Contents
What is a reservation contract and what obligations does it generate
Types of deposit: penitential deposits, confirmatory deposits and advance payments
Essential clauses in any reservation contract
How much to charge as a deposit and why the amount matters
Reservation period: how to set it to protect the dealership
What happens if the buyer does not formalise the purchase on time
What happens if the dealership cannot deliver the vehicle
Online reservations: legal validity and specific requirements
Common mistakes in reservation contracts and their consequences
Frequently asked questions
What is a reservation contract and what obligations does it generate
The reservation contract is a pre-contract: a prior agreement to the final sale in which the buyer undertakes to formalise the purchase within a specified period and the dealership undertakes not to sell the vehicle to anyone else during that period.
It does not transfer ownership of the vehicle. It is not the contract of sale. But it is an agreement with legal force that generates reciprocal obligations from the moment both parties sign it. A well-drafted reservation contract answers three basic questions: what happens if the buyer backs out, what happens if the dealership cannot deliver the vehicle, and what happens if the deadline simply expires without anyone doing anything.
If the contract does not answer those three questions clearly, any unforeseen event can lead to a conflict that has no easy solution.
Types of deposit: penitential deposits, confirmatory deposits and advance payments
The legal classification of the deposit delivered determines what happens if either party breaches the agreement. A deposit treated as an advance payment is not the same as a penitential deposit (arras penitenciales), even if the amount is identical.
Penitential deposits (art. 1454 of the Civil Code). This is the modality with the clearest and most symmetrical consequences. If the buyer backs out, they lose the amount delivered. If the dealership backs out, it must return double what was received. This modality acts as a penalty for backing out and allows either party to terminate the contract by paying that cost. For it to apply, it must be expressly agreed as a penitential deposit in the contract.
Confirmatory deposits. These reinforce the commitment of both parties but do not allow unilateral withdrawal by paying a penalty. If one party breaches the contract, the other can demand forced performance of the contract or termination with damages, which can exceed the amount of the deposit. This modality is more onerous in the event of a conflict because it involves more complex procedures.
Advance payment. If the contract simply states that the buyer delivers X pounds "on account of the total price" without classifying the payment as a deposit, the amount is an advance. In the event of withdrawal by the buyer, the dealership may or may not retain it depending on whether there was a breach and who committed it. It is the most ambiguous modality and the one that generates the most conflicts precisely because of this lack of clarity.
The recommendation for most dealerships is to use penitential deposits. They generate clear expectations for both parties, simplify the management of withdrawals and avoid arguments about who owes what to whom when the transaction is not formalised. To understand how the reservation fits into the complete transaction process, you can consult the guide on essential contracts in professional car sales.
Essential clauses in any reservation contract
A reservation contract that protects the dealership must include at least these elements:
Full identification of both parties. Name or company name, National Identity Number or Company Identification Number, address and contact details of the buyer and the dealership. If the buyer is acting on behalf of a company, include the documentation proving that representation.
Exact description of the reserved vehicle. Make, model, version, colour, registration plate or chassis number if already available, year of manufacture, mileage at the time of reservation. The more precise the description, the less room there is for disputes over whether the vehicle delivered matches the one reserved.
Total agreed price. The sale price of the vehicle must be fixed in the reservation contract. If the price varies between reservation and delivery without a justified cause, the buyer may consider that the dealership is breaching the agreed conditions.
Deposit amount, payment method and legal classification. How much is delivered, how it is paid (transfer, card, cash) and whether it is a penitential deposit, confirmatory deposit or advance payment. This clause is the most important for managing withdrawals.
Validity period of the reservation. The deadline until which the dealership keeps the vehicle reserved. Without a defined period, the reservation can be interpreted as indefinite, forcing the dealership to keep the vehicle set aside indefinitely or to terminate the contract with greater complexity.
Consequences of the buyer's withdrawal. What happens if the buyer does not formalise the purchase before the deadline: retention of the deposit (if it is a penitential deposit), partial refund, or application of the advance to a future transaction.
Consequences of the dealership's non-performance. What happens if the dealership cannot deliver the vehicle under the agreed conditions: refund of the deposit, refund of double the amount if it is a penitential deposit, or any other expressly agreed commitment.
Exclusivity during the reservation period. A clause stating that the dealership will not sell the vehicle to third parties while the reservation is in force. It is implicit, but putting it in writing avoids misunderstandings.
Date, place and signature of both parties. The contract must be signed by the buyer and the dealership's representative, with the date and place of signing.
To see how the reservation fits into the complete documentation process, consult the guide on compulsory documentation in each buying and selling transaction.
How much to charge as a deposit and why the amount matters
There is no legally established percentage for the deposit in vehicle reservation contracts. Common practice in the sector ranges between 5% and 15% of the sales price, with frequent amounts between £300 and £1,500 depending on the price of the vehicle.
The amount of the deposit serves two practical functions. The first is to cover the opportunity cost of the dealership: if the vehicle was set aside for several days or weeks and the buyer backs out, the deposit compensates for the time the car was not available to other buyers. The second is to act as a commitment filter: a deposit that is too low does not create enough incentive for the buyer to comply.
A very low deposit (less than 3-5% of the price) may not be enough to prevent the buyer from backing out at the slightest difficulty. A very high deposit can generate resistance in the customer to sign and can be questioned as abusive if there is a subsequent claim.
The 5-10% range is usually the most common balance and the one that generates fewer conflicts in practice.
Reservation period: how to set it to protect the dealership
The period must be long enough for the buyer to arrange what they need (securing finance, selling their current car, making a final decision) but not so long that it immobilises the vehicle for weeks without any certainty of closure.
The most common periods range between 7 and 21 days. For high-priced vehicles where the buyer needs to process finance, periods of up to 30 days are reasonable. For medium-priced vehicles with a decided buyer, 7-10 days is sufficient.
What is important is not only the duration of the period, but what happens when it expires. The contract must expressly state that, if the buyer has not formalised the purchase before the deadline without prior communication, the reservation expires and the dealership can freely dispose of the vehicle, with retention of the deposit if so agreed.
Without that automatic expiry clause, the dealership may find itself in an ambiguous situation where the deadline has passed but technically the reservation has not been formally cancelled.
What happens if the buyer does not formalise the purchase on time
If the contract includes a penitential deposit and the buyer does not formalise the purchase before the expiry date without justified cause, the dealership can retain the deposit and release the vehicle. No additional paperwork is needed: the retention of the deposit is the automatic consequence of the withdrawal.
If the contract only includes an advance payment without express classification as a deposit, the situation is more complex. The dealership can retain the deposit if it can prove damages due to the breach of contract (vehicle immobilisation time, loss of other sales), but not automatically.
If the buyer claims they could not formalise the purchase due to circumstances beyond their control (problems with declined finance, a personal emergency), and the contract does not regulate that situation, there may be room for discussion on whether the withdrawal was justified. Including a clause stating that finance refusal does not exempt the buyer from the consequences of withdrawal, or that it does exempt them but with a full refund of the deposit without penalty, eliminates this ambiguity.
What happens if the dealership cannot deliver the vehicle
The most common situations are: the vehicle suffers damage before delivery, an administrative lien or incident arises preventing the transfer, or the dealership mistakenly sells the vehicle to someone else.
If there is a penitential deposit, the dealership must return double the received deposit. If the deposit was an advance payment, the dealership must return the amount received and may be exposed to additional claims for damages if the buyer proves a specific loss.
To protect against the event of administrative incidents on the vehicle (embargos, liens that were not detected before the reservation), it is advisable to check the DGT traffic report before signing the reservation contract, not after. A lien that appears after signing the reservation can cost more than the deposit if double has to be returned. To see how liens affect vehicle transfers, you can consult the guide on how to remove a lien from a car.
Online reservations: legal validity and specific requirements
A digitally signed reservation contract has the same validity as a paper one, provided that the electronic signature meets the requirements of the eIDAS Regulation (EU Regulation 910/2014) and Law 6/2020 on trust services for electronic transactions.
For an online reservation to be valid, it must meet the same content requirements as an in-person one (identification of parties, description of the vehicle, price, deposit, period, consequences of withdrawal) plus some specific to the digital channel: express confirmation of acceptance of the conditions by the buyer (it is not enough for the conditions to appear on the website if the buyer does not actively accept them), record of the deposit payment linked to the specific reservation, and process traceability (IP, date and time of the signature).
Online reservations using a "reserve" button without an explicit contract, with a deposit payment but without clear terms and conditions on what happens if the purchase is not formalised, are common but have little legal strength in the event of a conflict.
If the dealership regularly sells online, it is advisable that the online reservation process includes a contract that can be downloaded and signed digitally, not just a summary of general terms and conditions. To see how online purchases affect the buyer's rights of withdrawal, you can review the article on what to do if the customer wants to return the car.
Common mistakes in reservation contracts and their consequences
Not classifying the deposit as a penitential deposit. If the contract says "£500 deposit" without further specification, in the event of the buyer's withdrawal there may be an argument over whether the dealership has the right to retain it. Express classification as a penitential deposit with reference to article 1454 of the Civil Code eliminates this ambiguity.
Not setting an expiry date. A reservation without a deadline can be interpreted as indefinite. If the buyer disappears without formally cancelling, the dealership may not be able to release the vehicle without legal risk until a reasonable time has elapsed.
Fixing the reservation price and then trying to change it before delivery. If the price is fixed in the reservation contract and the dealership tries to change it before formalising the purchase (for example, because the vehicle has increased in value), the buyer can demand performance at the agreed price or double the deposit back.
Not including the chassis number. For vehicles that do not yet have a definitive registration plate (imports, pre-registered vehicles in transit), the chassis number is the only unambiguous identifier. Without it, the contract may not unequivocally bind a specific vehicle.
Not keeping a signed copy of the reservation contract. If there is a dispute over the agreed conditions and the dealership does not have the copy signed by the buyer, its position is much weaker.
To understand the consequences of each type of deposit, see how to avoid claims after selling a used car.
More than 750 dealerships already use Dealcar to manage their daily operations
Dealcar allows you to generate reservation contracts directly from each vehicle's file with all fields pre-filled, send it for digital signature to the buyer, and record the payment of the deposit linked to the vehicle's record. Monitoring of active, expired, and cancelled reservations is centralised without the need to manage folders or separate spreadsheets.
If you want to see how it works, you can book a free demo at dealcar.io.
Frequently asked questions
Is it compulsory to formalise the reservation in writing?
It is not required by law, but it is essential in practice. Without a written contract, both parties are exposed to any dispute over the agreed conditions having no clear solution. A verbal reservation contract has very limited evidentiary value.
Can the dealership collect the deposit in cash?
Yes, although payment by transfer or card leaves a paper trail that makes it easier to prove that it was made and for what amount. If the payment is in cash, the receipt signed by both parties is the proof of the transaction.
Is the reservation deposit subject to VAT?
If the reservation is formalised as an advance payment on account of the sale price and the sale is subject to VAT, the deposit is also subject to VAT at the time it is collected (even if the final sale has not yet taken place). If the sale falls under the Margin Scheme (REBU), the deposit also forms part of the margin base.
Can the reservation contract include conditions subsequent?
Yes. The contract may provide that the reservation is cancelled if a specific condition occurs, such as the rejection of the financing requested by the buyer. If such a condition subsequent is included, it is advisable to specify whether in that case the deposit is returned in full or if there is some retention.
What is the difference between a reservation contract and an option to buy contract?
An option to buy contract is more complex: the dealership grants the buyer the right (not the obligation) to purchase the vehicle at a set price during a certain period. The buyer pays a premium for this right and may or may not exercise it. In a reservation contract, both parties are committed: the buyer to formalise the purchase and the dealership to keep the vehicle available. In practice, dealerships use reservations, not options.
Contents
What is a reservation contract and what obligations does it generate
Types of deposit: penitential deposits, confirmatory deposits and advance payments
Essential clauses in any reservation contract
How much to charge as a deposit and why the amount matters
Reservation period: how to set it to protect the dealership
What happens if the buyer does not formalise the purchase on time
What happens if the dealership cannot deliver the vehicle
Online reservations: legal validity and specific requirements
Common mistakes in reservation contracts and their consequences
Frequently asked questions
What is a reservation contract and what obligations does it generate
The reservation contract is a pre-contract: a prior agreement to the final sale in which the buyer undertakes to formalise the purchase within a specified period and the dealership undertakes not to sell the vehicle to anyone else during that period.
It does not transfer ownership of the vehicle. It is not the contract of sale. But it is an agreement with legal force that generates reciprocal obligations from the moment both parties sign it. A well-drafted reservation contract answers three basic questions: what happens if the buyer backs out, what happens if the dealership cannot deliver the vehicle, and what happens if the deadline simply expires without anyone doing anything.
If the contract does not answer those three questions clearly, any unforeseen event can lead to a conflict that has no easy solution.
Types of deposit: penitential deposits, confirmatory deposits and advance payments
The legal classification of the deposit delivered determines what happens if either party breaches the agreement. A deposit treated as an advance payment is not the same as a penitential deposit (arras penitenciales), even if the amount is identical.
Penitential deposits (art. 1454 of the Civil Code). This is the modality with the clearest and most symmetrical consequences. If the buyer backs out, they lose the amount delivered. If the dealership backs out, it must return double what was received. This modality acts as a penalty for backing out and allows either party to terminate the contract by paying that cost. For it to apply, it must be expressly agreed as a penitential deposit in the contract.
Confirmatory deposits. These reinforce the commitment of both parties but do not allow unilateral withdrawal by paying a penalty. If one party breaches the contract, the other can demand forced performance of the contract or termination with damages, which can exceed the amount of the deposit. This modality is more onerous in the event of a conflict because it involves more complex procedures.
Advance payment. If the contract simply states that the buyer delivers X pounds "on account of the total price" without classifying the payment as a deposit, the amount is an advance. In the event of withdrawal by the buyer, the dealership may or may not retain it depending on whether there was a breach and who committed it. It is the most ambiguous modality and the one that generates the most conflicts precisely because of this lack of clarity.
The recommendation for most dealerships is to use penitential deposits. They generate clear expectations for both parties, simplify the management of withdrawals and avoid arguments about who owes what to whom when the transaction is not formalised. To understand how the reservation fits into the complete transaction process, you can consult the guide on essential contracts in professional car sales.
Essential clauses in any reservation contract
A reservation contract that protects the dealership must include at least these elements:
Full identification of both parties. Name or company name, National Identity Number or Company Identification Number, address and contact details of the buyer and the dealership. If the buyer is acting on behalf of a company, include the documentation proving that representation.
Exact description of the reserved vehicle. Make, model, version, colour, registration plate or chassis number if already available, year of manufacture, mileage at the time of reservation. The more precise the description, the less room there is for disputes over whether the vehicle delivered matches the one reserved.
Total agreed price. The sale price of the vehicle must be fixed in the reservation contract. If the price varies between reservation and delivery without a justified cause, the buyer may consider that the dealership is breaching the agreed conditions.
Deposit amount, payment method and legal classification. How much is delivered, how it is paid (transfer, card, cash) and whether it is a penitential deposit, confirmatory deposit or advance payment. This clause is the most important for managing withdrawals.
Validity period of the reservation. The deadline until which the dealership keeps the vehicle reserved. Without a defined period, the reservation can be interpreted as indefinite, forcing the dealership to keep the vehicle set aside indefinitely or to terminate the contract with greater complexity.
Consequences of the buyer's withdrawal. What happens if the buyer does not formalise the purchase before the deadline: retention of the deposit (if it is a penitential deposit), partial refund, or application of the advance to a future transaction.
Consequences of the dealership's non-performance. What happens if the dealership cannot deliver the vehicle under the agreed conditions: refund of the deposit, refund of double the amount if it is a penitential deposit, or any other expressly agreed commitment.
Exclusivity during the reservation period. A clause stating that the dealership will not sell the vehicle to third parties while the reservation is in force. It is implicit, but putting it in writing avoids misunderstandings.
Date, place and signature of both parties. The contract must be signed by the buyer and the dealership's representative, with the date and place of signing.
To see how the reservation fits into the complete documentation process, consult the guide on compulsory documentation in each buying and selling transaction.
How much to charge as a deposit and why the amount matters
There is no legally established percentage for the deposit in vehicle reservation contracts. Common practice in the sector ranges between 5% and 15% of the sales price, with frequent amounts between £300 and £1,500 depending on the price of the vehicle.
The amount of the deposit serves two practical functions. The first is to cover the opportunity cost of the dealership: if the vehicle was set aside for several days or weeks and the buyer backs out, the deposit compensates for the time the car was not available to other buyers. The second is to act as a commitment filter: a deposit that is too low does not create enough incentive for the buyer to comply.
A very low deposit (less than 3-5% of the price) may not be enough to prevent the buyer from backing out at the slightest difficulty. A very high deposit can generate resistance in the customer to sign and can be questioned as abusive if there is a subsequent claim.
The 5-10% range is usually the most common balance and the one that generates fewer conflicts in practice.
Reservation period: how to set it to protect the dealership
The period must be long enough for the buyer to arrange what they need (securing finance, selling their current car, making a final decision) but not so long that it immobilises the vehicle for weeks without any certainty of closure.
The most common periods range between 7 and 21 days. For high-priced vehicles where the buyer needs to process finance, periods of up to 30 days are reasonable. For medium-priced vehicles with a decided buyer, 7-10 days is sufficient.
What is important is not only the duration of the period, but what happens when it expires. The contract must expressly state that, if the buyer has not formalised the purchase before the deadline without prior communication, the reservation expires and the dealership can freely dispose of the vehicle, with retention of the deposit if so agreed.
Without that automatic expiry clause, the dealership may find itself in an ambiguous situation where the deadline has passed but technically the reservation has not been formally cancelled.
What happens if the buyer does not formalise the purchase on time
If the contract includes a penitential deposit and the buyer does not formalise the purchase before the expiry date without justified cause, the dealership can retain the deposit and release the vehicle. No additional paperwork is needed: the retention of the deposit is the automatic consequence of the withdrawal.
If the contract only includes an advance payment without express classification as a deposit, the situation is more complex. The dealership can retain the deposit if it can prove damages due to the breach of contract (vehicle immobilisation time, loss of other sales), but not automatically.
If the buyer claims they could not formalise the purchase due to circumstances beyond their control (problems with declined finance, a personal emergency), and the contract does not regulate that situation, there may be room for discussion on whether the withdrawal was justified. Including a clause stating that finance refusal does not exempt the buyer from the consequences of withdrawal, or that it does exempt them but with a full refund of the deposit without penalty, eliminates this ambiguity.
What happens if the dealership cannot deliver the vehicle
The most common situations are: the vehicle suffers damage before delivery, an administrative lien or incident arises preventing the transfer, or the dealership mistakenly sells the vehicle to someone else.
If there is a penitential deposit, the dealership must return double the received deposit. If the deposit was an advance payment, the dealership must return the amount received and may be exposed to additional claims for damages if the buyer proves a specific loss.
To protect against the event of administrative incidents on the vehicle (embargos, liens that were not detected before the reservation), it is advisable to check the DGT traffic report before signing the reservation contract, not after. A lien that appears after signing the reservation can cost more than the deposit if double has to be returned. To see how liens affect vehicle transfers, you can consult the guide on how to remove a lien from a car.
Online reservations: legal validity and specific requirements
A digitally signed reservation contract has the same validity as a paper one, provided that the electronic signature meets the requirements of the eIDAS Regulation (EU Regulation 910/2014) and Law 6/2020 on trust services for electronic transactions.
For an online reservation to be valid, it must meet the same content requirements as an in-person one (identification of parties, description of the vehicle, price, deposit, period, consequences of withdrawal) plus some specific to the digital channel: express confirmation of acceptance of the conditions by the buyer (it is not enough for the conditions to appear on the website if the buyer does not actively accept them), record of the deposit payment linked to the specific reservation, and process traceability (IP, date and time of the signature).
Online reservations using a "reserve" button without an explicit contract, with a deposit payment but without clear terms and conditions on what happens if the purchase is not formalised, are common but have little legal strength in the event of a conflict.
If the dealership regularly sells online, it is advisable that the online reservation process includes a contract that can be downloaded and signed digitally, not just a summary of general terms and conditions. To see how online purchases affect the buyer's rights of withdrawal, you can review the article on what to do if the customer wants to return the car.
Common mistakes in reservation contracts and their consequences
Not classifying the deposit as a penitential deposit. If the contract says "£500 deposit" without further specification, in the event of the buyer's withdrawal there may be an argument over whether the dealership has the right to retain it. Express classification as a penitential deposit with reference to article 1454 of the Civil Code eliminates this ambiguity.
Not setting an expiry date. A reservation without a deadline can be interpreted as indefinite. If the buyer disappears without formally cancelling, the dealership may not be able to release the vehicle without legal risk until a reasonable time has elapsed.
Fixing the reservation price and then trying to change it before delivery. If the price is fixed in the reservation contract and the dealership tries to change it before formalising the purchase (for example, because the vehicle has increased in value), the buyer can demand performance at the agreed price or double the deposit back.
Not including the chassis number. For vehicles that do not yet have a definitive registration plate (imports, pre-registered vehicles in transit), the chassis number is the only unambiguous identifier. Without it, the contract may not unequivocally bind a specific vehicle.
Not keeping a signed copy of the reservation contract. If there is a dispute over the agreed conditions and the dealership does not have the copy signed by the buyer, its position is much weaker.
To understand the consequences of each type of deposit, see how to avoid claims after selling a used car.
More than 750 dealerships already use Dealcar to manage their daily operations
Dealcar allows you to generate reservation contracts directly from each vehicle's file with all fields pre-filled, send it for digital signature to the buyer, and record the payment of the deposit linked to the vehicle's record. Monitoring of active, expired, and cancelled reservations is centralised without the need to manage folders or separate spreadsheets.
If you want to see how it works, you can book a free demo at dealcar.io.
Frequently asked questions
Is it compulsory to formalise the reservation in writing?
It is not required by law, but it is essential in practice. Without a written contract, both parties are exposed to any dispute over the agreed conditions having no clear solution. A verbal reservation contract has very limited evidentiary value.
Can the dealership collect the deposit in cash?
Yes, although payment by transfer or card leaves a paper trail that makes it easier to prove that it was made and for what amount. If the payment is in cash, the receipt signed by both parties is the proof of the transaction.
Is the reservation deposit subject to VAT?
If the reservation is formalised as an advance payment on account of the sale price and the sale is subject to VAT, the deposit is also subject to VAT at the time it is collected (even if the final sale has not yet taken place). If the sale falls under the Margin Scheme (REBU), the deposit also forms part of the margin base.
Can the reservation contract include conditions subsequent?
Yes. The contract may provide that the reservation is cancelled if a specific condition occurs, such as the rejection of the financing requested by the buyer. If such a condition subsequent is included, it is advisable to specify whether in that case the deposit is returned in full or if there is some retention.
What is the difference between a reservation contract and an option to buy contract?
An option to buy contract is more complex: the dealership grants the buyer the right (not the obligation) to purchase the vehicle at a set price during a certain period. The buyer pays a premium for this right and may or may not exercise it. In a reservation contract, both parties are committed: the buyer to formalise the purchase and the dealership to keep the vehicle available. In practice, dealerships use reservations, not options.
