Arras contracts explained and which one you signed

Key rules

• Default type: If the contract does not say which kind of arras it is, it is treated as penitential.
• Buyer withdrawing: With penitential arras, a buyer who withdraws loses the arras and nothing more.
• Seller withdrawing: With penitential arras, a seller who withdraws returns double the arras.
• Timing: Withdrawal under penitential arras must happen before the other side has started performing the contract.
• Confirmatory arras: They give no right to withdraw and count toward the price.

The short answer

Arras are money the buyer hands over when signing a private sale contract. There are three kinds: confirmatory, penitential and penal. If your contract does not say which one it is, it is treated as penitential. The kind decides whether you can walk away and what that costs.

Confirmatory arras: a deposit, not an exit

Confirmatory arras are an advance on the price and proof that the deal is binding. They give nobody a right to withdraw.

• The sum counts toward the price.
• If the other side breaches, you can demand that they complete the sale, or end the contract. In both cases you can also claim damages.
• Simply deciding you no longer want to go ahead is a breach.

Penitential arras: a priced way out

Penitential arras let either side withdraw, at a set price. This is the default.

• Buyer: if you withdraw, you lose the arras. That is the whole price of leaving. The seller cannot claim further damages.
• Seller: if you withdraw, you return double the arras.
• Courts do not usually reduce the amount lost, unlike with a penalty clause.
• You can only withdraw before the other side has started performing the contract, and the buyer must actually have paid the arras.
• Penitential arras are an exception that must be clearly agreed. In practice the default applies when the contract is silent, so check your wording carefully.

Penal arras: a penalty for breach

Penal arras are a penalty agreed in advance for breaking the contract. They do not give a free exit.

• If the other side breaches, the innocent party can claim the arras or double, or demand that the sale be completed. Which of these applies depends on the clause.
• Read the clause closely. It sets out exactly what you can claim.

Side by side

How to tell which one you signed

Look for the word "arras" in the contract and the words around it. Wording such as "confirmatory", "penitential" or "penal", or a clause giving a right to withdraw, shows the kind. Wording that speaks of a penalty for breach points to penal arras. A clause that only says money was paid on account of the price, with no withdrawal mechanism, points to confirmatory arras. If the contract says nothing, treat it as penitential. If you are unsure, ask a lawyer to read the clause before you act or pay anything further.

The decision, warnings and questions below take you through the practical cases.

Choosing between options

Which type of arras does your contract have?

• Confirmatory arras: The contract calls the payment an advance on the price that confirms the deal. Neither side can withdraw. Either can demand performance or end the contract for breach and claim damages.

• Penitential arras: The contract gives a right to withdraw, or says nothing about the type. The buyer who withdraws loses the arras, and the seller who withdraws returns double. No further damages can be claimed.

• Penal arras: The contract treats the arras as a penalty for breach. The innocent party may claim the arras or double, or demand performance, depending on the clause.

Read the clause first. If it clearly says confirmatory or penal, that type applies. If it does not say, treat the arras as penitential.

What to watch out for

• You may have penitential arras without knowing: If the contract just says arras and nothing more, you may be treated as having penitential arras. Then either side can walk away at a price, and the deal is less secure than you may think. Ask for the contract to name the type: confirmatory, penitential or penal. Do not sign if the wording is vague.

• Penal arras can cost you the arras or double: Penal arras are a pre-agreed penalty for breach. The innocent party may claim the arras or double, or demand performance, depending on the clause. Read the clause to see exactly which penalty applies to you before you pay.

• Confirmatory arras do not let you walk away: Confirmatory arras are an advance payment, not a way out. If you pull out, the other side can demand performance or end the contract and claim damages. Only sign this type if you are sure you want to complete the purchase.

• Withdrawing too late: A penitential withdrawal only works before the other side has started to perform, and the buyer must have paid the arras. If you want to withdraw, act early and in line with the contract.

Frequently asked questions

Can the seller keep claiming money if the buyer withdraws with penitential arras?

No, a seller cannot claim further damages if the buyer withdraws under penitential arras. Losing the arras is the full price of withdrawing. The buyer must withdraw as the contract allows and before either side has started to perform.

Can a court reduce the arras I lose with penitential arras?

Courts do not usually reduce penitential arras, unlike an ordinary penalty clause. The amount you agreed is normally the amount you lose. Check the figure carefully before you sign.

Can I still pull out if I signed confirmatory arras?

No, confirmatory arras give no right to withdraw. They are an advance payment on the price and show the contract is binding.