Cloudnine Spain Blog

Reservation Contracts: What You Need to Know with Peter Franke & Sean Woolley

Reservation Contracts: What You Need to Know

The video features Sean Woolley, Managing Director of Cloud Nine Spain, and Peter Franke, Managing Partner of Franke & de La Fuente Abogados, discussing the negotiation process for reservation documents or agreements in the real estate industry on the Costa del Sol. They emphasize the importance of clearly defining special conditions, such as furniture, mortgage terms, and surveys, to avoid complications and misunderstandings. They highlight that clear communication, attention to detail, and proper documentation are key to managing expectations and protecting both buyers and sellers. Sean and Peter also discuss the differences in reservation processes between Spain and other countries, such as the UK and Sweden. They stress the need for legal guidance to ensure that both parties are well-informed and their interests are safeguarded.

Listen to the podcast version here

Link to the youtube video here

Sean: Hello everybody, I’m Sean Woolley, managing director of Cloud Nine Spain. With me today I have Peter Franke. Is that right?

Peter: That’s right, yes.

Sean: And you are the head guy at, what’s the name of your company?

Peter: Franke & de la Fuente Abogados.

Sean: We’re here today to talk about negotiating the terms of a reservation document or agreement and that is talking about things like special conditions. So very often you’ll agree a price between a buyer and a vendor. So the buyer wants to buy that property for that price. The vendor says, “Yep, that’s great,” but the buyer might want the furniture, might want it to be subject to mortgage, they might want it to be subject to survey. It can get complicated. Because, and this has happened to me before on more than one occasion, where you agree a deal for a high value property, I think the one I’m thinking of was like 2 million euros, so not a cheap property, and I ended up going to IKEA to buy some knives and forks to save the deal, because it wasn’t in the inventory and it was like, “Well I’m not budging”. “Well, I’m not budging either”. But we’re talking about 50 euro on a 2 million euro deal. But I guess it’s all about that battling of egos, isn’t it, and everyone likes to win and some people just don’t want to give in and it can come down to the most stupid things to rescue the deal and I guess, I’m hoping, you’ve found this as well, that unless it’s in black and white at the start, it’s very hard to bring it back, isn’t it?

Peter: Yes. First thing, a purchase process here can of course be different, but usually buyers are flying into Marbella or in the region, they’re working with an agent, they know a couple of properties that they’re interested in, they’re going for viewings, but things might get quite hectic and then in the end you find the right property, maybe you’re flying back the same day or tomorrow, so the negotiations can sometimes be done very rapidly. As you said, you negotiate the price and then sometimes you forget about a few things. So the buyer flies back home and then remembers, “Oh, I wanted to include this”, or “This is important for me”, but then you have already signed or made the reservation contract and it’s not too late, because of course you can talk again, but it is advisable to take a five minute break, sit down. What else is important for you here, the buyer, what kind of conditions would you like to discuss, at least? And then of course, talk to the vendor and in writing put down all the terms and conditions for the purchase and have also clear timeline for the purchase. When are we signing the PPC? When are we going for completion? To avoid these kind of situations, I mean, we are human beings, it’s psychology, it can happen and it’s down to those small details, as you mentioned.

Sean: It’s managing expectations on both sides, isn’t it? And as you say, a lot of it is human nature and human beings make mistakes and human beings change their minds and want to include different things. We actually run training courses on managing client expectations from a buyer and a seller point of view. And of course, what the seller wants, the seller wants certainty. The seller wants to know how long it’s going to take and when he’s going to get his money, pretty much. The buyer of course, like you say, they can get overexcited, they commit to something and then they go, “Oh, I need a mortgage,” and it’s like, “Why didn’t you tell us that?” Because we need to factor that in. Have you got your mortgage approved? How long will it take? And then what we’re trying to do then is renegotiate a deal which is undoubtedly going to spook the vendor because he is going to think, “Hang on a minute, has this guy got the money?” And that’s why we always say to people, get mortgage approved before you come here so you know how much money you’ve got to spend. Do as much of that legwork as possible, speak to a lawyer, make sure that when you’re here and you see that property that you love, that when you commit to it, particularly if it’s a little bit of a cheeky offer, that we’re then not going to backtrack, that we can go for it and we’re serious and we’re in a position to move forward. But also, you got to think about those small things, like you said, particularly if it’s a villa, do I need a survey? Is the purchase subject to that survey? So I might be willing to put a reservation deposit down, particularly with a lawyer, because it’s safe.

Peter: Yes.

Sean: So the fact that you have the right to perform a technical survey of the property, have you clearly stated in the reservation contract that you can actually cancel the transaction depending on the outcome? Or is it a real negotiation that will take place or any other kind of?

Peter: And of course, if the survey’s going to take a week or two weeks, is the property still on the market? Can it be shown? Can it be bought? What we always try and do is to protect both sides really, is if there’s going to be a significant delay, particularly if it’s a hot property, you know, one that we think is going to go to somebody else if we’re not careful, is we’ll say, “Look, we need 10 working days to get the survey done, approved”, can be the same with a mortgage, I suppose. But in the meantime, you are free to show your property to other prospective buyers, but you’re not free to sell it. So yes, you can line up other buyers for sure, but we’re the only offer in play for those 10 days. And we find that works well because the vendor’s then, “Okay, so I’ve got a deal on the table but I have to wait 10 days for the certainty. But in those 10 days, if I have other people, I can line them up and just wait. And then if that falls then I’ve got other people”. So we tend to use that tactic quite a bit. But it’s not foolproof, because what happens if somebody comes along and says, “Yeah, I know I can’t offer, but I’m going to offer and I’m going to pay you a lot more than this guy”. So it’s fraught with difficulties but it’s kind of the only way to protect both parties.

Peter: It’s really down to clear communication. And try to remember all the facts and just talk in detail with both the buyer and of course the vendor as well. What is the deal actually? And if it’s about furniture, I mean you would know a clear inventory list, don’t leave anything out, put everything in that list, with photographs, etc., so it clearly states what’s going to be included. Visit the property before completion so you know that everything is there to reassure the buyer.

Sean: And as a lawyer, when would you want to include that inventory? In the reservation or in the private purchase contract? Would you want it as early as possible or would you be happy if it’s all furniture included apart from granny’s sofa? Would you be happy with a term like that in a reservation document?

Peter: Well, it’s down to time management, I guess. It has to be in the private purchase contract. We attach it as an appendix to the contract because you have to clearly state what’s included in the property. That can be of course the furniture, but it can be a garage or a storage or something else. But if you could at least write down in general terms what’s included in regards to furniture and also add that to be specified. But if it’s everything, everything. If it’s the main furniture, big furniture, put it down like that, but at least something.

Sean: Here in Spain, I’m not sure what it’s like in Sweden where you’re from, but here in Spain we have a system where if you want to reserve a property, you normally have to put some money down as a commitment. And then the lawyer kind of controls that money normally and then sends it over to the vendor once they’re happy with most of the legal things. In the UK, we have a very different system. So we don’t put any money down. We make an offer on a property and the vendor says, “Yeah, that’s fine, that’s cool”. And then you wait an inordinate amount of time to get the searches back from the local authorities and blah blah, it can be eight weeks and the property’s off the market, you’ve actually committed no money to the purchase as a buyer, you can pull out at any time, for any reason, and the vendor’s left there with a property that’s not been marketed for eight weeks and it causes a huge amount of problems. I dunno what it’s like in Sweden, but do you have a preference for which model is best?

Peter: I think, well in Sweden we go straight to private purchase contract as well, we don’t have a deposit contract. But usually it’s two weeks, or maybe even only a week later, you have to sign that contract. Everything is already prepared more or less. But all markets are different, so I think for this market here, the deposit contract definitely serves a purpose because everything as I said, goes sometimes very quickly. You might have a lot of interest and there are many viewings. Of course, from the vendor’s perspective, they want to make sure that two weeks later, the potential buyer isn’t pulling out, so that’s the purpose of the deposit. So you state the general terms for the purchase and each party commit usually 6,000 euros, or a bit more for more expensive properties, so I think that it’s necessary for this market, the reservation contract. But one has to remember as well that it’s not just the one reservation contract here on Costa del Sol. There can be many kinds of templates and deposit contracts, offer contracts, reservation contracts and it’s not always the same content in those contracts.

Sean: Yes, so you’ve got to be careful about what you’re committing to and how you’re doing it. And that’s where again, a lawyer will advise you and just take you through that process and make sure that your interests are are protected. But do you know what, you’re right in what you said, just a few minutes ago, about communication, that’s key. It’s key to any transaction with anything, isn’t it? Whether you’re buying a car, a boat, a house and if the lawyers are talking, great. If the agents are talking, great. If the agents are talking to the lawyers, great. And if everyone’s talking to the clients, even better. And they’re the deals that work wonderfully well. But all it takes is just for one of those little relationships to break down. Somebody’s not talking, somebody’s gone on holiday for a week and hasn’t told anyone. Someone’s lying on a beach not picking up the phone or their emails. And all that does is just creates uncertainty for one of the parties.

Peter: Yes.

Sean: And then you’ve got a deal that’s blown.

Peter: Yes.

Sean: And it’s such a shame because the buyer wants to buy, the seller wants to sell, but someone in the middle of it all hasn’t responded to an email or isn’t picking up the phone and, I mean, we always blame the lawyers of course ’cause us agents, we do nothing wrong. But very often, and again if the lawyer knows the lawyer, it helps, if they like working together. But you can get a lawyer, we’ve got one at the moment and she’s just refusing to accept a reservation deposit into her client account from a buyer who really wants to buy a property at a really good price and the condition is that he’s got to send a reservation deposit to his lawyer and his lawyer’s saying, “No, I need to do the due diligence first”. And so we’ve have to go back to the client and say, “Would you please instruct your lawyer that this is what you want to do to safeguard you getting this property”. And it’s like, you could do without that headache.

Peter: It’s quite easy for me, and it should be easy for any lawyer because you have a duty towards your client. If I have a client they want to buy, it’s my job to perform that purchase transaction as clear and safely as possible. And that also includes the time. If it’s important for them to close the deal, that’s my job.

Sean: Yes.

Peter: If the vendor has given me the job to sell the property and there’s a buyer in place, I have to be available. I have to perform that job immediately. And at least in the Swedish Bar Association rules, there are certain rules about communication and speed. You can’t choose to do it in your own time.

Sean: Absolutely.

Peter: You have to follow the instructions of the client.

Sean: It’s incredible. I mean, we had a deal the other day in Zagaleta, so you know, a chunky deal money wise, for everybody, and the prospective buyer was promised a survey by a certain time and date. And what we all didn’t realise actually was that time and date was crucial to him because if he didn’t have it back, he would need to move money around and it would all get very complicated for him. And of course, the survey didn’t come back in time, it didn’t even come back the next day. So he’s now saying, “I’m out. I’m not buying blah, blah, blah, blah, blah”. And actually the surveyor had done the report. It was there waiting to go, but he’d gone on holiday for a couple of days and his colleague hadn’t sent it. And it’s stupid things like that, isn’t it? Again, it’s managing people’s expectations. If that guy knew that the report was going to be delayed by two days, then he’d probably be able to cope with it and realign things, but it’s the not knowing that spooks people.

Peter: Yes.

Sean: And it’s incredible those little details, those those things that shouldn’t normally make a difference, but they do, because we’re human beings and we react, don’t we?

Peter: It can happen, you have to almost prepare for everything.

Sean: Yes.

Peter: But I think if you can learn something, if it means that you have to reschedule everything that afternoon, the first day when you actually have the offer in place, you’re drafting the reservation contract, use those hours to sit down, maybe actually meet with, between the agents, even the lawyer. I’m happy to meet the lawyer the same day and sit down and have everything clearly negotiated in writing and then move ahead because the rest of the transaction will be so smooth. Everything will be easy. That’s the dream scenario of course.

Sean: Yes, it is, and that’s what I do actually. If I get to a stage where I need to get someone’s heads together, what I call it, I’ll just go to someone’s office and say, “Come on, we need to sit in a room”.

Peter: Yes.

Sean: “Talk about it for 10 minutes” and undoubtedly it gets sorted out. But it’s that, “Well I’m not talking to so and so” and “I’m not going to pick up the phone” and “I’m not doing”. And it’s like, “Oh my goodness”. Sometimes it’s like they’re handling children, but anyway that’s I suppose a little overview of some of the complexities that we have to deal with on a day-to-day basis. And we certainly do, I know you do, we try and make it as simple as possible but it’s always important I think if you’re a buyer or a seller, just to be open and honest and communicative. And I’m sure we don’t get everything right all the time but the more information we have at our disposal to enable us to do the great job we can for you, then the better for everyone. 

Peter: Nicely put.

Sean: Thanks so much, Peter. We’ll see you next time.

Peter: Thank you, Sean

Get in touch with Cloud Nine Spain

Telephone: +34 951 203 808


Get in touch with Franke and de La Fuente

Telephone: +34 951 551 480