Arrhes in the context of real estate financing
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Arrhes correspond to a sum of money (or, more rarely, to a good) paid at the moment of the signing of a contract. They express the firm intention to conclude the agreement and bind both parties to respect their commitments. It is therefore a strong signal of seriousness, particularly in financing procedures.
What is the difference between arrhes and a down payment?
It is important not to confuse arrhes with a down payment.
- A down payment firmly binds both parties: in case of withdrawal, the defaulting party may be forced to pay damages and interest.
- Arrhes, on the other hand, offer a form of contractual freedom:
- The buyer can renounce the purchase, but loses the arrhes.
- The seller can also withdraw, but must return double the amount received.
- The buyer can renounce the purchase, but loses the arrhes.
This principle is provided for in Article 158 of the Swiss Code of Obligations.
Why are arrhes rarely used in real estate in Switzerland?
In Swiss real estate practice, arrhes are rare. This is explained by the amounts at stake, often very high, and by the need to secure contractual commitments. They are therefore generally replaced by a penalty clause, inserted directly in the contract.
This clause:
- Provides in advance for a fixed compensation in case of breach of contract,
- Helps to limit conflicts by bringing clarity,
- And reassures both parties during important transactions.
Concrete example of arrhes
Imagine that an individual wishes to buy a property and pays CHF 10,000 at the moment of signing a preliminary sales agreement:
- If he finally decides not to buy, he loses this amount.
- If the seller changes his mind, he must return CHF 20,000 to him.
In a contract with a penalty clause, the contract could provide that in case of withdrawal by either party, a compensation of CHF 15,000 is paid, independently of the amount initially advanced.
Key takeaways
- Arrhes can secure a transaction, but offer a right of withdrawal at a known cost.
- They are rare in Swiss real estate, in favour of more precise clauses.
- Before any payment, it is essential to carefully read the terms of the contract to identify whether it concerns arrhes, a down payment, or a penalty clause.
FAQ on arrhes in real estate
What do arrhes mean in a real estate contract?
Arrhes correspond to a sum paid at the signing of a contract to materialise the commitment of the parties. They allow both the buyer and the seller to withdraw, subject to a penalty:
The buyer loses the arrhes paid,
The seller must return double.
What is the difference between arrhes and a down payment?
A down payment definitively binds both parties: the transaction must be completed, under penalty of damages and interest.
Arrhes leave a margin of regulated withdrawal: loss for the buyer, doubled restitution for the seller.
Are arrhes frequent in Switzerland?
No. In Swiss real estate, arrhes are rarely used due to the large amounts involved and the desire to secure contracts more strongly. They are replaced by a penalty clause included in the deed, which sets a fixed compensation in case of breach.
What is the advantage of a penalty clause compared to arrhes?
The penalty clause has several advantages:
It defines clear and fixed compensation,
It avoids disputes,
It secures the transaction for both parties.
Is there a legal framework for arrhes in Switzerland?
Yes. Arrhes are governed by Article 158 of the Swiss Code of Obligations, which defines their effects in case of withdrawal by the seller or the buyer.
