Earnest money is a legal concept that is used in different areas of law, including the contractual field. Within the deposits, there is a specific type known as penitential deposits, which have particular characteristics that distinguish them from other types of deposits.
What are earnest money?
Before going into detail about the characteristics of penitential earnest money, it is essential to understand the basic definition of earnest money.
Earnest money is an amount of money or goods that is delivered as a sign or guarantee in a contract to ensure compliance with the obligations established therein. Earnest money can be of different types, and each of them has its own legal implications.
There are different types of deposits that are used in contracts, the main ones are described below:
1. Confirmatory deposit: unlike penitential deposits, confirmatory deposits establish the obligation to fulfill the contract in the event that any of the parties breaches it. They are regulated by article 1124 of the Civil Code in Spain and, by default, all deposit contracts signed in the country are governed by this legislation.
2. Penal deposits: Penal deposits are a more demanding type of guarantee for both parties. They are characterized by contemplating the criminal consequences in case of breach of contract, in addition to the obligation and compensation of the confirmatory deposits and the loss of the guarantee of the penitential deposits.
3. Penitential deposits: Penitential deposits are the type of signal most used to reserve the sale of a property. In this case, the buyer provides a guarantee that he will lose if he does not finally acquire the property, while the seller must pay double that amount if he breaks the deposit contract.
Concept of penitential deposits
Penitential deposits are an agreement used in the real estate field where the buyer of a property advances a part of the final price as guarantee of the purchase. In the event that the purchase is not carried out, the penitential deposits will serve as compensation for the injured party, but will not require compliance with the purchase and sale contract. In Spanish legislation, penitential deposits are regulated in article 1454 of the Civil Code: “If there has been a deposit or deposit in the purchase and sale contract, the contract may be rescinded, with the buyer agreeing to lose them, or the seller agreeing to return them in duplicate. ”
To establish a penitential deposit contract, it is necessary that it be expressly indicated in the document that it is this type of deposit, differentiating it from other types of deposit. Furthermore, it is important to keep in mind that although penitential deposits are contemplated in real estate law, they are not the main rule that governs deposit contracts, since by default, the reservation agreements that are signed are usually confirmatory, that is, The deposits mainly used in these contracts are usually confirmatory deposits.
Characteristics of penitential deposits
The main characteristics of the penitential deposits are the following:
1. They are known colloquially as a sign or bond.
2. They allow withdrawal from the contract without legal consequences, that is, it is a lawful withdrawal.
3. They are commonly used in sales contracts, although they can be applied to other types of contracts.
4. They consist of setting an agreed price.
5. Its inclusion and amount are freely agreed upon, and it is advisable to have a document or receipt that records them.
6. They are not compensatory in nature. In case of non-compliance, the seller may keep the deposit.
7. They are accessory to the main obligation, which involves the delivery of an asset in exchange for the agreed price.
8. The nullity of the deposit agreement does not imply the nullity of the main contract.
Withdrawal of penitential deposits
Withdrawal refers to the decision of one of the parties to the contract not to continue with the acquisition of the real estate object of the sale reservation, or to fail to formalize the sale within the agreed period due to circumstances beyond their control.
The consequences of withdrawal in deposit contracts may vary depending on the type of contract established. In the case of penitential deposits, the consequence of withdrawal is the loss of the reservation by the buyer or the payment of double the guarantee by the seller, without any of the parties being able to demand compliance with the contract or initiate actions. penalties.
In the withdrawal of penitential deposits by the buyer, he decides not to continue with the purchase of the property and loses the amount given as guarantee to the seller.
On the other hand, if the seller is the one who withdraws from the penitential deposit, it means that he has decided not to transfer ownership of the property to the buyer who had already made the reservation. In this case, the consequence of withdrawal for the seller will be the payment of double the guarantee that the buyer had provided. It is important to keep in mind that these are the general implications of withdrawal in penitential deposit contracts, and there may be variations and nuances depending on the legislation and the specific terms agreed to in each contract.
What is a penitential deposit contract like?
The basic characteristics that must be included in a penitential deposit contract for it to be legally valid are the following:
1. Identification of the parties: the names, surnames, identification numbers (DNIs, passports, etc.) and addresses of both parties involved in the contract must be specified.
2. Description of the property: the complete address of the property that is the subject of the transaction must be included, as well as its cadastral reference. Additionally, if there are charges or encumbrances on the property, they must also be mentioned.
3. Express mention of penitential deposits: the contract must explicitly indicate that it is a penitential deposit agreement, referring to article 1454 of the corresponding Civil Code.
4. Purchase and sale price: the agreed amount for the property purchase and sale transaction must be clearly established.
5. Obligations of the parties: it is important to detail the responsibilities and obligations of each of the parties in the contract, including the expenses that each party will assume, such as taxes, management fees, registration fees, among others.
6. Reserve percentage: the amount that the buyer will deliver to the seller as a penitential deposit must be specified, as well as the remaining amount that must be paid as part of the total purchase price.
7. Deadline: the time period or deadline by which both parties must comply with their obligations and formalize the sale must be established.
These characteristics are fundamental to ensure the validity and clarity of the penitential deposit contract. In this sense, it is highly recommended to seek specific legal advice in each case to guarantee compliance with current legislation and adapt to the particularities of each situation.
Conclusion
Contracts that include penitential deposits are one of the best options when acquiring a property, especially in those situations in which the purchasing party is not certain about the approval of a mortgage or when the selling party is not completely sure of transferring the property. property to another person.
For this reason, penitential deposits are the best option when there is no absolute guarantee that the purchase and sale contract will be formalized. This type of contract allows both parties to have some flexibility and protection in case circumstances change or unexpected problems arise before the final formalization of the transaction.
