Types Of Contracts

There are two types of a private purchase contract, an option contract and an “Arras” contract. The most important differences are explained in the following overview.

Option Contract

“ARRAS” CONTRACT

RIGHT OF PURCHASE BY A THIRD PARTY

Option contract grants a right to the optionee (buyer) to purchase the property for an agreed amount within a fixed time, and transfer this right to a third party.

RIGHT OF PURCHASE BY A THIRD PARTY

“Arras“ contract does not allow the buyer to transfer the right to purchase to a third party.

FULFILMENT OF CONTRACT

Once the contract is signed, the seller is obliged to sell and not allowed to terminate the contract since the buyer can exercise his right to buy. For greater assurance, the buyer could register the option contract in the Land Registry.

TAXATION

For the buyer, the option contract is subject to the same tax as the subsequent purchase (ITP or VAT). It is important to remember that the tax must be paid in addition to the tax payable on the sale.

FULFILMENT OF CONTRACT

An “arras” contract can be terminated by both parties. If the buyer terminates it, he / she will lose the amount of down payment, while if the seller terminates it, he / she must return twice the amount of the down payment to the buyer.

TAXATION

An “arras” contract is not subject to taxation prior to signing the public deed of sale. If the sale does not take place, the deposit will have to be declared as capital gains or losses by the parties.