LA OBTENCIÓN DE FINANCIACIÓN PARA LA COMPRA DE VIVIENDA Y LAS ARRAS.

Abstract

Throughout the nineties and halfway into the following decade, Spain benefited from a time of economic plenty and growth of worldwide scope. The main outcome of that period was strong development in the property market, which in turn, quite logically, fostered a big increase in sales of homes. The contracts and other papers documenting such sales usually include earnest money clauses. These clauses are designed to confirm the parties’ intentions, to enable each party to abandon the contract and to establish penalties for breach of contract. However, in times of crisis, when buyers encounter difficulties in carrying through with planned purchases (mainly due to banks’ tendency to cut down on lending and the ensuing lack of financing), the objectives sought through the instrument of earnest money have consequences other than those desired. So, the ultimate significance of earnest money and the way it works may undergo changes. Indeed, if a buyer proves unable to honour a contract due to causes beyond the buyer’s control, the buyer may have to forfeit the earnest money. For this reason, in practice clauses have been invented that seek the same kinds of objectives as earnest money agreements, yet avoid the forfeiting of the earnest money should the purchase fail to go through.

 This paper looks at a clause that provides the power to abandon the contract and therefore displays a certain likeness to earnest money under one typical arrangement (in which, in the event of buyer default, the money is forfeited to the seller, but in the event of seller default, the seller must pay the buyer twice the sum put forward in earnest money). The goal of this paper is to disentangle the nature of the clause in question and thus its legal definition. The paper also examines different issues related with the characteristics and exercise of the faculty included in this type of earnest money clause, to determine the possibilities that the inclusion of such a clause in a contract gives the buyer in a context of crisis such as that which we are currently experiencing.