What happens if a deposit contract is breached (buyer or seller)

Types of deposit contracts and their legal consequences in the event of a breach

In Spanish law, there are three types of deposit agreements. The contractual classification given to the document determines the legal framework and applicable financial penalty.

Penitential deposit

Expressly regulated in Article 1454 of the Civil Code, these are also known as withdrawal deposits. They are the most common in residential real estate transactions between private individuals. This type of agreement grants the parties the right to unilaterally withdraw from the contract by accepting a pre-agreed penalty:

• If the party breaching or withdrawing is the buyer, they will forfeit the entire amount paid as a deposit or reservation fee.
• If the breach of deposit contract stems from the seller, they must pay the buyer double the amount originally received.

Confirmative deposit

Confirmative deposits act as an advance on the total purchase price and certify the existence of a definitive and binding contract. In this scenario, there is no right to freely withdraw from the transaction.

In the event of a breach of a confirmative deposit contract, the injured party can rely on Article 1124 of the Civil Code and choose between two legal alternatives:

• Demand specific performance of the contract, legally compelling the other party to execute the public deed of sale before a notary.
• Request the termination of the contract with compensation for damages suffered, plus the payment of the corresponding statutory interest.

Penal deposit

Penal deposits establish pre-agreed compensation in the event of contractual non-compliance. The sum paid acts as a guarantee of performance, but does not automatically grant the option to freely rescind the contract unless expressly agreed. Therefore, the non-breaching party can retain the deposit received (or claim double) and, simultaneously, seek enforcement of the transaction in court.

What happens if the buyer breaches the contract

A breach attributable to the buyer usually stems from a lack of liquidity, the refusal of non-conditional bank financing, or voluntary withdrawal prior to attending the notary office.

The financial ramifications for the buyer depend on the contractual type agreed:

• Under a penitential deposit: The buyer loses the full amount paid. The seller regains full availability of the property to put it back on the market.
• Under a confirmative or penal deposit: In addition to forfeiting the amount paid, the buyer may be sued by the seller to demand payment of the remaining agreed price and the final completion of the purchase.

What happens if the seller breaches the contract

A breach on the part of the seller occurs when they refuse to attend the notary completion by the agreed deadline, when they sell the property to a third party offering a higher sum, or if land registry obstacles arise that make it impossible to deliver the property free of charges.

The rights of the affected buyer vary according to the model of contract signed:

• Under a penitential deposit: The buyer has the right to demand and receive double the contractual deposit amount immediately.
• Under a confirmative or penal deposit: The buyer can sue for specific performance to acquire title to the property by court judgment, or request contractual termination claiming duly substantiated direct damages (such as valuation expenses, moving costs, or temporary rent).

Justified grounds for terminating the contract without penalty

Not every withdrawal is considered a punishable breach of deposit contract. There are grounds for termination supported by law or by specific agreements under which the contract ceases to have effect without penalties being imposed on either party.

The notable grounds for justified termination include:

Refusal of mortgage with a conditional clause

To avoid losing the sum paid due to a lack of credit, it is common practice to include a termination clause conditioned on the granting of bank financing. If the financial institution refuses the mortgage and this contingency is explicitly stipulated in the text, the buyer recovers the money paid without incurring any penalty.

Undeclared charges and hidden defects

If, after signing the preliminary agreement, planning charges, unforeseen tax liabilities, encumbrances, or significant hidden defects in the property structure not declared in the contract are discovered, the buyer is entitled to rescind the preliminary contract with a full refund of the deposit.

Irregularities in Subsidised Housing (VPO) in the Comunidad de Madrid

Within the territory of the Comunidad de Madrid, the transfer of protected properties requires strict compliance with the maximum sale price and obtaining the necessary administrative authorisations or mandatory descalificación. If the VPO property in the Comunidad de Madrid lacks the necessary permits for free sale within the stipulated deadline, the buyer can request termination without penalty due to causes not attributable to them.

Step-by-step procedure to act in the event of a breach

When a breach of the agreed terms occurs, it is essential to follow a formal procedure to ensure the effectiveness of subsequent legal actions:

1. Formal notice via burofax: A reliable communication must be sent via burofax with acknowledgment of receipt and text certification to the address specified in the contract. A set period is granted for the other party to attend the designated notary office.
2. Notarial record of attendance: The non-breaching party must attend the notary office on the date and time indicated. In the event of non-attendance by the other party, the notary will draft a record of non-attendance which will serve as irrefutable evidence of the breach of the formal notice.
3. Legal claim: With the supporting documentation and the notarial record, an out-of-court payment demand is served or the corresponding civil lawsuit is filed to demand contractual termination or contract enforcement.

How to ensure legal certainty in the contract

The technical drafting of a real estate preliminary contract is critical to preventing subsequent litigation. The contractual text must detail with precision the type of deposit agreed, the registry charges regime, applicable extensions, and the consequences of non-attendance at the notary office.

Having the assistance of registered professionals guarantees the legal soundness of the clauses in line with court precedent. The professionals at Sky Law, recognised in the European Legal Awards (2023-2025) and registered as mortgage credit intermediaries ICI D-286 with the Banco de España, supervise real estate transactions to safeguard the rights of both buyer and seller throughout the contractual process.

If you find yourself in a conflict situation or need to formalise a real estate transaction with full guarantees, you can consult our property lawyers to receive personalised technical advice.