The right of repurchase (pacto de retro) in Spanish property: Article 1507 of the Codigo Civil and the retracto convencional explained

The pacto de retro, also called the retracto convencional or venta a carta de gracia, is a sale of property in which the seller reserves the right to buy it back. Codigo Civil Article 1507 gives it statutory form: the retracto convencional takes place when the seller reserves the right to recover the thing sold, with the obligation to comply with Article 1518 and whatever else the parties agreed. Unlike the opcion de compra, which is an atypical contract that only grants a right to decide whether to buy, the pacto de retro is a completed sale where ownership has already transferred and the seller holds a contractual mechanism to reverse it.

What is the pacto de retro under Article 1507?

The pacto de retro under Article 1507 is a sale with a built in repurchase right. The buyer takes ownership at the moment of sale, not at some future point. The seller, as part of the same contract, reserves the faculty to recover the property by reimbursing the price and the expenses that Article 1518 lists. The Codigo Civil regulates it as a recognised, typical contract across Articles 1507 to 1520, unlike the purchase option which exists only under the general freedom of contract in Article 1255.

The Tribunal Supremo set out the requirements of a genuine venta con pacto de retro in Sentencia 961/2002 of 23 October 2002. The retracto convencional must be established at the moment of the sale. If a sale has already been completed without this clause, a later arrangement is not a pacto de retro but a different contract: either a purchase option or a promise to resell. The distinction matters because the pacto de retro carries a real right that, once registered, binds third parties, while a later promise is a personal obligation only.

How does the pacto de retro differ from a standard sale, a mortgage and an option?

The pacto de retro sits between three neighbouring concepts, and the differences are legally consequential. The table below maps the four mechanisms.

Feature	Standard sale	Pacto de retro (Art 1507)	Mortgage	Opcion de compra (Art 1255)
Ownership at signing	Buyer	Buyer	Borrower keeps ownership	No transfer until exercise
Reversal mechanism	None	Seller repays price plus Art 1518 expenses	Loan repayment releases lien	Optante pays price to perfect sale
Default period	N/A	4 years (Art 1508), max 10 if stipulated	Loan term	Max 4 years if registered (RH Art 14)
Registration	Sale deed (LH Art 2)	Sale deed plus retracto clause (LH Art 2)	Mortgage deed (LH Art 2)	Option deed (RH Art 14)
Premium or consideration	Sale price	Sale price (repurchase is reimbursement)	Interest on loan	Option premium
Tax at grant	ITP 7% Andalusia resale or IVA 10% new build	ITP on sale, base per ITPyAJD Reg Art 46	AJD on mortgage deed	ITP min base 5% of future price, or IVA 21%

The critical distinction from a mortgage is ownership. In a mortgage, the borrower remains the owner and the lender holds a security interest. In a pacto de retro, the buyer becomes the owner and the seller holds a contractual right to unwind the sale. The critical distinction from an opcion de compra is that the option is a precontract: no sale happens until the optante exercises. The pacto de retro is a sale that has already happened, with a reserved mechanism to reverse it.

What are the time limits for exercising the repurchase right?

Codigo Civil Article 1508 sets the exercise period. In the absence of an express agreement, the right lasts four years from the date of the contract. If the parties stipulate a period, it may not exceed ten years. These are caducidad deadlines, not prescription periods, which means they cannot be suspended or interrupted in the way prescription can.

If the seller does not exercise the right within the period, Article 1509 states that the buyer acquires irrevocable ownership of the sold thing. The window closes definitively. The Reglamento del Impuesto sobre Transmisiones Patrimoniales y Actos Juridicos Documentados (Real Decreto 828/1995) adds a tax consequence in its Article 46.2: when the repurchase right expires by lapse of the stipulated or legal period, the tax authority issues a complementary liquidation to the acquirer, with the base being the difference between the base of the earlier liquidation and the full checked value of the property. The buyer therefore faces a potential top up tax bill if the initial sale was declared at a price below the full reference value.

What must the seller reimburse to recover the property?

Article 1518 sets the reimbursement obligation. The seller cannot exercise the retracto without repaying the purchase price and, in addition, the expenses of the contract and any other legitimate payment made for the sale, and the necessary and useful expenses incurred in the sold thing.

Article 1519 governs fruits (rental income, crops or other produce). If there were manifest or grown fruits at the time of sale, no proration is made at repurchase: the buyer kept them during ownership and the seller simply takes the property back. If there were no fruits at the time of sale but there are some at the time of repurchase, they are prorated between the retrayente and the buyer for the last year counting from the sale.

Article 1520 gives the recovered property back to the seller free of any charge or mortgage the buyer imposed on it. The seller takes it unencumbered by the buyer’s later acts, but must respect good faith leases the buyer granted according to local custom. This is the unwinding logic: the sale is treated as if it never happened, so the buyer’s encumbrances fall away.

Who can the seller enforce the retracto against?

Article 1510 extends the seller’s action beyond the original buyer. The seller may exercise the retracto against any possessor who derives title from the buyer, even if the second contract does not mention the pacto de retro. The right follows the property, not just the person.

This is where registration matters. The Ley Hipotecaria Article 2 lists the retracto convencional among the inscribible acts when the object is an inmueble. Registration makes the right enforceable erga omnes, against all third parties. Without registration, the seller’s action is still valid against successive buyers who derive from the original buyer, but a good faith third party acquirer protected by the registry may defeat it. The principle of speciality, applied by registrars, requires the inscription to specify the property, the exercise period and the reimbursement terms.

Article 1511 adds that the buyer substitutes the seller in all the seller’s rights and actions relating to the property. Article 1512 protects the buyer further: the seller’s creditors cannot use the retracto convencional against the buyer until they have exhausted the seller’s own assets (excusion).

What is the pacto comisorio problem and why does it matter?

The pacto de retro has a historical shadow. The venta a carta de gracia was often used as a disguised loan: a person needing finance would “sell” property to a lender at a price equal to the loan, with a pacto de retro allowing recovery by repaying. If the borrower did not repay in time, the lender kept the property. This is a pacto comisorio, and Article 1859 of the Codigo Civil prohibits it.

The Tribunal Supremo has struck this down repeatedly. Sentencia 34/2012 of 27 January 2012 described the typical case: a simulated sale hiding a loan, where the lender acquires the property if the borrower fails to repay. Such a pacto comisorio is null. Sentencia 77/2020 of 4 February 2020 reiterated and detailed the doctrine, extending the prohibition to indirect or fiduciary transactions that pursue a guarantee function. The court held that the nullity applies not only to typical guarantee contracts but to any business that achieves the same result through a different structure.

The practical consequence for anyone considering a pacto de retro in Spanish property is that the arrangement must be a genuine sale with a genuine repurchase right, not a loan dressed up as a sale. If a court finds the transaction is a disguised loan with an automatic forfeiture mechanism, the sale is void and the parties are restored to their original positions. This is why the private sale contract and the escritura must state a real price, a real exercise period and the Article 1518 reimbursement terms, not a formula that mimics a loan repayment.

How is the pacto de retro taxed?

The tax framework is in Article 46 of the Reglamento del ITPyAJD (Real Decreto 828/1995). It treats the pacto de retro in three stages.

At the initial sale with a retro clause, the transmission is taxed as an ordinary sale. The tax base is the declared price, provided it equals or exceeds two thirds of the checked value of the property. If the declared price is lower, the two thirds threshold applies. The applicable tax is ITP at 7 per cent in Andalusia for a resale, or IVA at 10 per cent plus AJD at approximately 1.2 per cent for a new build, the same as any property purchase.

At exercise of the repurchase, the base is two thirds of the checked value of the retraido property, provided it equals or exceeds the retrocession price. The Reglamento also values the right to retraer at one third of the total value of the property for any valuation need, unless the declared value is higher.

If the right expires without exercise, Article 46.2 triggers a complementary liquidation. The tax authority charges the acquirer the difference between the base of the earlier liquidation and the full checked value. This catches cases where the initial sale was taxed on a partial base (the two thirds rule) and the buyer then keeps the property outright.

A buyer who later sells the property after the retracto period has lapsed should be aware that the complementary liquidation may apply. For a non resident seller, the standard 19 per cent CGT and 3 per cent buyer retention under non resident CGT rules would apply to any gain on the subsequent sale, calculated from the acquisition cost that includes any complementary ITP adjustment.

How does the pacto de retro interact with property valuation?

Because the pacto de retro is a sale with a deferred reversal mechanism, the price agreed in the original contract is the reference point for both the repurchase obligation and the tax base. A property valuation at the time of the original sale establishes whether the declared price meets the two thirds threshold under ITPyAJD Regulation Article 46.1, and a later valuation at the time of repurchase determines whether the retrocession price meets the two thirds of checked value threshold for the exercise stage.

The risk for a seller is that if the property has appreciated significantly between sale and repurchase, the reimbursable price is still the original sale price plus Article 1518 expenses. The seller recovers the property at the old price, which is the economic logic of the pacto de retro for a seller who expects to regain the asset. The risk for a buyer is the opposite: if the property has depreciated, the buyer is still entitled to the full original price back, not the current market value.

What should a foreign buyer or seller watch for?

Four points matter for an international party encountering a pacto de retro in Spain. First, the clause must be in the original sale deed, not added later. The Tribunal Supremo in Sentencia 961/2002 was clear that a post sale arrangement is a different contract. Second, the exercise period is short and peremptory: four years default, ten years maximum, and a missed deadline is final under Article 1509. Third, registration at the Land Registry under Ley Hipotecaria Article 2 is what makes the right enforceable against third parties, including a buyer who later acquires from the original buyer. Fourth, the transaction must be a genuine sale, not a disguised loan, or the pacto comisorio prohibition in Article 1859 will void it.

For a buyer acquiring property subject to a registered pacto de retro, the pre emption and first refusal rights framework is relevant context: the registered retracto is a real right that runs with the land, so the buyer takes subject to it. For a seller using the mechanism to retain a path back to the property, the reimbursement math under Article 1518 should be modelled at the outset, because the obligation covers not just the price but the contract expenses and the necessary and useful improvements the buyer made.

This guide is general information, not legal or tax advice. Rules change and individual circumstances differ. Verify current requirements with an independent lawyer (abogado) or tax advisor (gestor/asesor fiscal) before acting.