Buying property

Conveyancing, contracts, final checks and completion

This article details the purchase procedure for buying a home in Spain. It’s advisable to employ a lawyer before paying any money and, if necessary, have him check anything you’re concerned about regarding a property you’re planning to buy.

Conveyancing is the legal term for processing the paperwork involved in buying and selling a property and transferring the title deed ( escritura) – also known as the deed of ownership or the deed of sale and henceforth simply referred to as the deed. In Spain, some aspects of conveyancing such as drawing up the deed and witnessing the signatures can be performed only by a public notary ( notario). A notary represents the government and one of his main tasks is to ensure that state taxes are paid on the completion of a sale.

A notary doesn’t verify or guarantee the accuracy of statements made in a contract or protect you against fraud!

It’s therefore vital to employ a lawyer to carry out the following checks:

  • Verifying that a property belongs to the vendor or that he has legal authority to sell it – shown in the property register ( registro de la propiedad). If a property isn’t registered or has no deed you should be extremely wary.
  • Making sure that there are no tenants. If there are, you must ensure that you will obtain vacant possession, as the law protects long-term tenants and it can be difficult to make them leave.
  • Checking that there are no pre-emption rights over a property and that there are no plans to construct anything that would adversely affect the value, enjoyment or use of the property such as roads, railway lines, airports, shops, factories or any other developments.
  • Checking that the boundaries and measurements in the deed are accurate. Spain has two property registries: one (the registro de la propiedad) is concerned mainly with the ownership of property and kept at the property registry office ( Oficina del Registro de la Propiedad), which is usually in the nearest main town, although some towns have more than one office (e.g. Malaga has six and Mijas three); the other (known as the registro catastral or, more commonly, catastro) is concerned with the physical description of a property and its boundaries and is kept at the regional property registry office ( Registro Catastral or Oficina del Catastro), which is located in the provincial capital. Obtain a certificado catastral from the Catastro, which contains an accurate physical description of the property and maps.
  • Ensuring that planning or building permits are in order (e.g. for water, electricity and sewage connection) and are genuine, and that a property was built in accordance with the plans. This can be done by checking the original plan ( plan parcial), which must be registered with the local urban development office ( urbanismo). You can obtain a building report ( informe urbanístico) from the local town hall verifying that a property has been built legally.
  • If a building is located on a beach-front, you should also check that it was approved by the coastal authorities (Jefatura de Costas). Beach-front properties are subject to special building licences and it can be difficult (if not impossible) to restore or rebuild the original building.
  • A newly completed building must have a ‘certificate of new work’ ( certificado de fin de obra nueva) certifying the completion of work in accordance with the building plans and a ‘licence for the first occupation’ ( licencia de primera ocupación). The latter is necessary in order to get electricity and water meters installed. Building certificates are issued by the town hall for most services such as electricity and water ( boletín de instalaciones eléctricas/de agua).

Make sure than any extensions or major structures, such as a swimming pool, have planning permission. It isn’t unusual for alterations to be made illegally without planning permission, which can result in them having to be demolished or the owner incurring huge fines.

  • Checking that there are no encumbrances or liens, e.g. mortgages or loans, against a property or any outstanding debts such as local taxes (rates), community charges, water, electricity or telephone bills. This includes the following:
  • Obtaining the registration number ( referencia catastral) of the property and an extract ( nota simple) of the property register ( registro de la propiedad), which costs around €10. This tells you if the vendor is the owner, the size of the property and whether there are any charges or encumbrances registered against it (e.g. mortgages or debts).
  • Where a property is part of a community development, checking that there are no outstanding community charges for the last five years. The law now requires that a vendor presents a certificate from the community stating that payments are up to date, which must be presented to the notary when the deed is signed.
  • Asking at the town hall for a certificate of no debts ( certificado de no deudas), which confirms that there are no unpaid taxes such as property tax ( impuesto sobre bienes immeubles/ IBI – or other charges outstanding against the property. It’s increasingly common for notaries to ask to see this when the deed is signed.
  • Checking that all bills for electricity, water, telephone and gas have been paid for the last few years. Receipts should be provided by the vendor for all taxes and services.
  • Ensuring that a proper title is obtained and arranging the necessary registration of ownership.

If you buy a property on which there’s an outstanding loan or where there are outstanding taxes, the lender or local authority has first claim on the property and has the right to take possession and sell it to repay the debt. All unpaid debts on a property are inherited by the buyer.

You must ensure that any debts against a property are cleared before you sign the deed and your lawyer should obtain another nota simple immediately before completion to make sure that no debts have been added since the previous check. The notary will also obtain an up to date nota simple on the day you sign the deed.

Many estate agents will carry out the above checks for you and pass the information on to your lawyer. However, it’s still advisable to have your lawyer double check.

If an estate agent tells you that vacant land surrounding or adjacent to a property is ‘green belt’, check with the planning office of the town hall that this is so. Even if it is, green belt is often built on, so if it’s crucial for you not to live next to a future building site, avoid buying a property with vacant land adjacent to it.

The cost of conveyancing for a property depends on whether you employ a foreign or Spanish lawyer or both. If you employ a foreign-based lawyer, you should expect to pay e150 or more an hour plus additional fees for the work of his Spanish partners or associates. The fees may be stated as a percentage of the purchase price, e.g. 1 to 1.5 per cent, with a minimum fee of e600 to e1,200.

Before hiring a lawyer, compare the fees charged by a number of practices and obtain quotations in writing. Always check what’s included in the fee and whether it’s ‘full and binding’ or just an estimate (a low basic rate may be supplemented by much more expensive ‘extras’). Your lawyer should also check the contract before signing it to ensure that it’s correct and includes everything needed, particularly regarding any necessary conditional clauses.

Notary’s Duties

Since 1993, a notary has been required to make a check of the property register ( registro de la propiedad), such as the name of the title holder, description and whether there are any charges or encumbrances against the property, not longer than four days before the signing of the deed. This information must be included in the deed.

However, some notaries try to release themselves from their obligations by adding an escape clause to the deed stating that the buyer agrees that the notary isn’t responsible if charges are found against a property after the purchase. Naturally, this isn’t explained to a buyer and could be construed as fraud on the part of the notary, because if he took the trouble to explain it to the buyer, he wouldn’t sign it.

You should refuse to sign a deed when such as clause is included (yet another good reason to have a lawyer check a contract).

In Spain, the deed is prepared by a public notary, who’s responsible for ensuring that it’s drawn up correctly and that the purchase price is paid to the vendor. The notary also certifies the identity of the parties and witnesses the signing of the deed. He may also arrange for its registration (in the name of the new owner) in the local property register and collects any fees or taxes that are due.

A notary represents the state and doesn’t protect the interests of the buyer or the seller and rarely points out possible pitfalls in a contract, proffers advice or volunteers any information (as, for example, an estate agent often does).

You shouldn’t expect a notary to speak English or any language other than Spanish (although there are some that do) or to explain any of the intricacies of Spanish property law. Your lawyer should check that the notary is doing his job correctly, thus providing an extra safeguard.

Property contracts in Spain

The first stage in buying a property is usually the signing of a contract ( contrato). It’s possible to go to a notary and have him draw up the deed without having a contract, but this provides no security for you or the vendor and is highly unusual. In any case, when you’re paying a deposit, which is usual (see below), it’s necessary to have a contract.

A contract can be drawn up between the buyer and the seller, although you would be extremely unwise to do so without using a legal expert and most buyers have a contract drawn up by a lawyer, which is then sent to the vendor’s lawyer for approval. Some estate agents have standard contracts, but these may not safeguard your interests and it’s much safer to use a lawyer.

There are two main types of purchase contract. A standard purchase contract is known as a private purchase contract ( contrato privado de compraventa), which is binding on both parties and involves the payment of a deposit (see below).

An option contract ( contrato de opción de compra) isn’t a binding purchase contract, but a deposit must usually be paid, which you lose if you withdraw from the purchase. It’s also possible to sign a ‘reservation contract’ ( documento de reserva), where you pay a small ‘goodwill deposit’, e.g. e1,000 to e5,000, which usually secures a property for a period, e.g. 15 days, before you sign the main purchase contract.

Some estate agents may pressurise you to pay a goodwill deposit in order to take the property off the market while you make a decision. Although this is common practice, you shouldn’t pay a deposit unless you’re absolutely certain you wish to buy the property; otherwise, if you withdraw from the sale for any reason, the deposit is forfeited.

Before you sign a contract, it’s important to have it checked by your lawyer. One of the main reasons is to safeguard your interests by including any necessary conditional clauses (see below) in the contract.

Deposits

If you’re buying a resale or a new completed property (i.e. not off plan), you usually pay a deposit (variously referred to as an arras, depósito, fianza and reserva, but normally a depósito) of 10 per cent when signing the contract (the actual amount may be negotiable), the balance being paid at the completion. Deposits are refundable under strict conditions only, notably relating to any conditional clauses such as failure to obtain a mortgage, although a deposit can also be forfeited if you don’t complete the transaction within the period (e.g. 60 or 90 days) specified in the contract.

If you withdraw from a sale after all the conditions have been met, you won’t only lose your deposit, but may also be required to pay the estate agent’s commission. In some cases, if one of the parties wishes to withdraw from the sale/purchase, the other party can demand that he goes through with it or that he receives compensation for damages. Always make sure that you know exactly what the conditions are regarding the return or forfeiture of a deposit.

If you pay a deposit, you should ensure that it’s kept in a separate bonded account and that the receipt states that if there are any problems with the property (legal or otherwise) the deposit will be returned. In general, a deposit should always be paid to the vendor under the supervision of your lawyer. It’s unwise to pay a deposit to an estate agent unless he has an escrow account (most don’t).

There have been cases of estate agents disappearing with would-be buyers’ deposits! Never pay a deposit to anyone acting as a go-between, however well-meaning they may appear.

Buying Off Plan

When buying an uncompleted property off plan, i.e. a property still to be built or which is partly built only, payment is made in stages. Stage payments vary considerably and may consist of a 40 per cent deposit and the remaining 60 per cent on completion or a fixed amount every three to six months. If a property is already partly built, the builder may ask for a higher initial payment, depending on its stage of completion.

The contract contains the timetable for the property’s completion; stage payment dates; the completion date and (possibly) penalties for non-completion; guarantees for building work; details of the builder’s insurance policy (against non-completion) and a copy of the plans and drawings. The floor plan and technical specifications are signed by both parties to ensure that the standard and size of construction is adhered to. The contract should also contain a clause allowing you to withhold up to 10 per cent of the purchase price for 6 to 12 months as a guarantee against the builder not correcting any faults in the property.

The completion of each stage should be certified in writing by your own architect or lawyer before payments are made. It’s important to ensure that payments are made on time, otherwise you could lose all previous payments and the property could be sold to another buyer.

It’s important that the builder or developer has an insurance policy (or ‘termination’ guarantee) to protect your investment in the event that he goes bust before completing the property and its infrastructure. If he doesn’t then you shouldn’t buy from him!

Your money should be deposited in a special ‘client’ bank account and should be returned with interest if the building isn’t completed by the date listed in the contract. It should also be returned if the official certificate declaring that it’s fit to live in ( Licencia de Primera Ocupación) isn’t obtained.

Conditional Clauses

All contracts, whether for new or resale properties, usually contain a number of conditional clauses ( cláusulas abrogatorias) that must be met to ensure the validity of the contract. Conditions usually apply to events out of control of the vendor or buyer, although almost anything the buyer agrees with the vendor can be included in a contract. If any of the conditions aren’t met, the contract can be suspended or declared null and void, and the deposit returned.

However, if you fail to go through with a purchase and aren’t covered by a clause in the contract, you will forfeit your deposit or could even be compelled to go through with a purchase. If you’re buying anything from the vendor such as carpets, curtains or furniture that are included in the purchase price, you should have them listed and attached as an addendum to the contract. Any fixtures and fittings present in a property when you view it (and agree to buy it) should still be there when you take possession, unless otherwise stated in the contract.

There are many possible conditional clauses concerning a range of subjects, including the following:

  • Being able to obtain a mortgage (although it’s common to have a mortgage approved before signing a contract).
  • Obtaining planning permission and building permits.
  • Plans to construct anything (e.g. roads, railways, etc.) that would adversely affect your enjoyment or use of a property.
  • Confirmation of the land area being purchased with a property.
  • Pre-emption rights or restrictive covenants over a property such as rights of way – look for the words ‘affected by servitudes’ ( afecta a servidumbres) in an extract of the property register.
  • Dependence on the sale of another property.
  • Subject to a satisfactory building survey or inspection.

You should discuss whether conditional clauses are necessary with your lawyer. Note that the vendor remains responsible for any major hidden defects in a property for six months from the date of signing the deed (although this is no consolation if you cannot find him).

Final checks

When all the necessary documents relating to a purchase have been returned to the notary, he contacts you and requests the balance of the purchase price less the deposit and, if applicable, the amount of a mortgage. He also sends you a bill for his fees and taxes, which must usually be paid within 30 days of completion (check in advance). At the same time the notary should also provide you with a draft of the deed (if he doesn’t, you should request one). This should be complete and shouldn’t contain any blank spaces to be completed later. If you don’t understand the deed, you should have it checked by your lawyer or, alternatively, have him prepare it on your behalf. If you’ve contracted the services of a lawyer, all of the above will be organised by him.

When you sign the deed, you agree to accept the property in the condition that it’s in at that time. Therefore, it’s important to check that the property hasn’t fallen down or been damaged in any way, e.g. by a storm, vandals or the previous owner, since you signed the initial contract. If you’re buying through an agent, he should accompany you on this visit. You should also do a final inventory immediately before completion (the previous owner should have already vacated the property) to ensure that the vendor hasn’t absconded with anything that was included in the price.

You should have an inventory of the fixtures and fittings and anything that was included in the contract or purchased separately, e.g. carpets, light fittings, curtains or kitchen appliances, and check that they’re present and in good working order. This is particularly important if furniture and furnishings (and major appliances) were included in the price. You should also ensure that expensive items (such as kitchen apparatus) haven’t been substituted by inferior (possibly second-hand) items. Any fixtures and fittings (and garden plants and shrubs) present in a property when you viewed it should still be there when you take possession, unless otherwise stated in the contract.

If you find anything is missing, damaged or isn’t in working order you should make a note and insist on immediate restitution, such as an appropriate reduction in the amount to be paid. In such cases, it’s normal for the notary to delay the signing of the deed until the matter is settled, although an appropriate amount could be withheld from the vendor’s proceeds to pay for repairs or replacements.

You should refuse to go through with the purchase if you aren’t completely satisfied with everything, as it’s difficult or impossible to obtain redress later.

If it isn’t possible to complete the sale, you should consult your lawyer about your rights and the return of your deposit and any other funds already paid.

Completion

Completion (or closing) is the name for the signing of the deed, the date of which is usually one to three months after signing the contract, as stated in the contract (although it may be ‘moveable’, if both parties agree). Completion involves the signing of the deed, transferring legal ownership of a property and the payment of the balance of the purchase price, plus other payments such as the notary’s fees, taxes and duties (although these may be paid later).

Signing the contract

The final act of the sale is the signing of the deed, which takes place in the notary’s office. Before the deed is signed, the notary checks that the conditions contained in the contract have been fulfilled. It’s normal for all parties to be present when the deed is read, signed and witnessed by the notary, although either party can give someone a power of attorney ( poder especial) to represent them. This is quite common among foreign buyers and sellers and can be arranged by your notary (costing from e40 to e100). If a couple buys a property in both their names, the wife can give the husband power of attorney (or vice versa). If a power of attorney isn’t completed in Spain, it must be signed and authenticated with an official stamp ( apostille) before a public notary or Spanish Consulate abroad, which is much more expensive than doing it in Spain.

Bear in mind, however, that a power of attorney can be a dangerous document to sign, and in most cases is unnecessary. For example, you can have someone represent you in Spain as a ‘verbal representative’ ( representante verbal), where you ratify the representation afterwards at a Spanish Consulate in your home country or at the notary’s office on your next visit , although the ratification should be done shortly after the purchase. All foreign buyers require a ‘foreigner’s identification number’ ( número de identificación de extranjero/ NIE), which must be presented at the signing of the deed or within 30 days. The notary reads through the deed and the vendor and buyer must sign it, indicating that they’ve understood and accept the terms of the document. If you don’t understand sufficient Spanish you should take along an interpreter, although if you have a lawyer he will usually translate for you.

Payment

The balance of the price (after the deposit and any mortgages are subtracted) must be paid by banker’s draft or bank transfer. For most people, the most convenient way is by banker’s draft, which also means that you have the payment in your possession (a bank cannot lose it!) and the notary can confirm it immediately. It also allows you to withhold payment if there’s a last minute problem that cannot be resolved.

When the vendor and buyer are of the same foreign nationality, they can agree that the balance is paid in any currency, and payment can also be made abroad, although signing of the deed may be held up until confirmation of payment is received. However, the deed must state the sale price in euros and Spanish taxes must be paid on this price. At the time of signing, the vendor and buyer declare that payment has been made in the agreed foreign currency. In this case, the payment should be held by an independent lawyer or solicitor in the vendor’s and buyer’s home country.

Non-resident purchasers no longer need a certificate from a Spanish bank stating that the amount to be paid has been exchanged or converted from a foreign currency, although it must be reported to the Bank of Spain. If the vendor is a non-resident, the buyer must withhold 5 per cent of the purchase price (as security against a non-resident’s possible tax liability) and pay it to the Spanish Ministry of Finance within 30 days of the transaction. After paying the money and receiving a receipt, the notary gives you an unsigned copy ( copia simple) of the deed showing that you’re the new owner of the property. You also receive the keys! The fees and taxes associated with the purchase must be paid within around 30 days of completion (there are penalties for late payment).

Buying From a Non-resident

Anyone buying from a non-resident is required to subtract 5 per cent from the purchase price and pay it to the Spanish Tax Office within 30 days of the transaction. The payment, a type of deposit, is a ‘guarantee’ against a vendor trying to avoid paying capital gains and other taxes (as many did before this law was introduced). Provided the buyer pays this to the tax authorities within 30 days, he cannot be pursued for capital gains tax (CGT) even if the seller’s liability was greater than the 5 per cent deducted.

If the buyer fails to subtract and pay the 5 per cent, he’s liable to pay any CGT due on the sale and could also be heavily fined.

A declaration must be made on Form 211 ( Impuestos Sobre la Renta de las Personas Físicas y Sobre Sociedades) and, after paying the 5 per cent to the tax office, the buyer must give the vendor a copy of the form. Where applicable, the 5 per cent deposit is supposed to be repaid within six months of the documentation being completed, although it often takes vendors up to a year to get their money back. Note also that, when a non-resident sells a property, he may be asked for proof that he has paid his wealth and income tax for the previous five years before the deposit is repaid.

Registration

After the deed is signed and the new owners’ names are entered on the deed, it’s lodged at the property registry office ( Registro de la Propiedad) and becomes an escritura pública. It’s important to send the signed deed to the registry office as soon as possible, preferably the same day it has been signed. The notary usually does this within 30 days of it being signed and many fax a copy on the day of signing. You can also take it yourself or get your lawyer to take it for you or fax a copy to the registry office, which is advisable.

Registering ownership of a property is the most important act of buying property, because, until the property is registered in your name, even after you’ve signed the contract in the presence of a notary, charges can be registered against it without your knowledge.

Only when the deed has been registered are you the legal owner of the property. Following registration, the deed is returned to the notary’s office or your lawyer, usually after one to three months.

Inheritance & Capital Gains Tax

Property can be registered in a single name; names of a couple or joint buyers’ names; the name or names of children, giving the parents sole use during their lifetime; or in the name of a Spanish or foreign company (see below).

Before registering the deed of a home, carefully consider the tax and inheritance consequences for those in whose name the deed will be registered.

Buying property through a company

It’s possible to avoid Spanish capital gains, inheritance tax and transfer tax on a sale by registering a property through a limited company (which in turn could be owned by an offshore company).

Before buying a property through a company, it’s essential to obtain expert legal advice and carefully consider the advantages and disadvantages.

Buying through a company may be worthwhile when a large sum is being invested (e.g. e500,000 or more) or when the buyer has a complicated family or inheritance situation, e.g. an elderly person who’s planning to leave a property to a non-relative.

If you buy a property through a company you may be required to pay an annual tax of 3 per cent of the rated value ( valor catastral). It’s possible to obtain an exemption from this tax if a property is owned by a company in a country with a double taxation treaty with Spain.

However you decide to buy a property, it should be done at the time of purchase, as it’s more expensive (or even impossible) to change it later. Discuss the matter with your lawyer before signing a contract.

This article is an extract from Buying a home in Spain. Click here to get a copy now.

Further reading

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