The Purchase and Sale Promise Agreement (SPA): Structure, Advantages, and Essential Precautions

The Purchase and Sale Promise Agreement (SPA) is a legal tool that facilitates the purchase of real estate by ensuring both the buyer and seller commit to completing the sale at a future date. This agreement is not mandatory, but it is widely used in real estate transactions, especially in situations where the conditions for signing the final contract — the public deed of sale — are not yet met, such as with properties under construction or pending necessary licenses.

Essential Elements of a Purchase and Sale Promise Agreement (SPA)

To ensure the SPA is legally valid and provides security for the parties involved, it must include certain essential elements that guarantee its effectiveness and legality. These include:

1. Full Identification of the Parties: The contract must include the full name, marital status, civil identification number (e.g., national ID card/ passport), and tax identification number (e.g., NIF) for both the buyer and the seller.

2. Detailed Description of the Property: The contract must contain a thorough description of the property, including its location, typology, property registration details, and other relevant information such as common areas or additional parts, such as garages and annexes.

3. Subject of the Agreement: The SPA should clearly specify the subject of the promise, meaning the commitment to sell and purchase the property as described in the contract.

4. Transaction Amount and Payment Terms: The agreed sale price should be clearly stated, along with the payment method, which may include a deposit, installment payments, and other agreed-upon payments. If the buyer’s purchase depends on the approval of a bank loan, the agreement should include a cancellation clause in case the loan is not approved.

5. Deposit Amount and Payment Dates: The deposit represents an amount paid by the buyer, usually between 10% and 20% of the property value, as a way to secure the commitment to buy. The SPA must specify the deposit amount, payment dates, and any additional installments that may be agreed upon.

6. Deadline for Signing the Deed: This specifies the date or a reasonable deadline by which the final deed of sale must be executed. If a specific date cannot be set, a reasonable deadline can be included.

7. Rights and Obligations of the Parties: The rights and responsibilities of both parties must be clearly outlined to avoid future disputes.

8. Penalties for Non-Performance: The SPA must outline penalties for non-performance. For example, if the seller fails to honor the contract, they may be required to return double the amount of the deposit to the buyer. If the buyer defaults, they may forfeit the deposit paid.

9. Property Condition and Free of Liens: The seller must ensure that the property is free from any encumbrances or liens, such as mortgages, and that it meets the required legal standards for habitability.

10. Renovation and Repair Clauses: If any repairs or improvements are needed, the SPA should establish responsibility for these and specify that the final contract will only be signed once the work is completed.

11. Signature Recognition: The signatures of the parties must be authenticated, and it is recommended that this be done in person, as this offers an extra safeguard and proves the intention of both parties to execute the agreement.

In addition to these points, the SPA can include specific clauses depending on the needs and conditions agreed upon by the parties, such as a "tradition" clause, which specifies the delivery of keys before the final deed is signed, if agreed.

Documentation Attached to the SPA

To support the SPA, several documents may be attached, depending on the case:

• Construction License or Occupancy Permit: These documents ensure that the property is legally compliant with urban planning and building regulations.

• Scope of Works: For properties still under construction, this document outlines the materials, brands, and construction specifications, offering the buyer assurance about the final property’s quality and characteristics.

  
  

What Does the Law Say About the SPA?

The Purchase and Sale Promise Agreement is provided for in Article 410 of the Civil Code, which establishes, among other provisions, the requirement for the parties’ signatures to be authenticated in person, and for the certifying entity to verify the existence of the occupancy permit or construction license for the property.

If both parties agree, a clause may be included in the SPA stating that they waive the requirement for signature recognition, although this practice is not recommended, as authentication provides an added level of security and proves the intent of both parties to enter into the agreement.

Advantages of the SPA for Buyers and Sellers

The SPA offers several advantages, making it a preferred tool in real estate transactions:

1. Formal Commitment: Both parties officially commit to the transaction.

2. Protection for the Buyer: The buyer gains the right to purchase the property and is protected against changes of mind by the seller or third parties.

3. Legal Security: In the event of non-performance, the SPA specifies penalties to protect both parties’ rights, especially in cases of cancellation or delay.

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Cancelling the SPA and Legal Consequences

Cancelling an SPA is a situation that requires mutual consent between the parties, and if done outside the conditions agreed upon in the contract, penalties may apply. If the seller cancels without valid reason, they must return double the deposit to the buyer. If the buyer defaults, the seller may retain the deposit.

To prevent conflicts, it is advisable to include clauses that clearly define the conditions under which the SPA can be canceled, and the maximum period allowed for cancellation.

Essential Precautions Before Signing the SPA

Before formalizing an SPA, it is important to take precautions to ensure that the contract reflects all agreed terms and that all essential conditions are clearly documented. Below are some recommended precautions:

1. Check the Accuracy of Information: Ensure all personal data and property details are correct and correspond to the property’s official documentation.

2. Check the Condominium Situation: For properties in a condominium, it is advisable to review meeting minutes and records to check for overdue fees or planned repairs that may affect the buyer.

3. Verify the Legal Status of the Property: Confirm that the property has an occupancy permit or construction license and is duly registered. In the case of properties under construction, verify that the construction license is in place or that it has been requested from the local municipality.

4. Set a Realistic Deed Signing Deadline: The deadline for executing the deed should be reasonable and account for any potential bureaucratic delays or other contingencies.

5. Request Receipts for Paid Deposits: If a deposit or other amounts are paid, always request a receipt, or ensure the SPA specifies the amount and payment dates.

   
   

Conclusion

The Purchase and Sale Promise Agreement (SPA) is a powerful tool for anyone looking to buy or sell property with clarity and security. While not mandatory, it is widely used and provides significant benefits by setting the terms of the transaction and safeguarding both parties against unforeseen circumstances. When drafting and signing an SPA, it is essential for both parties to be aware of their rights and obligations, and for all the essential elements to be clearly outlined and documented to ensure a transparent and legally sound transaction.

Thus, the SPA proves to be a valuable ally for those involved in real estate transactions, offering legal certainty and helping mitigate the common risks associated with such deals.

The information provided is of a general nature and does not substitute legal advice. Please consult a lawyer and adopt a preventive approach in legal matters.