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Buying Property in Spain
Buying a home in Spain on your own can be a complicated process for those who are not Spanish speaking (and even for them!), involving large sums of money and unfamiliar legal terms and transactions.
There is many legal work involved to ensure the transaction is made correctly, and complies with all Spanish legal & tax regulations.
Our best advice to a buyer is that it is vital that he selects, contacts, meets and hires a registered Spanish solicitor as soon as he start looking, or at least once he has found the house. Please do not sign any document or hand over any money without your solicitor’s consent.
It’s important to independently verify that your solicitor is registered. Registered lawyers need to abide by the Code of Ethics of the regional Law Society to which they belong. Only registered lawyers have Professional Indemnity Insurance which may protect you in the event of malpractice or negligence. All registered lawyers are assigned a practicing number by their Law Society. A buyer can easily check if any lawyer is registered to practice law on:
Suspect of anyone who does not clearly identify himself as a solicitor or lawyer: in Spanish, “abogado” (and is therefore registered). Unlike other countries in Spain there are no “paralegals”. Someone who is not a registered lawyer is not qualified to give legal advice, cannot entertain to address himself as a ‘lawyer’, cannot solicit clients for legal services nor practice law in Spain.
You should choose a legal firm with experience in advising clients from abroad who want to purchase a property in Spain, providing you with access to all the information and professional guidance.
Be careful about lawyers without real estate experience, or solicitors promising you to cut your taxes or expenses suggesting to pay in cash to the vendor to avoid to declare part of the purchase price to the Tax Agency, etc. A buyer must trust his solicitor, he’s risking and investing a lot of money, so if a buyer has any doubt about the professional behavior of his lawyer, or suspect the way he treats him, please proceed to dismiss and change him a.s.a.p.
Notaries have no duty of care to either party and are only concerned with the validity of the paperwork and that certain government regulations have been satisfied and various taxes paid.
In the process of buying an existing property in Spain, the mortgage (if necessary) is going to take the most time, so start work immediately. First, the buyer goes about retrieving all the documents that the bank asks for. Then they can pre-approve him, and the buyer can safely sign the pre-agreement and pay the downpayment, knowing that he can cover the money required, and be ready for the closing on the date stipulated in the pre-agreement. Once the bank has a copy of the pre-agreement (reservation contract), the bank hires an appraiser (“tasador”). The bank requires an appraiser to ensure that their loan to you is safe. The bank will only give the buyer a loan equal to a determined percentage of the appraised value of the house (with a limit of 80%, according to law). At the closing, the buyer will be charged for the appraiser’s work.
Once the buyer have found and chosen a property, the usual practice is to sign a reservation contract and pay a holding deposit until the public deed of purchase is ready. It’s usually a simple document in which the seller expresses their intent to transfer the property to the buyer, and the buyer expresses their intent to buy at the price and conditions agreed upon.
At this time, the buyer also gives to the seller a percentage of the agreed-upon price, typically 10%. The typical agreement in Spain (called “contrato de arras penitenciales” o “contrato de señal”) is if the buyer backs out of the contract, they lose the deposit; if the seller backs out, they have to pay double. Of course, the buyer and seller may choose another type of agreement if they prefer.
This deposit is sometimes held by the estate agent in order to take the property off the market until the private contract is signed. Before signing any agreement or handing over any money the buyer should consult with your solicitor by phone or fax, if not in person.
- Review the terms of the proposed contract.
- Advise whether the terms are fair and reasonable.
- Suggest amendments.
- Negotiate those amendments with the real estate agent and/or seller (or his solicito
Above all, please, do not feel pressured by enthusiastic estate agents. The buyer should remind that if he does not go ahead simply because he has changed his mind, he will lose the deposit. The buyer should try to ensure there is at least 3-4 weeks between signing the reservation contact and the private or public contract to allow time for all searches and enquiries to be made.
This is an important stage in the process (although optional). Sometimes the buyer and the seller enter into a Private Contract. In the private contract the seller and buyer agree all the details of the purchase. This private contract commits both parties to the sale and purchase of the property and of course to the price and conditions therein. Usually there is no way to turn back from it, and the price must be paid if the seller requests it before a Court.
Sometimes the private contract is avoided and the parties directly go to the Notary. The Private contract can be avoided if the “Contrato de arras penitenciales” established a deadline and named a Notary to sign the Public Deed.
In Spain there is no equivalent of a contract being “subject to survey” (although it can be subject to “suspensive conditions”, clauses not usually accepted by the seller), therefore if a survey is required, usually it is necessary to commission one prior to signing the private contract.
that your solicitor should carry out:
- Related to the vendor’s identity, he will ask for the ID of a natural person (only the owner or someone else appointed by him acting as proxy -empowered with a Power of Attorney- can sell a property); the CIF and data of register in the Company Registry of the construction and/or promotion company; and the ID and professional number if there is a real estate agent or agency involved.
- To check the Property Registry files to find if there is a clear Title Deed, looking for the legal situation of the home or plot, and possible encumbrances, charges or debts against the property.
- To ask the vendor for an authorised copy of his “escritura” (Public Deed of Purchase, i.e. Title Deed).
- If there is a mortgage over the property, to request a bank Certificate about being paid up-to-date without any delay or that there isn’t any executive procedure against the owner. This previous mortgage shall be cancelled in a Public Deed before the signing of the buyer’s Public Deed, unless the buyer wanted to subrogate into the seller’s mortgage.
- To find out if the property is leased or otherwise occupied by someone. A lawyer can of course draft specific clauses both in a Private purchase contract, as well as in the Title Deed, declaring the property “to be free of any lessee or any occupant by any title or without title”, to protect the buyer against this situations, as well as other unforeseen events (squatters)
- To ask the vendor to provide a Cadastral Certificate of the property (which gives the physical description of the property, the exact location of the property, its boundaries and square meters of area), or at least, the Cadastral number of it.
- To ask the seller to provide a Certificate of Debts from the Community of Owners, to check if he’s up-to-date in the payments.
- To ask the vendor to provide a copy of the Community of Owners Statutes and the Internal Community Rules to avoid future problems with the neighbors. To ask also for the documents with the monthly amounts paid to the Community. To request a copy of the minutes of the most recent Ordinary and Extraordinary General Meetings (AGM and EGM).
- In case of a home, to ask for the First Occupation License issued by the local planning office confirming that it complies with planning rules and is fit for human habitation.
- In case of a commercial premise or office, to ask for the First Utilization License; also to check the local planning to ensure that is according to it, and to ask for the Activity License or if it could be obtained according to the location and characteristics.
- In the case of Land sold for building purposes or new properties, to check that there is general and detailed planning permission.
- Where there is construction on the land, it is necessary to check that the corresponding declaration of new building has been executed and registered and that the surface area and description of the property in the title deeds is correct.
- To ask for the Certificates of utilities or services (“Boletines de Instalación”) from the water, electricity and gas companies. To ask the seller for the last invoices of each of them.
- If buying off-plan, then under Spanish consumer protection laws purchasers are entitled to receive adequate insurance or bank guarantees to secure any stage payments.
- In second-hand homes or premises, it would be necessary to check the next items:
- Antiquity of the building. The buyer should consider having the property surveyed, particularly in the case of older or unusual properties, to ensure that it is structurally sound and that the foundations are adequate.
- Most cities in Spain have approved a regulation to require inspections for all buildings over 50 years old (the required age may vary depending on the city). So when the buyer buys an old apartment or house, he should request this report, since the report may prescribe costly renovation work that must be performed on the building within a certain time frame.
- To ask if there are Court problems or problematic neighbors.
- To check if there is repairing or refurbishment works approved by the Community of Owners (that would be paid by the new owner).
- Legal provisions that could affect the building if protected by law or local ordinances.
- The kind of insurances or maintenance services contracted by the Community of Owners.
- To check if the seller owed any taxes to Local Tax Office (I.B.I.: “Impuesto sobre Bienes Inmuebles” a.k.a “Contribución urbana” (formerly name); Garbage collection tax: “Tasa de Recogida de Residuos Urbanos” a.k.a “Tasa de Basura”).
- A copy of the service or utilities’ contracts.
Power of attorney
If it is not possible to be in Spain to sign the Public Deed the buyer can give a power of attorney to someone else (i.e. the solicitor) to do so on his behalf. It is always easier and cheaper to execute a power of attorney in Spain but if time does not permit then it can also be executed in front of a notary in UK or Ireland who will also arrange for the document to be apostilled.
This is the final stage. Both parties must attend the notary’s office on/before the date stipulated in the reservation contract or private contract, at which time the balance of the purchase price is paid, and a new Title Deed is prepared and signed by the Notary. Once the deeds are signed they will then be submitted to the Property Registry for registration. Taxes must be paid in a maximum of 30 days and always before the registration takes places.
The buyer “must” (not compulsory but strongly recommended) register his deed at the local register office. This guarantees that his ownership rights to the property are fully protected (some small towns don’t have an office, some big cities have many –the buyer can check the original deed of the seller to find out which office corresponds to him-). The buyer will be charged a standard fee regulated by law.
This process in the Property Register takes on average 30-60 days after completion.
Once the property has been duly registered the buyer can request the original title deed for his safekeeping. Losing the original title deed or “escritura” is only a minor setback as the buyer can easily request any number of copies from the Notary where it was signed.
If the buyer applied for a Spanish mortgage loan and the lender (bank) is the one dealing with registering the property, he should expect at least a delay of around six months until he is returned the original Title Deed. Banks always withhold the original Mortgage Deed for their records and will give the buyer only an authorised copy.
The taxes will depend in each particular case:
- VAT (10%) and Stamp Duty (depending on the region of Spain, between 0.5% and 1.5%) on the purchase deed for new houses. Deeds of novation, subrogation and cancellation of mortgage loans are exempt from taxes.
- Transfer Tax (depending on the region of Spain, between 6% and 10%, or progressive) for re-sale properties,
- VAT (21%) and Stamp Duty (depending on the region of Spain, between 0.75% and 1.5%) for Plots of land and Commercial properties,
- “Impuesto sobre el Incremento del Valor de los Terrenos de Naturaleza Urbana” a.k.a. “Plusvalía” Tax (a local tax paid by the vendor, although sometimes is agreed in the private or public contract that the buyer pays it). In order to pay it, with a copy of the deed in hand, the seller must go to the City Hall (or wherever local taxes are paid). After filling out the form, the seller will receive in the mail a notice of how much they have to pay. This amount is calculated based on the number of years the property was held, and on the property’s valor catastral. Be aware that each town has a different procedure regarding payment of this plusvalia. It’s best to ask at the notary’s office about this payment.
- Property Tax (“Impuesto sobre Bienes Inmuebles” –I.B.I.-: a local tax)
- Income Tax (IRPF, IRNR)
- Wealth Tax (“Impuesto de Patrimonio”)
The buyer will also have to pay the main outlays and costs (Notary and Land Registry fees, legal fees, real estate agent fees, etc).
Which part will pay the Notary fees can and should be negotiated with the seller (and up to an amount, with the Notary).The same about the real estate agent fees. Land Registry fees are always paid by the buyer. Cadastral Registry is free.
The buyer may need legal help to fulfill with other requirements to be an owner of a property in Spain (having a Fiscal Identification Number (N.I.E.), open a Bank Account with a Spanish Bank, fiscal representation in Spain to file the Income Tax for your Spanish property, etc.).
Utility companies do not accept overseas payments and like setting invoices as standing orders against your Spanish account. You should set at least as standing orders all the following:
- IBI tax. Paid once a year (akin to the UK’s Council tax). The payment can be divided in 2, 3 or 4 payments along the year depending on the Town Hall.
- Garbage collection. Paid once or twice a year depending on the Town Hall.
- Utility bills (invoiced monthly or bimonthly for water, electricity and gas)
- Community fees (only if the buyer has purchased in a Commonhold). Usually monthly, but can vary in each Community of Owners.
Finally, even if the buyer has a valid will in his country of origin that includes the Spanish property, we also recommend having a Spanish will drawn up just for the Spanish properties –real estate, bank accounts, etc- (it’s just around 40 Euros, and it will save your beneficiaries time, money and hassle)
Prior to purchasing a property in Spain the buyer must obtain a fiscal identity number known as an NIE number (“Número de Identificación de Extranjeros”). It’s a Tax Identification Number for foreigners enabling you to file and pay taxes into the Spanish Tax office. It will be required, for example, on buying and selling property, on inheriting assets in Spain, on opening a bank account, on buying a car, etc
Application must be made in person to the foreigners’ department of the local police station or alternatively the solicitor can obtain this number on his behalf with an executed power of attorney and a notarised copy of the buyer’s passport.
- Make relevant searches according to the abovementioned checklist of enqueries.
- Negotiate with the seller or his solicitor on payments, supplies of the property, I.B.I. Tax, “Plusvalia” Tax, etc.
- Inform the Bank of Spain on the buyer’s inversion in real estate, if necessary.
- Make all payments to the seller through your own account or through our client account, and arrange with the Bank the appropriate certificates of investment in real estate which could be necessary for purchasing a property in Spain.
- Keep the buyer fully informed along all the conveyance process (private purchase contract, “señal” or “arras penitenciales” contract (reservation contract and holding deposit), Public Title Deed before a Notary, etc).
- Assist the buyer at the Notary office when you sign the Purchase Title Deed or sign it on his behalf with a Special Power of Attorney if he cannot be in Spain for the completion.
- Deal with all the paperwork, pay taxes on the transaction and register the buyer as the new owner of the property in the Cadastral and Property Registries. Do the paperwork of the next yearly taxes (Income Tax, Wealth Tax, etc)
- Deal with the utilities companies, insurance company, Community of Owners, etc if the buyer had any problem with them.
Our law firm has experience in dealing with property matters of all types with foreign clients, and can deal quickly and professionally with any client and transaction.