Know your contracts when buying property in Mallorca

Remember, when buying a property in Mallorca, there are different procuedures and rules that you may be used to when doing property deals in the UK. Here we look at the different contracts involved when buying and selling property in Mallorca.

Promise of sale contract

A promise of sale contract is one where the party who promises to sell and the one who promises to buy agree on the future sale of a property. The owner makes a commitment with the candidate buyer (named “beneficiary”) to sell him his property at a set price. He so gives him, exclusively, an "option" for a limited agreed period.

This contract is usually used because either party needs a period of time before finalising the property deal. Perhaps the buyer needs more time to secure finance or the seller is completing building or renovatons to the property and both parties prefer to wait until this is completed before finalising the contract and sale.

In order for this to be valid, the essential elements of the future sale must be fixed, which are:

• Identification of the property
• Fixing the Price
• Signature Date

Preliminary/deposit Contract

The preliminary/deposit contract is an agreement where the purchaser pays the seller a deposit intended to ensure the future completion of a sale.

There are three different types of preliminary/deposit contracts:

Confirmatory or approbatory
The deposit is part of the agreed price . If one of the parties does not complete on the sale, the other party can demand the fulfilment of the contract and can force them to pay the rest of the price. The party that is willing to comply with the contract can ask to finalise it with compensation for damages.

Penalty Precontract
This as a guarantee of completion with the contract. In the event of non-completion by one of the parties, the other may demand the fulfilment of the agreement or accept the contract as completed by demanding compensation - usually the amount agreed as a deposit.

Penitential Precontract
In this type, any of the parties can withdraw from the contract, but the buyer loses their deposit and the seller sometimes is requested to refund double the amount received.

Option contract of sale

The buyer reserves the right but is not obligated to buy a property from the vendor by paying a deposit within a set period of time, during which the vendor cannot sell the property. Completion will depend on the buyer, who in the agreed time frame must confirm whether or not he exercises the option.

The purchase option can be registered in the Land Registry, therefore:

• There must be an agreement between the parties for registration
• Must include the agreed price and the option premium
• The period of exercise of the option may not exceed 4 years

Each of these contract options depened on your individial requirements and you should always seek professional qualified advice before entering into any contractual agreement.