In line with the terms of their Private Purchase Contract (“PPC”), during the “build out” phase, purchasers, who will have usually paid a deposit – perhaps as much as 30% of the finished price of their property – will have also made stage payments against a schedule. Usually, the stages are either specific dates or works completed.
With each passing month clients move closer to the time when they, or more likely their lawyers, will receive the formal request from the developer or promoter of the development to complete their purchase(s).
If possible, some weeks before being called upon to complete, purchasers should review their position and consider their options.
Some purchasers, attracted to an “investment” return, may now be having doubts about the final value of the property to be purchased in comparison with their expectations of capital growth.
Others who entered the market as a multiple purchaser with the aim of “flipping the contract” – transferring the legal obligation to complete to another purchaser - before completion may now be faced with losing a non-returnable deposit if they are unable to complete on all properties optioned.
Others may have purchased at a development where, built into their purchase price, is a “guaranteed” rental return or “yield” for a period of years from completion. This is usually offered by the developer or promoter, although only very few developments will actually sustain intensive rental activity. This is more of an exercise in a developer wisely reinvesting some of the profits from the sale of the property to make its purchase more attractive. This may continue to be attractive and will allow – subject to reasonable management charges - the property to “wipe its face” ensuring that any mortgage debt taken to pay for it is substantially countered by rental income realised.
To continue with the purchase of the property because it suits you or you have been unable to “flip” prior to completion, you’ll need to ensure that you have sufficient funds to complete.
Unless you have ready cash you’ll need to consider applying for a mortgage. Mortgages in Spain should be getting easier. There’s a lot of competition out there for the incoming UK £ or Irish €, but recent reports from colleagues in this sector suggest that the banks are looking more carefully at their mortgage operations. Particularly they are reviewing property valuations – which provides the basis of their “loan to value” criteria – as in the UK.
Additionally, bank employees are being encouraged by Head Office to scrutinise much more closely the financial status of the non-resident applicant.
Applying for a mortgage in Spain is a reasonably complicated procedure, so, unless your spoken Spanish is good, we’d recommend that you do not try to directly apply to a bank in Spain. We’d suggest that you should entrust the obtaining of a mortgage to a recognised broker. Particularly one which does not charge you any up front – administration fees – or similar.
There are several excellent English run bilingual mortgage brokers who our clients have used to great success and we’d happily recommend them. Through their day to day operations they are very familiar with the offers from and criteria of a vast array of lenders.
You should be aware that most banks have targets as to the number of mortgages they can place. These are usually annual and follow the calendar year. It is argued that it is easier to obtain a mortgage within the first three to six months of the year than the last.
It is also worth noting that unless a Licencia de Prima Ocupación – a license to occupy a completed property – more below, has been obtained by the developer a bank is unlikely to consider a mortgage on such property.
Whilst talking money – there are many clients, particularly those from the UK buying with retirement in mind, who have cash for their purchase. Again it is sensible to talk to a specialist currency broker about a transfer from the UK to Spain. The sum to be transferred to your Spanish account will be converted from Sterling to Euros at a rate which is often far more favourable than the usual consumer rate. The costs borne by the Euro purchasing client will also be significantly lower than using the facilities of a high street banks to make the same transfer. This is largely a question of economies of scale as the currency brokers purchase millions of Euros daily and can therefore substantially undercut the banks.
When it comes time to complete what should the “off plan” purchaser do?
You will appreciate that only when you have signed the deed of sale – the Escritura - and paid the balance of the purchase price will you actually become the legal owner of the former “off plan” property. You will then be able to register you title to it. Prior to this point if the developer fails to deliver the property, for example if they go into liquidation, you will be only a creditor and will be owed the sums you have paid during the currency of the PPC.
Did the PPC have a specification attached to it detailing the full description of the property, the precise size and configuration of the rooms, the quality of finish – marble wood etc.? A simple inspection of the property will disclose whether it accords with the description.
Should it be necessary, several reputable businesses have emerged in the last couple of years in Spain, who provide a pre-completion survey – or “snagging survey” service. These are very useful for you and, as necessary, your lawyer’s discussions with the developer’s lawyer. Completion may be delayed whilst remedial work is carried out to settle the issues raised by the snagging survey. We have also seen situations when a payment is made to a purchaser in compensation for the defective finish – thereby reducing the overall price of the property. This is well worth considering if you have doubts about the quality of the property being delivered.
Your lawyer will need to check, amongst other things, that the local authority has given the apartment block – or total phase – a Fin de Obra – a document confirming the Formal Completion of Works on a new property. Without this a Licencia de prima ocupación – the License to occupy a completed property - will not be granted. This will mean that services, such as electricity and water, will not be supplied by the utility company. There may be many reasons as to why one or other of these documents hasn’t been issued. However, your lawyer should ensure that there is no defect in the performance of the Licencia de obra – or building permission - or planning permission that could affect the legitimacy of the property, its value or saleability.
The lack of these documents should cause you to question whether you should not complete. More importantly the lack of a Licencia de prima ocupación will mean that a bank is
unlikely to advance mortgage funds for the completion.
You should obtain advice from a highly experienced and wholly independent Spanish legal team who can deal with the developer or promoter of your chosen development.
Your lawyers should be able to offer hands on experience and Spanish practicality to, for example, maximise – or even attempt to extend - the available time for completion. This may be done in a number of ways.
Consider the need for a snagging survey. Further, the terms of the PPC should be reviewed to establish whether the contractual terms have been adhered to. Particularly if the date of delivery of the new construction is specified. We have seen a breach of contract claims successfully argued which have resulted in the potential purchaser cancelling the agreement and receiving their deposit plus interest for the time it was held by developer of a severely delayed development.
You can – of course – grant your Lawyer a Poder – a Spanish Power of Attorney - to complete the purchase on your behalf if you are not going to be available to attend at the Notaries office on the Completion date. You will need to ensure that the Power that you are granting is specific to the completion rather than a general power to act on your behalf – which may be seen as too extensive. There are some formalities in the UK as to the signing of the Spanish Power to ensure validity in Spain. These need to be followed to ensure that it is acceptable to the Public Notary who will review and, along with you, sign the completion documentation. Without the Notary’s signature you will not be able to register the Escritura at the Registro de la Propiedad - the Land Registry.
As to the final amount required for your completion, you should ask your lawyer for a schedule to include:
i. all commissions including the Mortgage costs, if any, and taxes,
ii. legal and notarial fees and expenses – including Land Registry fees
iii. all applicable taxes – including IVA – local VAT,
Property Transfer tax shortened to ITP and Stamp Duty.
Once the property is yours you will, of course, need to insure it. Please note that most mortgage lenders will require, amongst other things, that you will need to prove that you have obtained buildings cover before they will release the funds for completion. We work with several excellent bilingual insurance brokers who provide comprehensive house and contents cover. Cover is available for periods of the owner’s absence from Spain and the temporary occupation by short term tenants.
If you hold an “off plan” option to purchase and you have either been asked to complete or feel that you are about to be given notification to complete your property purchase don’t delay. If you want to complete you’ll need to be clear on the process involved and if you don’t you may be able to explore other opportunities.
By Mark FR Wilkins
The Rights Group SL
0034 600 343 917