Deposit agreement: what to check

A preliminary deposit contract is not an innocent token payment. It is the agreement that sets the price, the completion deadline, and what happens if someone backs out. Signing it without checking the type of deposit agreement and the conditions precedent is one of the most expensive ways to improvise in a property transaction.

1. What type of deposit agreement you are signing

The type depends on what is agreed. Do not assume all deposit contracts are the same.

Penitential deposits: Article 1454 of the Civil Code allows either party to withdraw: the buyer forfeits the deposit paid, whilst the seller, if they withdraw, must return double the amount. This is the classic arrangement when this regime is expressly agreed.
Other modalities (confirmatory, penalty deposits, etc.): these alter the consequences of non-compliance. If the contract does not state the type clearly, future disputes are predictable.

Before signing, ask aloud: 'If I back out, what exactly do I lose? And what if the other party backs out?' If the answer is not written down on paper, do not sign.

2. Identification of the parties and the property

Full details of the buyer and seller (or authorised representatives), land registry property number, address, cadastral reference, and a description consistent with the land registry extract (nota simple). An error in the property details or ownership can undermine months of planning.

3. Encumbrances, mortgage, and occupants

Demand absolute clarity regarding outstanding mortgages, liens, easements, tenancies, or occupants. If there is an active loan, the contract should explain how it will be cancelled or subrogated at completion before the notary. If the seller says they 'will talk to the bank later', you are buying uncertainty.

4. Price, payment method, and deadlines

Total price and breakdown of the initial deposit.
Bank account for payment and deposit conditions.
Completion deadline for signing the public deed (with a realistic time margin if the buyer requires a mortgage).
What happens if the buyer's mortgage application is rejected: a properly drafted condition precedent or an assumed risk.

5. Condition of the property and inventory included

Furniture, household appliances, storage room, parking space, pending renovations, known defects. Anything not written down often turns into 'that was not included'. If there are visible defects, it is best to record them in writing to avoid later disputes over whether they were latent defects or clearly visible.

6. Documentation to be provided by the seller

A recent land registry extract (nota simple), local property tax receipts (IBI), community fees certificate, energy performance certificate, occupancy certificate or licence where applicable, and relevant community bylaws or minutes if works or special assessments are planned. An empty checklist in the contract is an open invitation to delays.

7. Penalties and withdrawal

In addition to the deposit rules, check penalty interest clauses, extensions, and expenses if one party misses deadlines. Be wary of generic templates downloaded from the internet that are not tailored to your specific transaction.

Who should review it

Deposit paid: where and how

It is advisable to state in writing whether the funds remain held in escrow in a specific account, whether the seller receives them directly, or whether a third party is involved. Also clarify when it is credited towards the final purchase price. A transfer 'to a private individual' without a clear paper trail complicates any subsequent claim.

An agent can help you negotiate commercial terms. However, the legal review (type of deposit, conditions precedent, discharge of encumbrances) is work for a lawyer. At Sky Real Estate, Sky Law (European Legal Awards in Real Estate Law, 2023-2025) reviews deposit contracts and public deeds within property lawyers.

If you are sent a PDF 'to sign today' and you have not double-checked the type of deposit, encumbrances, and financing deadlines, stop the clock. A quick legal review is usually far cheaper than forfeiting your deposit or having to return double.

Ten-minute checklist

Type of deposit agreement specified with clear consequences.
Property details and registered owners correct.
Price, deposit amount, and bank account details.
Completion date for deed signature and extension terms.
Mortgage and encumbrances.
Buyer's financing clause (if applicable).
Property condition and inventory.
Documents to be provided.
Who pays which expenses.
What happens if either party breaches the contract.

If two or more points fail, the contract is not ready yet.

Deposit agreements and properties with an existing mortgage

If the seller has an active mortgage loan, the contract should outline how cancellation or subrogation is managed, what redemption certificate will be provided, and what happens if the lender delays the figures. This links to the rationale of selling a property with an outstanding mortgage: a deposit contract cannot ignore the charge registered against the property.