been relegated to a supplementary application and, very residual I dare say, because the regulation of the CCCat has nothing to do with the regulation of the CC. Simply put; they are two regulations that are inspired by different systems, and contain different concepts and solutions to the problems that may arise in a sale.

It is not just a question of aesthetics -which should not be neglected-, but it is important and it is convenient to know what effects and consequences will apply to the contract you want to sign. To give an example, the Catalan regulation has eliminated the regime of sanitation of the CC. As opposed to the concept of defects or hidden defects of the CC, the CCCat uses the concept of lack of conformity that goes further and includes the fulfillment of the agreed and another series of criteria legally foreseen, that it is convenient to have very present at the moment of the writing of the contract because they will be used when the controversy arises with respect to the real estate.

The parameters for determining the breach of a contract of sale in the CCCat are different – the lack or not of conformity –, and the consequences are equally different – the so-called remedies –, so that the introduction of concepts of the CC in the contract of sale the only thing that can contribute is confusion with respect to what has been the will of the parties and the effects that should be applied. In short, it is not a question of simply eliminating the articles and concepts of the CC, but of creating a model contract of sale, adapting it to the current regulation of the CCCat.

2) Make sure to regulate the earnest money agreement to suit your interests.

The existing confusion regarding the earnest money agreement is very frequent in the model contracts that circulate, which can lead to headaches and, above all, pocket pains. To be in control of the situation you should at least know the type of earnest money agreements that exist and choose the one that best suits your interests. In this sense, there are two types of earnest money agreements that are commonly used without people being aware of it; the penitential earnest money agreement and the penal earnest money agreement. The day-to-day practice shows that there is still confusion between the two, without really knowing their differences and effects. The problem usually occurs with that percentage of contracts that announces and titles a penitential earnest money agreement, but in fact regulates a penal earnest money agreement.

3) Are you sure that your model contract regulates a penitential earnest money agreement or is it really a penal earnest money agreement?

The penitential earnest money agreement regulates the unilateral right to withdraw from the contract, i.e. it is a unilateral right to withdraw from the contract, with the consequence for the buyer to lose the earnest money delivered, or to return it doubled if the seller exercises it. If the content of the penitential earnest money agreement does not clearly identify a unilateral right to withdraw, it is very likely that you are not regulating a penitential earnest money agreement and you do not know the effects that can actually be applied to the contract in case of dispute.

A first piece of advice is that you should never rely on the title of the contract or the specific earnest money agreement, because this will not be decisive to qualify the type of earnest money agreement as penitential. Neither will the inclusion of article 1454 of the C.C., which is the one that regulated the penitential earnest money before the approval of the CCCat. If you regulate a penitential earnest money agreement, do not use this article of the CC -whose content is already deficient in itself by using the term rescission instead of withdrawal-, and mention article 621-8.2 of the CCCat. But do not stop there and agree expressly and clearly on a power to withdraw from the contract with the consequence of the loss of the earnest money or its duplicated return.

There are a multitude of model contracts in circulation entitled as penitential earnest money with the aforementioned article of the Civil Code, which in reality are regulating a consequence in case of breach of contract (for example, penitential earnest money agreements that regulate that the lack of granting of the deed for cause attributable to one of the parties entails the loss of the earnest money or its duplicate return), which in reality is a penal earnest money agreement in which the parties are unaware of the effects that they are agreeing to. The jurisprudence evidences a multitude of cases of this bad practice in the denomination and configuration of the earnest money agreement, which generate uncertainty and entail consequences in many cases undesired. Having to go to court with this type of confusing clauses, adds a plus of insecurity to the already unpredictable resolution of conflicts in court, which are prolonged for years and with the probability of sentences that are revoked in higher instances.

With the penalty deposit agreement, on the contrary, the consequence in case of breach attributable to one of the parties is regulated in the contract, which is usually a penalty that coincides with the deposit delivered, the buyer losing them, or the seller having to return them in duplicate. This is usually the most used consequence in the penal deposit, and you can identify them with the fixing of a sanction derived from the breach attributable to one of the parties.

4) The effects of the penitential earnest money agreement are different from the penal earnest money agreement.

At first glance you might consider that the effects provided for in the penitential and penal deposit agreement are the same by identifying the loss or duplicate return of the deposit in both cases, but the reality is that they are different, and it is important to know them well before signing the contract, because in case of a dispute your room for maneuver will be very limited. As a note to keep in mind, the penitential earnest money is the only one that allows you to deviate from the contract in a clear way without the need to be obliged to comply with it, and in principle there is no possibility of moderating the consequence fixed in the contract of loss or duplicate return of the earnest money. In simple words, it is established in the contract the possibility of the parties to flee without the need of any justification.

While in the case of criminal arras, what is being regulated is a punishment for the breach of any of the parties. Here the possibility of fleeing is no longer so clear, and depending on how they are regulated in the contract, there may be more consequences for the defaulting party in addition to having to assume the agreed penalty, such as the forced performance of the purchase contract to the defaulting party. The casuistry is very varied depending on whether a penalty deposit has been agreed with a substitutive purpose of the damage, punitive or cumulative, although this requires a deeper analysis, but it is a matter that should be well analyzed before signing a contract.

Conclusion

If you are dealing with a contract of sale of a property located in Catalonia, adapt its content to the regulations of the CCCat, and eliminate the references to the CC.
In general, do not include articles just for the sake of it, unless you are very clear about their content and effects on the specific case.
Make sure that the contract regulates the type of deposit that best suits your interests according to your contractual position.
Do not confuse the type of earnest money agreement that you are regulating in the contract, or you run the risk of not knowing its true effects. Consider an adversarial scenario and ask yourself what the contract regulates in these cases.
Avoid declarations of knowledge about circumstances of the property that in reality you do not know and that have not been concretely negotiated. If you think about it, it makes no sense for you to declare that you know and accept a specific situation of the property of which you have not been informed by the other party, nor have you been informed. The information about the relevant real estate must be reflected in the contract.
If a real estate agency has been entrusted with the management of the sale of the property, it is necessary to be careful with the information provided, because the information published is binding.

The matter is sufficiently complex, and the interest at stake is so high that it is necessary to flee from general contract models and rely on good advice that protects your interests and allows you to know the effects of the covenants.

If you want to review your model contract of sale or need personalized advice, you are in time to get advice and protect your interests.