Deposit agreement

Unlike what many people outside the world of law may think, the sale and purchase of real estate, beyond certain specific particularities that affect this type of property, is governed by the same basic principles as any contract for the sale and purchase of any other property that have just been set out in the previous question, so that:

• The contract of sale of real estate is one in which the seller, as owner of a property, agrees to transfer the ownership of the property to another person, who is called the buyer, in exchange for an agreed price.
• The perfection of the contract of sale of real estate occurs with the mere consent of the parties as to the object and the price, that is to say, from the very moment in which the seller and buyer reach the agreement to sell a specific real estate in exchange for a determined price.

In view of the above, as can be seen, the sale of a property does not occur when the parties sign a deed of sale, as many people mistakenly believe (since the requirement of a public deed is not mandatory in the sale of real estate, but is highly recommended, of course), but technically, the transaction is "closed" and, therefore, obliges the parties to comply with the agreement, from the very moment they reach the agreement on the sale of a particular property in exchange for a certain price.

Beyond that, as regards consummation, i.e., the fulfillment of the agreement, and therefore the delivery of the property of the good and the payment of the agreed price, respectively, this may occur:

• At the same moment in which the contract is perfected (which would be strange, but cannot be ruled out), if for example the purchase-sale is instrumented in a private document and the parties sign it immediately after reaching the purchase-sale agreement, transferring at that moment the ownership and the payment of the agreed price, respectively.
• Or, on the contrary, it can be delayed to a later moment, as it will happen in the case that the sale is conveyed by means of a public deed, which will be signed days or weeks after the agreement between the parties has been reached, at which time the possession of the real estate will be delivered, while the buyer will effectively pay the agreed price.
  

The fact that the contract of sale of a property, as previously stated, is perfected or "closed" from the very moment in which the seller and buyer reach an agreement regarding the sale of the property and the price to be paid for it, determines that from that very moment (and not from the moment a deed is signed, as many people may erroneously think), the parties are obliged to comply with what has been agreed. Thus:

• The seller is obliged to transfer ownership of the property to the buyer, while the buyer is obliged to pay the agreed price to the seller.

And likewise, in the event that the parties do not comply with what has been agreed, either of them is entitled to sue the other, in order to demand the performance of the contract or its termination. Thus:

• In the event that it is the seller who has not fulfilled his obligation, the buyer may sue the seller so that a judge may "force" him to hand over the property, while if it is the buyer who has not fulfilled his obligation, the seller may sue him to demand payment of the agreed price.
• Likewise, any of the parties who have suffered such breach may also, if appropriate, claim the termination of the contract, i.e., that the judge release the seller from delivering the property (if the breach is on the part of the buyer) or release the buyer from the obligation to pay the agreed price (if the breach is on the part of the seller).
• In addition, if the party who has suffered the non-performance, as a result of the same, has been prejudiced with some damage or prejudice, it may also claim in that suit an indemnity to that effect.

In view of the above, this has obvious and transcendent consequences to be taken into account in any negotiation process that is entered into within the framework of a real estate purchase and sale contract:

• If a potential buyer and seller reach an agreement (even if it is in a private document) on their consent to sell a specific property at a specific price, this contract can be considered as completed or "closed", so that the parties are already obliged to comply with the agreement.
• If a potential buyer and seller sign in a private document a misnamed "earnest money contract" which contains a consent to sell a specific property at a certain price, in reality we will not be dealing with a "reservation" contract or an "earnest money contract", as it is usually called in the jargon of the sector, but, depending on how the will of the parties and the agreements reached are expressed, we will be before a real sale and purchase contract already perfected and "closed" which, therefore, obliges the parties to comply with what has been agreed and exposes them to the consequences of a breach of contract.

For this reason, it is so important to be well advised in this phase of prior negotiation within the framework of a real estate purchase and sale, because depending on what is agreed and how it is agreed, in reality the parties will be closing a real purchase and sale contract, which binds them firmly, and which exposes them to serious patrimonial consequences if they do not comply with what has been agreed.

Thus, unlike what is usually believed in many of the transactions that are closed in the real estate traffic, in which no importance is given to these private "reservation" or "earnest money" contracts, the interested parties must be extremely cautious when reaching these agreements or signing these documents, since they can have real legal consequences of great importance for their person.

In short, as is often said in the legal world, things are what they are, and not what the parties say they are, so that, even if a contract is headed with the title of "reservation contract" or "earnest money contract", if it contains a declaration of will of consent in object and price, we will have a real contract of sale perfected that will bind the parties to its fulfillment.

As indicated above, the parties involved in a possible negotiation for the sale and purchase of real estate must be extremely careful with regard to the agreements reached, since depending on their content, it may be considered that the sale and purchase has already been completed or "closed", with the serious consequences that this may have for any of the parties if, subsequently, for whatever reason, they are not interested in transferring or acquiring said real estate, respectively.

Thus, it is essential that any party interested in buying a property, before closing any kind of agreement that can be interpreted as a true perfection of a purchase contract, request from the seller a set of fundamental documentation that will be key to determine the legal situation of the property. Thus, in any case, before closing an agreement with a seller, the potential buyer is recommended to request:

First of all, it is essential to request a simple note of the property to the Land Registry. With this procedure, which has a cost of a few euros and can be done online through the website of the Land Registrars (HERE), we will ensure adequately:

• That the person with whom we are negotiating is the real owner of the property, which is undoubtedly essential, because sometimes scams can happen in which the person who supposedly sells the property is not its owner, and if amounts are given on account of the price, then it will be very difficult or impossible to recover.
• Of the real state of encumbrances that weigh on the property, thus being able to know if the property is encumbered by any mortgage or any other type of encumbrance, such as a seizure or a preventive annotation of lawsuit that, in its case, can damage the property right that finally is acquired.

So, as you can see, requesting a nota simple of the property we are interested in is a key and fundamental step to be taken before reaching any agreement or signing any document with the owner.

Likewise, in order to adequately protect our rights as potential buyers, as well as to be able to properly perfect our will based on complete information about the property, the potential buyer should also request the seller, if possible, and, first of all:

• The certificate of habitability, that is, the document that proves that the house meets the minimum conditions for the habitation of people. For more details about this document, you can consult an article in my blog about it(HERE).
• The Energy Efficiency Certificate: This is a document, issued by a technician, which provides information on the energy characteristics of the house, which can be useful for the potential buyer in order to calculate approximately the cost of energy maintenance (for example, in light, heating or air conditioning) monthly housing, which is certainly an issue to consider when purchasing a property. If you want to know in more detail what this document is and what information it provides, on this page you will find more information about it(HERE).
• The last receipts of the IBI: The last receipts of the IBI will also provide us with very relevant information, since we will know if they are paid or not (providing in its case the bank receipts of payment) and, likewise, we will know how much is the annual IBI of the house, since depending on its location and dimensions, this can have a very high amount, with which, the decision of purchase can be affected in view of it. If you want to know more details about this tax and how it is paid the year in which the sale takes place, in this article you will find all the necessary information(HERE).
• If applicable, the certificate of expenses of the community of owners: In the event that the property to be acquired is subject to a community regime, it is also important that the seller provides this document, as this will ensure that the property is up to date with its monthly payments (and that therefore there are no debts for which the property may be liable).
• ~In addition, when requesting this document, it is recommended that the prospective buyer ask the person issuing it to include information on possible outstanding or forthcoming assessments, in order to avoid surprises in this regard.
• ~And, also, to include details (or, if necessary, to ask the owner directly) the monthly amount of the community fees, because depending on their amount, if they are very high, this could also affect our decision on the suitability of the purchase.
• ~If you want to learn more about it, you can access an article in our blog(HERE).
• If applicable, the certificate of suitability of the building: If the building is more than 45 years old, it is also necessary to request this certificate, which is an administrative document issued by a technician certifying that the state of conservation of the building is adequate. This is also very important, because if the building is in a bad state of conservation, it will also affect our decision to buy, because sooner or later the owner will have to invest money in rehabilitating the building. Again, if you want to learn more about this aspect, you can find a detailed article about it in our blog(HERE).
• Indication of the tenancy status of the property, i.e., if the property is leased to a tenant or, as the case may be, occupied by any person with any kind of title, since, logically, in such a case, the tenant will have a series of rights that must be taken into account and respected.
  

Thus, having had access to all this documentation, it will be when the potential buyer, knowing the real and certain state of the property in all these relevant aspects, will be able, in such case, to adequately calibrate the real value of the property and, if applicable, accept the price being requested by the seller or, if applicable, make an alternative counteroffer to the seller, at the expense of the seller's acceptance or not.

Once an agreement has been reached between the parties as to the object of the future sale and purchase (in this case, the property) and its price, it will be time for the parties to carry out the contract, perfect it and, subsequently, proceed to its consummation, that is to say, to fulfill the obligations to which they have committed, in the case of the seller, by transferring ownership of the property and delivering possession thereof, and in the case of the buyer, by paying the agreed price.

Thus, this consummation or fulfillment of the contract, in real estate practice, is intimately associated with the form adopted by the contract, so that the parties may choose:

• Or, although it may seem strange and implausible, to consummate the agreement by means of a simple verbal contract, by virtue of which, by word of mouth, the seller transfers the ownership of the property to the buyer (and for this purpose, using the "symbolic tradition" referred to at the beginning of the article, hands over the keys of the property to the buyer), and the latter pays the agreed price to the seller. This option, as any interested party can see, is undoubtedly the least appropriate, since it presents obvious problems as regards proof of the conclusion of the contract, it does not protect the buyer's rights against third parties and, in short, it is a fertile ground for legal uncertainty and litigation between the parties.
• Or by means of a private contract signed between the parties, that is to say, a document signed by the seller and buyer, in which the seller states that he transfers the ownership of the real estate in exchange for a price paid by the buyer, after which the buyer already owns the real estate and enjoys it, while the seller receives the agreed money in exchange. This option, again, is not very recommendable, since the right of the buyer is not protected against third parties and also presents great doses of legal insecurity.
• Or by means of a public deed of sale.
  

Of all the possible forms, undoubtedly, the most appropriate is the public deed, since it is a document that will be authorized by a Notary, that is to say, a public official, a legal professional, specialist in private law, who will attest to the identity and capacity of the grantors, will ensure the legality of all the pacts and agreements that are reached, He will advise the parties on all the rights and obligations arising from the contract, and also because the execution of the public deed will make it possible to register the acquired property right in the Land Registry, and to benefit from the protection offered by the public faith of the registry against third parties.

Thus, in this public deed, using the figure of the "instrumental tradition" referred to at the beginning of this article, the seller will solemnly declare to transfer the ownership of the property to the seller, while the buyer will pay him the agreed price, which will be recorded by accrediting the means of payment used. 

Once the seller and buyer have reached an agreement on the conditions of the sale and purchase, it is perfectly possible for the seller and buyer to go directly to the Notary's office to formalize the sale and purchase in a public deed. In such a case, it is necessary to clarify the following issues:

First of all, in my opinion, it is necessary to point out that this option is not very common in real estate practice, when in fact, it is a perfectly valid possibility and, as will be seen, it greatly reduces possible legal conflicts that may arise between the parties.

Thus, if the parties have already reached an agreement on the conditions of the sale and purchase, they can choose to contact directly a Notary of their confidence. This Notary:

• He will provide you with an estimate of the transaction, detailing the cost of the deed of sale, as well as the cost of its registration in the Land Registry, the taxes due on the transaction and other expenses associated with the management.
• If you would like to obtain a personalized quotation for your purchase and sale transaction, you can request a personalized quotation directly from our specialist at presupuestos@jesusbenavides.es. 
• Once the client has this estimate, if he/she accepts it, he/she will deposit the corresponding provision of funds in the bank account of the Notary's office, after which, an officer specialized in real estate matters will contact the parties via email to request all the necessary documentation to formalize the sale and purchase. For all the necessary documentation, you can consult our web page(HERE).
• Once all this documentation has been compiled and sent to the officer in charge of the signature, he will prepare a draft of the deed and, based on the availability of the agenda of the parties, a date and time will be set for the signing of the deed of sale.
• On that day, the parties will go to the Notary's office, where the Notary will show them the whole deed, and after that, being all in agreement with the document, they will sign it, and the buyer will pay the price, after which, the consummation of the contract will have already taken place, so that the seller will have delivered the property of the property to the buyer, while the buyer will have delivered the agreed price to the seller.
  

Having explained the process to be followed in this case, it is necessary to point out that, if this route is chosen, as can be seen, the main advantages are the following:

In the first place, without a doubt, there is a saving of time, since if the parties, once they reach an agreement on the conditions of the transaction, directly contact the notary's office to formalize the deed of sale, the whole process of formalization will be accelerated, since it will not be necessary to negotiate the content of previous contracts or other issues that may delay the signing. 

Also, by dispensing with prior contracts, which in most cases are signed without prior legal advice (neither from a Notary, nor from a Lawyer or other professional specialized in contractual legal matters), legal risks derived from conflicting interpretations of the clauses established in said documents are avoided, which may lead the parties to a scenario of conflict, as will be seen below, it is common practice in real estate sales and purchases that the parties (future seller and buyer) sign documents prior to the formalization of the deed, whose legal nature is dubious to say the least, their clauses are interpretable on many occasions and, if for any reason, one of the parties is not willing to comply with its provision, this can lead to serious consequences for the parties.

In this case, as mentioned above, by going directly to a Notary Public, the parties, from the very first moment, will receive specialized legal advice from a public official, who, being a specialist in private law, and acting impartially, will be able to advise the parties adequately on their rights and obligations, in order to protect their rights and legitimate interests, thus exercising that function of preventive legal security that corresponds to this body.

Indeed, as indicated above, it is common practice that, in many of the real estate transactions that materialize in reality, seller and buyer, before signing the deed of sale, sign a private document, which, in most cases, is commonly known as "earnest money agreement", by virtue of which, the (future?) seller and the (future?) buyer undertake to formalize the sale within a certain period of time(for example, 2 or 3 months), and in which the conditions of the transaction are fixed(such as, for example, the agreed price, the form of payment, etc.).

Thus, in view of all that has been stated to date, in relation to these documents or private contracts prior to the formalization of the deed, it is necessary to indicate the following:

The first issue that should be clear is that, from a legal point of view, the "earnest money contract" is a non-existent contractual modality, i.e., there is no earnest money contract as such, but earnest money, as I will try to explain in a later question, is a type of clause that can be included in a contract.

Thus, if the (future) seller and the (future) buyer sign a contract prior to formalizing the deed of sale, it will be necessary to carefully analyze the content of the same because, depending on the contractual will that is embodied therein, either we will be before a true perfected contract of sale or, in its case, before a pre-contract or a promise of purchase and sale, whose distinction, undoubtedly, is complex, but which will be addressed in a later question.

As indicated in a previous question, it is perfectly possible that seller and buyer, once they have reached an agreement on the essential conditions of the contract, go directly to a Notary's office to formalize a deed of sale, without previously signing any kind of document or contract, which, as we have tried to explain, can be a very interesting option to consider.

However, as has also been indicated, it is very common in real estate practice that the parties, before going to the Notary's office to sign the deed of sale, sign a prior document or contract, of a private nature, in which a series of agreements on the sale or future sale of the property are set out.

In view of this, and leaving aside legal assessments, it is necessary to analyze the situations in which it may be interesting to sign this type of document. Thus, it may be appropriate to sign this type of document:

• In the event that the parties have reached an agreement on the object and price of the transaction, but still want to negotiate additional aspects, in order to give more security to the agreement, they may decide to sign a prior contract of this nature, thus guaranteeing the main legal business, but leaving more room to negotiate those "final bangs".
• It is also possible that the buyer, in order to be able to acquire the property, is pending the closing of another sale of his previous property. In such a case, it may be interesting to sign this type of prior document, provided that, from a legal point of view, the possibility of contractual termination in the event that such prior sale does not take place, as well as the consequences, if any, that may arise for each of the parties, is adequately stated.
• It may also happen that the buyer is waiting for a financial institution to grant financing for the purchase. In such a case, as in the previous one, it may be interesting to sign this type of prior document, provided that, from a legal point of view, the possibility of contractual termination in the event that such financing is not obtained, as well as the consequences, if any, that may arise for each of the parties, is adequately stated.
• It may also happen that the buyer is interested in acquiring that property, but also has an interest in acquiring other properties. In such a case, it is possible for the parties to sign a private document that allows the buyer to secure his right to purchase that property, but also, if it is adequately defined from a legal point of view, to leave open the possibility of terminating the contract unilaterally (if he finally finds another property that he is more interested in), assuming, if necessary, the cost that this would entail.
• Finally, it may also be interesting to sign this document prior to signing the essential conditions of the contract if the future buyer wishes to "close" the sale price, thus protecting himself from possible price increases that the property may experience during the time that elapses between the closing of the agreement and the formalization of the deed of sale.
  

As has already been indicated throughout this article, the so-called "reservation contract" or "earnest money contract" are in fact non-existent figures from a legal point of view, so that it will be necessary to analyze the specific content of the declarations of will and agreements contained in this private document to ascertain its true nature. 

Thus, in the first place, it is necessary to indicate that if the parties sign a document in which an agreement of wills is undoubtedly expressed, that is to say, a consent as to the object (the property to be transferred) and the price, so that seller and buyer reach a pact or agreement on what to sell and at what price, thus being the contract of sale "closed" and with obligatory force for the parties, that contract, however much it receives another different denomination, will be, in fact, a true contract of sale perfected, that will bind the parties to its fulfillment or will expose them to the consequences of an eventual breach.

Likewise, beyond this possibility, the parties may also sign what is legally called a promise of sale, in which, instead of perfecting a purchase and sale contract, the parties actually sign, as its name indicates, a commitment to formalize a purchase and sale contract in the future, establishing the contractual basis of such contract.

With regard to this figure of the promise of sale, it is necessary to point out the following issues:

• From a legal point of view, the promise of sale must be framed within the so-called pre-contracts or preparatory contracts, with respect to which there has always been doctrinal controversy as to whether they are actually admissible or, on the contrary, whether they are in fact true contracts already perfected or closed.
• Among all these options, our courts (see in this sense the Supreme Court Decision 3817/2008 of June 17) seem to have opted for an intermediate thesis, by virtue of which the contract of sale and the promise of sale are not the same, since as defined by the aforementioned decision, by means of this promise of sale, the parties, who, for the time being, do not want or cannot conclude the definitive contract, undertake to make its conclusion effective in the future. They fix its elements, but postpone its perfection and acquire the obligation to establish the definitive contract by virtue of the obligatory legal relationship born from the pre-contract, so that they can claim its performance from the other party. 
• With regard to the effects of an eventual breach of the parties, that is to say, when the term agreed to formalize the definitive purchase and sale contract (whether before a Notary Public or not), one of the parties does not comply with its commitment and does not agree to formalize it, in such case, the counterparty may take the same actions as those foreseen for the purchase and sale contract, that is to say, the counterparty may take the same actions as those foreseen in the case of the purchase and sale contract, that is to say:
• ~Or request the fulfillment of the promise in a specific way, that is to say, that the seller or buyer comply with the promise to which they committed themselves (all of this through the means provided for in article 708 of the Civil Procedure Law).
• ~Or to request the termination of the promise of sale, that is to say, that the agreement reached be rendered null and void and the parties be released from their commitment, requesting also, if applicable, the corresponding compensation for the damages caused.

Consequently, as can be seen, the consequences of a breach of a promise of sale resemble to a great extent those associated with a real purchase-sale contract, so that, if one contractual modality or another is signed, it is essential that the parties adequately agree on the form and terms in which the purchase-sale must be consummated, as well as, above all, the clauses that will give rise to the unilateral termination of the contract and the consequences associated therewith.

Finally, I would also like to make reference to the fiscal reflection of all these contracts, since, logically, if we were dealing with a real perfected sale contract, the corresponding taxes would already accrue from the operation, so that, if the corresponding Treasury were aware of it, it could demand the corresponding tax quotas.

Likewise, in the case of the promise of sale, if the subsequent sale is subject to Transfer Tax, such promise will also be subject to taxation, so that again, if the corresponding Tax Authorities have evidence of it, they could demand the tax that has been accrued.

As has already been commented on several occasions in this article, the earnest money is not an autonomous contract, but is in fact a type of clause or agreement that can be included in different types of contract, by virtue of which, depending on the type chosen, it will determine the nature of said contract or, as the case may be, the effects derived from the actions of some of the parties.

Thus, and focusing our attention on the regulation of earnest money in the Civil Code of Catalonia (specifically, in its article 621-8 of Book VI), since this is the place where this notarial office is located, the Catalan legislator has established that, broadly speaking, we can differentiate between two types of earnest money, namely:

• The confirmatory arras.
• Penitential arras.

In the first place, as regards the so-called confirmatory deposits, it is necessary to indicate that, according to the aforementioned precept, their function is to operate as a "sign of conclusion...of the purchase-sale".

• Thus, if the parties, in whatever contract and under whatever contractual denomination they wish, agree on a confirmatory deposit clause, what they are really stating is that the contract has already been perfected and closed, and as proof or sign of this, such confirmatory deposit is included, by virtue of which the purchase and sale agreement is "confirmed" (hence its denomination).
• If there are confirmatory deposits, they are understood to be part of the total agreed purchase price, so that the amount paid in this concept will have to be deducted from the agreed price that is finally paid when the sale is consummated.

Likewise, and as a very relevant issue to highlight, it is necessary to indicate that the Civil Code of Catalonia determines that in the event that the parties do not specify the type of deposit, the same will be considered as confirmatory deposits, so that the contract will be considered as confirmed or concluded and, therefore, perfected, so that any of the parties may claim from the other party its performance or the termination of the contract, together with the corresponding compensation for damages caused.

<ejemplo>Así pues, por ejemplo, si el Sr. Juan y la Sra. María firman un “contrato de arras”, en virtud del cual el Sr. Juan vende una vivienda a la Sra. María por 200.000€, y ésta le entrega al Sr. Juan 20.000€ en concepto de arras (sin especificar la modalidad):<ejemplo>

• ~Iffinally, for whatever reason, Mrs. Maria does not want to consummate the contract, unlike what many people believe, she cannot free herself from the obligation by "losing the earnest money" (i.e., waiving the 20,000 euros and that's it), but if Mr. Juan wanted to, he could, for example, sue Mrs. Maria to force her to fulfill her obligation, i.e., to pay the remaining 180,000 euros of a house she has already bought, since she has perfected a contract in which this has been established.
• ~On the other hand, if it were Mr. Juan who, after receiving those 20,000 Euros, did not wish to consummate the sale of the property, he would not be released from his obligation by "returning the double deposit" (i.e. giving Mrs. Maria 40,000 Euros), but if Mrs. Maria wished, she could sue Mr. Juan to ensure that this already completed contract is consummated and, therefore, by paying the remaining price, she would acquire full ownership and possession of the property in question.

In view of the above, as can be seen, the parties, when signing any document or contract in which the word "earnest money" is included, must be extremely cautious, since depending on the specific wording of the clause, in reality a real contract of sale already signed is being confirmed or perfected, which will oblige the parties to comply with it or, if applicable, will expose them to the legal consequences of non-compliance.

In view of this first modality, it is also necessary to refer to the second type of earnest money provided for in the Civil Code of Catalonia, which are called, as indicated above, "penitential earnest money".

These penitential deposits, unlike the previous ones, operate as a system of restitution or compensation of the seller or buyer in case of unilateral withdrawal of the counterparty. Thus:

• If the buyer unilaterally withdraws from the contract, he will forfeit any deposit he may have paid.
• However, if the seller unilaterally withdraws from the contract, the seller must return them doubled to the buyer.

In this case, as has been indicated, in order for these agreed deposits to have this penitential nature, it is necessary that they be expressly agreed as such, so that only when they are unequivocally and unequivocally attributed this nature, in such a case they will operate as this system of compensation for unilateral withdrawal that has been explained.

<ejemplo>Así pues, siguiendo el ejemplo anterior, si pese a existir ese acuerdo inicial, el Sr. Juan y la Sra. María han pactado expresamente que esos 20.000€ se entregan con carácter de arras penitenciales:<ejemplo>

• ~If in the end Mrs. Maria does not wish to purchase the property, she may withdraw from the contract she has signed, forfeiting the 20,000 euros, which will remain in the hands of the seller, who, once released from the obligation, may sell the property to another person.
• ~On the other hand, if Mr. Juan did not wish to sell the property, he would be released from his obligation to sell the property to Mrs. Maria and could sell it to another potential buyer by giving Mrs. Maria 40,000 euros (i.e. the amount of the security deposit doubled).
  

In addition to all that has been indicated so far, it should be noted that the Catalan civil law provides for another exception to be taken into account in this deposit clause, since even if the deposit has been agreed on a penitential basis, if an exceptional circumstance arises, such as the non-granting of financing by a financial institution, the buyer may unilaterally withdraw from the contract without penalty, i.e. with the right to recover the amount that has been paid as a penitential deposit.

For this provision to be applied, it is necessary that the parties, when signing the document, have expressly foreseen the fact that the buyer is going to resort, in whole or in part, to the financing of a financial entity. In such a case, if this is the case, if the financial entity does not finally grant the financing to the buyer, the latter, justifying this refusal with documentary evidence, will have the right to recover all the money he has paid to the seller as a deposit.

In any case, I would again like to reiterate that, in order for this exceptional rule to apply, it is necessary that:

1. The parties must have expressly agreed on a penitential deposit.
2. The signed contract must have expressly foreseen that the buyer will need financing from a bank in order to purchase the property.
3. The denial of financing by the financial institution must be motivated by a reason of solvency or non-viability of the buyer, and not by a lack of diligence (such as, for example, that the buyer has not delivered the documentation required by the bank to carry out the study of the transaction, and as a result the financial institution has not been able to make a decision on the matter). 
4. For this purpose, if the buyer finds himself in this circumstance, he must provide documentary evidence (i.e. a document from his bank) of the denial of financing, as well as the reasons for such denial.

Indeed, it may happen that the buyer, when delivering the penitential deposit to the seller, may be apprehensive that, in the event that the sale does not take place because the seller withdraws unilaterally, or because the financing requested is not granted, the seller may not want to return the money and may end up having difficulties to recover it or even, if necessary, the seller may sell the property to a third party.

In such a case, if the buyer finds himself in this circumstance, there is an additional mechanism provided by law, which may offer him more guarantees, that is, the deposit of the earnest money before a Notary Public and its recording in the Land Registry.

Therefore, for this to be possible, it is necessary that the penitential earnest money has been agreed with this character and for a maximum term of six months. If these requirements are met, the earnest money can be deposited before a Notary Public and recorded in the Land Registry, that is to say, that it is recorded in the entries of the property in question in the Land Registry, thus benefiting from the effects of the registry publicity and the fact that, in accordance with article 621-8.3 of the Civil Code of Catalonia, the property will be affected by the return of these earnest money (that is to say, that it will operate as a guarantee). 

In such a case, if the sale is finally consummated, the Notary will deliver the earnest money to the seller, whereas, if there is a unilateral withdrawal of one of the parties, the Notary will deliver the earnest money to the other party that suffers such withdrawal.

Also, on this matter, it is necessary to specify that, from a tax perspective, the earnest money deposited before a Notary Public is subject to the Stamp Duty Tax, but is 100% subsidized in accordance with the recent Law 5/2020, of April 29, on fiscal, financial, administrative and public sector measures and the creation of a tax on facilities that affect the environment.

In view of all the considerations made so far in this article, if finally the parties, for whatever reason, wish to formalize a private document prior to the signing of the deed of sale, it is recommended to take into account the following basic issues:

• First and foremost, it is essential to seek the advice of a legal professional (either a notary or a lawyer) to assist us properly in the signing of this document, so that it would only be appropriate to sign a document if we have previously been advised by a legal professional who has explained in detail everything we are signing, as well as who has watched over our rights and legitimate interests.
• Secondly, it is also essential to study the type of contract used, since depending on the type of contract and the clauses included, we will be dealing either with a promise of sale or with a real and perfected sale and purchase contract.
• Thirdly, in the case of resorting to the figure of the earnest money, pay proper attention to the type of earnest money agreed upon, since, as explained above, depending on its confirmatory or penitential nature, its effects and consequences are very different.

Likewise, and in any case, no matter what kind of document is signed, it is crucial that, in any case, it is adequately reflected:

• The maximum term to formalize the deed of sale.
• What will happen if this maximum term is exceeded and the deed has not been signed, so that, for example, in such a case, the contract will be terminated, or an extension of the term, if both parties so agree by mutual consent, as the case may be.
• The effects of the termination of the contract, making it very clear what compensation each party should receive in the event that the sale cannot be consummated, assigning for example a financial penalty, in the form of a penitential deposit, as will be explained in the following questions.

In view of the information provided in all the preceding questions and, by way of summary, when any person is interested in acquiring a property and, if applicable, signing an "earnest money contract", it is essential that he/she takes into account the following issues:

1. The purchase and sale of a home is one of the most important acts in the economic life of any person, so that when dealing with a process of this nature, the parties must take extreme precautions to adequately protect their legitimate rights and interests.
2. If we like a house that we have visited, and we wish to acquire it, it is fundamental that, before closing any agreement, we request a simple note of the property, as well as a series of documentation and information to the seller (certificate of habitability, certificate of energy efficiency, receipts of the IBI, certificate of community debts, etc.). With all this we will obtain fundamental information to know the real state of the property and its maintenance cost, which can have a clear influence both in the price and in our final decision to acquire or not the property.
3. If we have reached an agreement with a seller to purchase a property, if we wish, we can go directly to the Notary Public to sign the public deed of sale, without the need to sign any private document beforehand. In this case, we will save time, we will reduce legal risks and we will receive the advice of a public official, specialist in law, who will act impartially and will watch over all the rights and legitimate interests of the parties and the legality of the operation.
4. If before formalizing the deed of sale we wish or need to sign a prior document to secure the transaction, it is necessary that:

• ~Always seek the advice of a Notary or a Lawyer to ensure that you are properly understanding the nature and consequences of the document you are signing.
• ~When signing any kind of document, we must be properly sure of what kind of contract we are signing, as well as its legal consequences.
• ~If we agree on a deposit in this contract, we must be sure of the type of deposit (i.e., if they are confirmatory or penitential), and make it very clear, so that there are no doubts about their nature and effects.
• ~In the contract to be signed, the maximum date for signing the deed of sale must be very clear, in order to avoid that this situation of non-consummation of the contract is prolonged in time. Also, in the contract it must be very clear what will happen if this date is reached and the deed of sale has not been signed, making very clear the effects of such circumstance (as, for example, if in such case the parties will be able to withdraw from the contract or not).
• ~Finally, it is essential that the effects of unilateral termination of the contract are also very clearly reflected for each of the parties, so that, in the event of such a circumstance, the parties can easily settle the amounts owed, if any, without the need to enter into a dispute to determine the legal consequences to be assumed by each party.