Deposit Agreement: What It Is, What It’s For, and Types

In Spain, a deposit agreement is an essential legal document for finalizing the sale of a home. Here, we’ll explain what it is, what it must include, how it works, examples of deposit agreements, and more.

We’ll also discuss what sets this agreement apart from the reservation agreement, why it’s mandatory, where and how payment is made, and its duration. So be sure to read all the way to the end—you’re sure to find it interesting.

What is this contract, and what is it for?

In short, it is a specific agreement entered into by two parties interested in negotiating a subsidized housing or any other property. It is a kind of pledge made prior to the actual signing of the purchase agreement, in which one party pays the other a percentage of the agreed-upon amount. 

This agreement is entered into for several reasons, such as:

• The buyer is applying for financing from a financial institution.
• The seller must pay off the mortgage, terminate a lease agreement, or register a deed to transfer ownership of the property to their name. 
• Because it's a newly built house and construction isn't finished yet. 

How do the engagement gifts work?

From the above, we can infer that this housing reservation agreement protects the parties involved: the buyer guarantees that they will not sell the property to a third party, while the seller is protected against the buyer’s change of heart, retaining the deposit as compensation for any inconvenience or damage the buyer may have caused.

Types of earnest money contracts

Those involved in negotiations should be aware that there are several types of earnest money agreements, each with its own characteristics and different legal implications.

Depending on your situation, you should determine which of these three types is right for you.

Confirmatory Sweeps

Its purpose is to reaffirm the parties’ commitment to finalize the sale, so it constitutes an advance payment of the agreed-upon price. It is an agreement entered into only when the parties are certain they will proceed with the transaction, and neither party may unilaterally withdraw from it. 

Criminal Penalties

The purpose of this agreement is to establish a financial penalty for breach of contract by either party, with different legal consequences for whoever withdraws from the sale. If the buyer withdraws, they will forfeit the deposit; if the seller fails to fulfill the agreement, they must return the amount received plus an agreed-upon sum.

Penitential Vows or Vows of Renunciation

This is the most flexible agreement and allows either party to withdraw unilaterally if they deem it in their best interest. It is common for the parties to agree on a penalty amount in the event that one party decides not to continue with the negotiations.

Differences or discrepancies between a deposit agreement and a reservation agreement

Experts agree that the discrepancy lies in: 

Legal consequences 

These are for the negotiators, in case it becomes necessary to terminate the contract. 

There are regulations governing the wedding coins 

As set forth in the Civil Code

The reservation is not 

It is definitely not provided for in the Civil Code.

The reservation agreement is binding 

They must comply, unless they have agreed otherwise regarding termination.

What should a deposit agreement include?

It is important to note that the deposit agreement must include, among other requirements, the following:

• Personal information of the parties: first names, last names, ID numbers, etc.
• Description of the property being sold, including: location, registration information, certificate of occupancy, and any encumbrances on the property.
• Purchase price and method of payment. 
• Specification of the amounts paid by the parties.
• The amount of the earnest money deposit, given to the owner for signature, with the understanding that it will be deducted from the final purchase price.
• The time by which the purchase agreement must be signed.
• The type of deposit agreement they are signing, and the due date.
• Signatures of the negotiators.
• How will the property be handed over?

How much money is involved in this contract?

The payment of the amount specified in the earnest money agreement is always the buyer’s responsibility and is considered a “sign” of their intention to proceed with the transaction. The percentage to be paid can range from 5% to 15% of the agreed-upon price, but 10% is the most common. 

It should be clear that as soon as the sale is finalized, the amount paid as a deposit must be deducted at the end of the transaction.

How and where is the deposit paid?

When it comes to a private agreement, the parties can agree on the method and location for making or receiving the down payment. Here are the different options:

• Cash deposit
• Payment of the deposit via bank transfer
• Payment of the deposit by check

Who gets this money?

In the case of a deposit, the amount paid serves as security for compliance with the agreement; if the buyer breaches the agreement, they forfeit that amount. And if the seller backs out, they must return the deposit, doubled, or as otherwise agreed.

How long can a deposit agreement last?

Each deposit agreement specifies the timeframe that the negotiators or parties deem appropriate, but you should keep in mind that the law sets a maximum time limit. This time limit for transferring ownership of the property, following the signing of the deposit agreement, is six months.

Can this agreement be extended?

We must emphasize that this is a private agreement, and there is no obligation to sign an extension of this contract; if an extension is to be signed, an addendum must be included. This addendum must specify the new term agreed upon by the negotiators for the final signing.

When are the earnest money deposits invalid?

There are several situations that could render a deposit agreement invalid; let’s look at some of them:

• When there are multiple owners, and only one of them signs
• When the amount of the deposit is not specified
• When the deadline for final signature is not specified
• When the provisions of the Civil Code are not followed

Can you file a claim for breach of a deposit agreement?

The answer is yes; for example, if the buyer refuses to fulfill the terms of the agreement, the seller may take legal action. The seller may also request the termination of the agreement and demand payment of the deposit as fair compensation for the damages caused.

What happens to the agreement if I don't get the mortgage?

If you have signed the deposit agreement and are unable to secure financing, you will lose that money because you will be in breach of the agreement. However, the purchase agreement may contain a provision stating that, in the event of a breach, the parties are released from the obligation to pay the deposit.

What should you keep in mind before signing the deposit agreement?

There are many factors to consider, which is why it’s important to seek professional advice; however, if that’s not possible, you should make sure that:

The agreement complies with the provisions of the Civil Code

The people involved are the ones who should be present

The wording should not go beyond its scope by including illegal clauses, for example

Sample Deposit Agreement Template 2024

For the sole purpose of providing a general overview of how a deposit agreement should be drafted, we have included a sample of what such an agreement might look like.

In ________, on the _______ of _______

Gathered

On the one hand, D__________________________, of legal age, a citizen of __________, holder of ID No. __________, and residing at __________, _____ Street, No. ______; hereinafter, THE SELLER. 

On the other hand, D__________________________, of legal age, a citizen of __________, with ID No. __________, and residing at __________, _____ Street, No. ______, hereinafter referred to as THE BUYER. 

They exhibit

That Mr. ______________________________ is the sole owner of the property ____________________, as evidenced by deed ____________________, registered in the Property Registry No. ____ of ________, in ______________ with cadastral reference No. _______, with a floor area of __________ square meters and a usable area of __________ square meters, with a share of ________ in the common elements, and includes an attached parking space, located in a building governed by the Horizontal Property Law. 

Since Mr. _________________________ is interested in purchasing the aforementioned property, the parties hereby execute this DEPOSIT AGREEMENT, containing the following terms:

FIRST. Mr. ____________________ agrees to sell the property described herein, free of any liens or leases, with all community fees, taxes, and other charges—whether regional or municipal—paid in full; and Mr. ____________________ agrees to purchase the property described herein. 

SECOND. The parties agree that the total purchase price shall be ________________ euros.

THIRD. Mr. ________________________ hereby delivers to Mr. _________________ the sum of ___________________ euros as a deposit, issuing a receipt through this document for the purposes of Article 1454 of the Civil Code.

FOURTH. If the buyer fails to comply with the terms of this contract, the buyer will forfeit the deposit paid. If the seller fails to comply with the terms of this contract, the seller must return double the amount of the deposit.

FIFTH. Both parties agree to execute a notarized deed of sale within _______ months at the notary’s office of the buyer’s choice.

SIXTH. Mr. ____________________ agrees to pay the outstanding balance in the amount of _____________ euros. Likewise, Mr. __________________ agrees to hand over possession of the property and the keys.

SEVENTH. The costs and taxes associated with the execution of the public deed of sale shall be borne by the buyer, including the cost of the first copy of the deed and any subsequent copies, the registration of the deed in the Property Registry, and the payment of the Property Transfer Tax and the Stamp Tax arising from the deed of sale. The seller shall pay the costs of the master deed and the Tax on the Increase in the Value of Urban Land.

EIGHTH. The parties hereby submit, as required by law, to the courts and tribunals of ________________.

And in full agreement, they sign and execute this document in duplicate and for a single purpose at the place and on the date indicated above.

Signed: Mr. ____________ Signed: Mr. ____________

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Conclusion

When selling or buying a property—that is, making a real estate investment, it is mandatory to sign a deposit agreement—not just to secure the transaction for you as the seller. The buyer’s position can also be protected with a well-drafted agreement, and Domoblock has the expertise to handle this.