Having seen what the sale of something else and the double sale consisted of in our third article on special sales and purchases, we will now explain what the sale and purchase of a property with a back-to-back agreement means.
1.-What Does The Back To Back Contract Consist Of?
The contract for the sale and purchase of a property is an agreement that has been used throughout history in different cultures and legal systems to regulate the transfer of ownership. In Spain it is currently regulated by the Civil Code, the Catalan Law and the Fuero Nuevo de Navarra. In this type of transaction, the seller reserves the right to repossess the sold property within a certain period of time, returning to the buyer the purchase price plus any expenses incurred.
It is regulated in article 1507 of the Civil Code, which states.
“Conventional withdrawal takes place when the seller reserves the right to recover the thing sold, with the obligation to comply with what is expressed in article 1.518 and the rest of what has been agreed.”
In the specific case of the purchase of a property with a back-purchase agreement, both parties agree on the conditions of the sale and the period within which the seller may exercise his right to repossess the property. This method can be advantageous for both parties, as it provides the vendor with the security of being able to repossess the property in the event of unforeseen circumstances, while allowing the purchaser to acquire and occupy the property immediately, albeit with the possibility of losing it if the vendor decides to exercise his right to resell.
2.- Characteristics Of The Resale Contract
Our courts, in judgement 961/2022 of 23 October 2002, defined the characteristics of the sale and purchase with a back-sale agreement, in particular:
- that its exercise depends on the simple will of the seller, at his unilateral initiative, so that this requirement is not met in cases where an express resolutory condition is operative;
- that it consists of a right of withdrawal or repurchase and not of repurchase; or
- that the right is exercised within the contractual or legal period, failing which the expiry of the conventional right of withdrawal is irrevocably established and the buyer irrevocably acquires the ownership of the thing sold by virtue of the expiry of the right of withdrawal; and
- Fulfilment of the obligations set out in Article 1518 of the Civil Code:
- The costs of the contract and any other legitimate payment made for the sale.
- Necessary and useful expenses incurred on the thing sold.
- The right to a resale contract must be established at the time of the sale, it cannot be established after the sale.
3.- Duration Of The Retrocession Right
In accordance with the provisions of article 1508 of the Civil Code, a time limit may or may not be agreed for the exercise of the right of resale.
- If a term is agreed, it may not exceed 10 years (including the initial term and renewals).
- If no term has been agreed, it shall be 4 years.
4.- Who Exercises The Right Of Withdrawal?
- The withdrawing party
The right of revocation is exercised by the revoking party, who must be entitled to exercise it. This may be the vendor or the vendor’s creditors, as defined in Article 1512 of the Civil Code.
This right of Retro may be mortgaged, as stipulated in article 107.8 of the Mortgage Act:
“It may also be mortgaged (…) The right of conventional retraction, although the creditor may not repeat against the mortgaged assets without previously retracting them on behalf of the debtor, in the time in which the latter has the right and anticipating the amount that is necessary for this purpose.” - The purchaser subject to a retro agreement, either the purchaser himself or the person who subsequently acquires the property.
In both cases, there may be several holders of this right.
5.- Considerations Concerning The Retro Contract
From a legal point of view, the purchase of a property with a retroactive agreement is governed by the laws and regulations of each jurisdiction. It is essential that both parties know and understand the terms of the agreement, including the duration of the sale and repurchase agreement, the payment terms and the responsibilities of each party. Specialist legal advice is advisable to ensure that the contract complies with applicable laws and to protect the rights and interests of both parties.
In practice, buying a property with a back-to-back agreement can be a useful strategy for those who wish to sell a property but retain some control over the transaction. On the other hand, buyers may also benefit from acquiring a property with the possibility of waiving their rights in the event that the seller exercises its right to resell.
In conclusion, the purchase of a property with a back-to-back agreement is a type of transaction that offers flexibility and security to both parties. However, it is important to be aware of the legal and financial implications of this type of agreement and to ensure that you have the right advice to protect the interests of all parties.
Please contact us if you have any questions about buying or selling by way of a sale and purchase agreement.
