Buying a Property in Spain
To help you in your quest to purchase a home in Spain please take a moment to read through the document we have provided for your information.
This advice page is based on a general understanding of the law and practice in Spain.
Whilst every care has been taken in the preparation and presentation of the information contained herein, it is purely designed to help you and inevitably contains omissions, paraphrases and summaries, given the abbreviated nature of the publication. Iceni Properties or any of its associates does not accept responsibility for any action taken or not taken in reliance thereon. This advice is not a substitute for sound professional legal advice.
Buying a property in Spain is basically a straightforward procedure, albeit with its own peculiarities.
There are powerful protections provided by statute, and Spanish contracts tend to contain more specific Guarantees for both sides - than their English law equivalents. In order to benefit from those Protections, however, the purchaser must understand what to look for, what to avoid, what to require of a vendor, and what not to do.
From time to time one hears of reports, usually in the press, of purchasers of Spanish property being misled or even defrauded. The vast majority of cases, inevitably not publicised in the press, proceed according to law and to the total satisfaction of the purchaser. Indeed, those cases where there has been a problem are, with some rare exceptions, usually not the result of intent to defraud the purchaser but unfortunately, and more commonly, the consequence of the purchaser's insufficient knowledge of the laws and procedures.
There's a fundamental trick here. And it's not spectacular. At its simplest, it involves finding and briefing a good lawyer to act for you. After all, there are few people who would buy a property in their home country without the intervention of a sound professional acting on their behalf and seeing to the necessary due diligence investigations before anything is signed. Spain is no different in that respect.
(Note, however, whilst it is perfectly lawful and permissible in Spanish practice for one lawyer to act for both parties in a property transaction it is, in our judgement and experience, unguarded to agree to such an arrangement since differences of opinion and interpretation can arise, and there is often some resulting conflict).
That which follows is a review of some points of note, some things to watch out for, and some definite dos and don'ts.
The property search
Enjoy it. There are some beautiful properties and the views can be stunning.
Check on such matters as water and electricity supply to the property, and physical access. In country properties, check that the telephone company can provide a line if you want one.
If you are buying land (or an old building) and want to build or renovate, check that building permissions will be available.
It is not usual in Spain to have a structural survey. But if in any doubt instruct a qualified surveyor or engineer.
Ideally, before signing or paying anything, you will permit your lawyer to investigate a number of important matters, including whether the vendor has legal title to the property.
Your costs
You should calculate a figure of around 10% on top of the price for the direct costs of a purchase.
This is made up of:
- Composed of 7% IVA (VAT) plus 0· 5% documentary stamp duty
- Notary and registry fees: Just how much these are will depend on the characteristics and the value of the transaction.
- Legal fees: Again, these will depend on the value of the transaction. Typically they will be in the average range of 1% - 1· 5%, higher percentages being applied to lower value transactions, and the lower end of the range to the more expensive properties.
- Post-transaction costs, including presentation of the title deed to the registry for inscription some other matters to bear in mind.
The purchaser will need to obtain a fiscal number (known as the NIE for non-Spaniards). This is requirement of law for any person resident or otherwise who owns assets in Spain. The fiscal number is necessary immediately following the purchase in order to be able to deal with all such matters of the property purchase.
If the vendor is not fiscally resident in Spain, the purchaser must except in some defined circumstances retain 5% of the agreed price (on account of the vendor's liability to capital gains tax) and pay that over to Hacienda (the Spanish revenue authority), again within 30 days. Failure to do this will result in the property being charged with the retention.
It is not uncommon for the vendor to propose that the price declared in the public deed is less than that actually agreed between the parties. The benefit for the vendor is that he may pay less capital gains tax (and the 5% retention will be less). Vendor may propose to the purchaser that the benefit to him is that he pays less stamp duty. However, the purchaser should bear in mind that:
Where there is a Community of Owners, make sure that you obtain and understand the rules (Statutes) of the community. They have an important influence on you and your property.
Post purchase, it will usually be necessary to re-contract services and supplies (for example electricity, water, telephone) and to make arrangements to pay the bills. Most will require banker¿s order that of course, necessitates a bank account.
All non-resident owners of property in Spain must appoint a fiscal representative, who must, in turn, report his appointment to Hacienda.
The buy/sell contract
1. Although the form is different, the substance of a Spanish contract for the sale and purchase of real property is essentially the same as that of an English contract though normally with the additional guarantees for both parties typical of a Civil Code contract.
2. There are three main mechanisms by which real property is bought and sold:
2.1. Solely by private contract between the parties. Note that this mechanism does not per se permit registration of the purchaser's title in the property registry.
2.2. Solely by public deed (escritura pública) before a Notary.
2.3. By a combination of private contract between the parties leading to later elevation thereof to public deed with completion upon signature of the escritura. This is the commonest mechanism (and probably the safest for a foreigner to adopt when purchasing).
3. The normal procedure (i.e. 2.3 above) is for the parties to agree in private contract that the parties shall buy and sell, and establish the terms thereof, and a completion procedure and date. The actual transaction (which may thought of as "completion") is later effected by way of public deed including payment of consideration and formal handing over of possession (normally signified by the handing over of the keys to the property).
3.1. It should be noted that the private contract stage is somewhat different from the moment of contract (as opposed to completion) in English law. Whilst the private contract may, and sometimes does, serve as the actual contract of sale and purchase (see 2.1 above), the said private contract is more often a preliminary agreement which binds the parties to a future deed of contract for sale and purchase (see 2.3 above).
3.2. In consequence, the purchaser does not normally need to consider such matters as insurance of the property and against his public liability in respect thereof until the actual conveyance (i.e. formal handover of possession) has taken place, normally upon signature of the public deed.
4. Once the escritura has been duly signed, the purchaser may then register his title in the property registry. Inscription in the registry is proof of title against all claims. Unregistered, the escritura (or indeed the private contract in the procedure outlined at 2.1 above) is prima facie proof only against the vendor. Note that a private contract (if the purchase and conveyance were effected in that way) does not permit registration in the property registry. Note also that the registrar is a principal and although rare in property transactions - may refuse inscription if he considers the escritura to be defective; in that event, a return visit to the Notary will be necessary to amend the defects.
5. The private contract typically has the following form:
5.1. Identification of the parties signing. Identification and proof of their capacity (own behalf or on behalf of others including details of relevant mandates, powers of attorney etc) and of the principals (name, address, status, passport number, fiscal number) and so forth. Mutual recognition by the parties of each other's capacity to contract for the purpose.
5.2. The "Whereas" statements, which includes the intention of the parties to buy and sell, and full identification of the property, including a detailed description, location, square metreage, registry details, brief title history and details of any charges or encumbrances. Statement of free wish to contract.
5.3. The terms of the contract including price, methods of payment, deposit paid and receipt therefore, statements as to freedom from tenants, occupants, liability to local taxes and other (e.g. community) payments attaching to the property, completion date, completing party (i.e. agreement where necessary that purchaser may assign his contractual rights and duties to another, within strict limits established by the contract), deposit paid and receipt therefore, agreed penalties in case of non-performance by either party (normally loss of buyer's deposit or return of the deposit multiplied by a co-efficient - though both parties may instead demand specific performance from the other if they prefer), any special provisions or conditions of the sale and purchase including undertakings and warranties where required, agreement on matters of jurisdictional competence (normally to the courts of the municipality of the property, and inevitably subject to the law of situs), notifications.
6. Completion is typically up to a month after signature of the private contract, although the actual date thereof is freely negotiable between the parties and will be established as a term of the private contract.
The escritura pública
7. The escritura is a public deed, (on special, numbered, notarial paper), sworn in front of a notary. Essentially, it incorporates the terms of the private contract, but includes various additional formalities (for example, the notary will wish to inspect any power of attorney, verify its legality and effectiveness for the purpose, and include it as an annex to the escritura). He will also confirm registry details from a search document obtained by him, albeit with standard caveats. This is typical of a formal Spanish document that seeks always to provide an exhaustive documentary "audit trail" within it, and if any part thereof is missing or inadequate, the escritura is potentially defective in form and the notary will either refuse to attest to it (in which case it fails as a public deed) or incorporate formal caveats within it.
8. The escritura also notes the formal handover of both consideration and property, and contains and constitutes a formal receipt to the purchaser for his payment.
9. Once signed, the escritura is included in the Notary's "protocol" and forms part of his records forever, in a most rigorous system imposed by the state and the College of Notaries. The "First Copy" ("Primera Copia") of this protocol is often referred to as the "original" escritura, and indeed should be treated and safeguarded as such, since all sorts of ancillary information is noted thereon (including, inter alia, registration details - see below - and payment of stamp duty/VAT).
Thereafter
10. Immediately following the signing, the details should be presented to the Property Registry for noting in their daybook. This gives intermediate protection until formal presentation of the escritura (which protection is important, since it prevents, for example, the vendor fraudulently charging the property by way of security for a loan in the interregnum between him having sold and the purchaser registering his title). Notaries will, if requested, formally notify the registry of the transaction for note in the daybook.
11. The escritura (i.e. the "first copy") can usually be collected from the notary, on payment of his fees, within 2 or 3 days of the signing. Further informal copies ("Copia Simple") may also be obtained for a small fee.
12. Various matters have then to be attended to, including:
12.1. Inscription in the Property Registry
12.2. Payment of the stamp duty or IVA (VAT)
12.3. Notifications to the Catastral Office, Municipality, etc of the change of ownership (for local and property taxes, inter alia)
12.4. If necessary, recontract services (elec, phone, water etc)
Other mechanisms
13. "Reservation agreements". When buying from a developer, and even on other occasions since some estate agents are known to use the mechanism, buyers may be asked to sign a "document of reservation" (or some similar description) and make an accompanying payment. These documents vary enormously in their quality, nature, wording, effect, and legal consequence. Most commonly, they represent a mechanism by which the vendor or his agent attempts to "close" a sale and bind the purchaser into continuing by means of taking a "reservation fee" or payment of sufficient size to hurt the purchaser if he desists. Almost without exception, such documents are entirely preliminary to the contract procedures outlined above. Whilst reputable developers can usually be excepted from the following statement, it is not uncommon in documents of this nature that the intending purchaser receives scant, if any, protection of his legal position and his money.
14. Option contracts. In certain circumstances, a purchaser or, more commonly, a vendor will wish to issue a sale and purchase option contract in place of the more normal private sale and purchase contract described further above. In such contracts, the vendor gives an exclusive option to the purchaser to buy the property, in stated conditions, at a stated price, and within a term determined in the option contract. It is normal in Spain for the option premium to be deductible from the eventual sale price of the property, and for this to be included as a term of the contract. For both parties the effect of an option contract is substantially similar to that of the more normal sale and purchase contract, and the protections for both parties should be broadly similar in a well-drafted option contract. An option contract tends to be used in preference to a private buy/sell contract when the time gap between contract and escritura pública ("completion") is longer than usual, or in the more obvious case where the purchaser is uncertain of his intention or ability to complete, but is prepared to risk paying a premium in order to secure a right to purchase at a future moment.
15. Staged payments. It is not unusual for a purchaser to buy a property "off-plan" from a developer, that is to say a property not yet built. In such cases, there will often be an initial reservation agreement with a nominal payment, leading within a very short space of time to the signature of a private contract accompanied by the initial contract payment. This initial payment usually represents the first of a series of payments on the contract (and when dealing with reputable developers the reservation payment is normally taken into account and deducted there from). The balance of payments will be due according to a schedule contained within the contract (and any default will often lead to loss of a substantial percentage up to 100% - of payments made to date). Final payment will coincide with completion and handover of the property and with elevation of the private contract to escritura pública. It is a feature of such staged payment development contracts that the developer is required by law to provide a bank guarantee to the purchaser in respect of all his payments made successively during the term of the contract, in order to secure the financial position of the purchaser in the event of default of the developer/vendor.
We hope this has been or will be at least be some help to you in your search for a home in Spain.
ICENI
