CARLANDER’S QUICK GUIDE TO BUYING PROPERTY IN SPAIN

Carlander’s guide includes practical advice and easy-to-understand information on the legal steps to take into account when buying property in Spain. When reading this guide, remember that every property is different and no matter where you are, you must carry out your own research and make sure you receive the correct professional and tailored advice. For further information and legal assistance please get in touch with us in the email at the end of this guide.

1. PROPERTY RELATED PROFESSIONALS

To start off, we will list and briefly explain the property related professionals in Spain which you must have in your property acquisition team:

i. Estate agents

Estate agents are professionals who arrange real estate transactions, putting buyers and sellers together and acting as their representatives in negotiations. Estate agents have hundreds of types of properties in their books and usually work together with other estate agents to extend their property portfolio.

The following tasks are expected to be performed by an estate agent:

• Sending information on suitable properties in your preferred area.

• Arranging on site visits.

• Advising on neighbourhood facilities.

• Keeping you informed on the negotiations.

• Helping you find other real estate related professionals.

Estate agents are appointed and paid by the seller and usually work on commission which sits roughly around 5% of the value of the property.

ii. Lawyers

Property in Spain is governed by Spanish law. A reputable law firm with qualified Spanish lawyers (abogados) specialised in Spanish property law is essential. If the lawyer is local to the area, he will have the advantage of inside knowledge, which is proved to be useful.

The lawyer will review the legal situation of the property and draw up the corresponding documents to make sure your property is well transferred. We will analyse the main legal steps when acquiring property below.

The following points should be considered when choosing a Spanish lawyer:

• Never use the same lawyer as the seller as there will be a conflict of interest;

• Never use an in-house lawyer of an estate agent, since he will be looking after the interests of the estate agency, instead of yours.

• Always use a law firm with qualified Spanish lawyers (abogados).

• Always use a lawyer recommended by someone you trust.

• Always use a reputable lawyer.

iii. Notary

The purchase of property is concluded and formalized before a notary by means of a public deed. The notary’s role is to act in an impartial manner to verify the documentation is carried out according to applicable laws. Under Spanish law, only deeds which have been authorised by a Notary can be registered in the Land Registry.

Without registration, the transfer of ownership will not be complete. Legally, you could get round this process and avoid these formalities. However, for third party purposes, such as legal certainty or the granting of mortgages, a Notary is an essential part of the transaction.

The Notary fee is fixed by law but will vary depending on the variants of the transaction, which makes it hard to get right a precise fee. Expect to pay between EUR 300 and EUR 1,500. All fees will be subject to applicable VAT.

iv. Surveyor

Surveys are gradually becoming a common practice in Spain. Surveys are compulsory if you are financing your acquisition through a mortgage.

We will always recommend having a survey carried out. This allows lawyers to protect clients against technical contingencies the property may have. The following are the most common surveys conducted on Spanish property:

• Building survey including a thorough external and internal inspection of the property, resulting in a comprehensive survey report.

• Buyer survey to check the Background information on the property and location to allow the buyer make a reasonable judgement on whether or not to acquire the property

• Construction survey providing an initial assessment and periodic inspections.

• Valuation survey to provide mandatory valuations for mortgage purposes and other necessary valuations.

If a seller refuses to carry out surveys on the property, be suspicious and look for another property. Recommendations by someone your trust is always the best way to choose a surveyor. If not possible, the two main professional bodies for surveyors in Spain are: (i) Colegio Oficial de Ingenieros Técnicos en Topografía; and (ii) Sociedad de Tasación.

2. LEGAL REVIEW OF THE PROPERTY (DUE DILIGENCE)

If you do not want your dream property to end up being a real nightmare, a full legal review of the property before its acquisition is a must. The following are essential checks which have to be done prior to the signing date:

i. Land Registry checks

The Land Registry offers a legal picture of the property. Essentially, the Land Registry must be reviewed to check ownership of the property as well as any charges or encumbrances the property may have;

ii. Urban planning checks

Urban planning is a headache in Spain. These reviews must be carried out to ensure the property was built with the appropriate building licence and planning authorizations. In the case of an off-plan property, reviews should be carried out to make sure the developer has all the corresponding paperwork in order. Urban planning checks should also include the review of any pending debts entailed by the urbanization of a plot;

iii. Tax reviews

These must be carried out to ensure the current owner is up-to-date on payment of all property related taxes;

iv. Condominium of owners

This check must be carried out to ensure the property is up-to-date with common expenses entailed by the condominium of owners.

Legal contingencies in property are common and remediation procedures can sometimes take time. Any legal contingencies which cannot be remediated prior to the signing date must be expressly regulated under the sale and purchase documents.

3. GETTING READY TO SIGN

Once you have chosen and reviewed your property there are several things which must be taken care of before jumping into agreements and deeds. The following matters must be in place before acquiring property:

i. Opening a bank account in Spain

You will need a bank account in Spain for the transaction and post-acquisition matters such as utilities invoices and fees entailed by the condominium of owners. The bank to be chosen is a personal decision. As we all know, commissions, charges for deposits and other related expenses may vary so a background search is important.

ii. Applying for a Tax Identification Number in Spain (NIE).

Foreigners having an economic, professional or social connection with Spain must apply for an NIE. The NIE number must be included in all public documents signed by a foreigner so this number must be ready and in place before signing the public deed before the Notary.

The application for the NIE is a procedure that can be carried out through the Spanish Consulate or Embassy in a foreigner’s home country or at the local police station in Spain. This procedure can be carried out personally by the interested party or can be delegated to your local lawyer through powers of attorney.

iii. Powers of attorney

A power of attorney is a legal document giving one or several persons the power to act for another person. Usually, clients grant powers of attorney to their lawyers so that they can carry out the legal steps required to buy property (sign the public deed, apply for the NIE number, etc…). In practice, before using any of the faculties included in the power of attorney, the client should previously request it in written form.

Powers of attorney must be signed by the client before a Notary in Spain. However, if the client cannot sign the powers of attorney in Spain, the powers of attorney may be either (i) signed in the Spanish Consulate or Embassy of the country where the client is, or (ii) legalised within the Hague Convention apostille and sent by ordinary mail.

4. LEGAL DOCUMENTS

The following are the legal documents which you could expect to sign when buying property:

i. Payment of deposit and signing of the reserve document

Once you have found your property, your agent will normally request you to sign a reservation document with the payment of a deposit. The deposit will usually be a relatively small amount (between EUR 3,000 and EUR 10,000) which will be handed over by the buyer to the lawyer of the seller and held by the latter. This deposit will lock the property and take it off the market as established in the corresponding document (usually up to 30 days approx.).

Although specific terms and conditions of the transaction will be included in the private agreement and/or public deed, we highly recommend that the reserve document is drafted carefully by an experienced lawyer. Besides the general terms and conditions such as term, price and expenses, the reserve document should also include situations and caveats where the deposit should be refunded to the buyer in case the acquisition does not take place. These exceptional situations are usually linked to mortgage loan availability or legal and urban planning contingencies considered to be deal-breakers.

ii. Private agreement

Before the term set out in the reservation document runs out, the private agreement must be signed.

The private agreement usually entails a payment at this stage of 10% of the price of the property and between 20% and 50% if the property is bought under construction or off-plan from a developer. This is a key document when buying property in Spain.

There are several documents that could be signed at this stage, being an earnest money contract (contrato de arras) or a sale and purchase private agreement the most common ones. Both documents set out the exact details of the property: its owner, the description and the subject matter of the transaction. They also set out the price, the payment method, taxes and expenses to be paid and moment in which the formalization before the Notary will take place. The main difference between both documents is that if the buyer pulls out from the earnest money agreement, it will lose the payment initially carried out. Plus, if the seller pulls out, it will return the payment doubled.

At this stage, it is essential that all commitments or specific conditions verbally agreed between the parties are expressly reflected in the agreement. Once the agreement is signed, the commitments will be binding between the parties.

Please have in mind that if not expressly stated in the private agreement, the strict transfer of ownership shall be subject to a public deed formalization before a Notary. This is a quirk of Spanish law.

We highly recommend that any standard agreements offered by counterparties or developers should be extensively reviewed by your lawyer to check that there are no abusive or unfair terms and conditions included.

iii. Public deed and formal transfer of ownership

The process concludes with a public deed signed between the parties before a Notary. In this step, the ownership is transferred by the seller and the purchaser pays the remaining price.

Before this takes place, the funds must have been transferred to a bank account in Spain. We recommend that the funds are transferred to the clients account of your lawyer. The lawyer will than organize the payment procedure to the seller and retain any amounts required such as potential debts, outstanding amounts of the property or, if applicable, the capital gain tax of the seller. The lawyer will also liaise with the corresponding banks to follow compulsory anti-money laundering procedures.

Please note that if the property will be financed through a mortgage, the mortgage application at the bank should be carried out as soon as possible (usually when the deposit is handed over). The process of examination and approval requires time and this could cause delays on signing date.

As mentioned before, Notaries are independent from the parties. They verify that the transaction has been carried out according to the applicable laws but will not negotiate on your behalf. Thus, we highly recommend that the parties go to the Notary with their lawyer who will be in charge of preparing the deeds and verifying that the documentation is in order and ready to be signed.

Once the public deed has been duly signed before the Notary, the deed should be immediately sent to the Land Registry for its registration. This procedure is essential since guarantees against third parties and ownership will be duly granted upon such registration. Usually, the Notaries work with servicer providers who will be in charge of this procedure. The registration procedure may take up to one month since the deed is sent over.

Once the deed is duly registered, most of the legal work will be complete and you will own a property in Spain. At this point, the remaining matters to taken care of are small but important things such as contracting water, electricity and other services and supplies, taking out property insurances, getting alarm systems, etc… It is common practice in Spain that the services provided by your local lawyer also include these property post-registration matters.

5. TAXES TO BE CONSIDERED WHEN PURCHASING PROPERTY

The type and amount of tax to be paid will depend on the type of property you buy and how the acquisition is being structured. Since property transactions can be complicated, the figures listed below are only broad guides of taxes that could come into place.

i. Properties being sold for the first time

• When buying properties being sold for the first time (usually from a developer), the property value will generally be subject to 10% VAT.

• Stamp duty tax (Actos Jurídicos Documentados) which sits between 0.5% and 2% depending on the region in which the property is purchased.

ii. Properties being sold for the second time

• The property value will be subject to transfer tax (Impuesto de Transmisiones Patrimoniales) which sits between 8% to 10% depending on the value of the property.

• Stamp duty tax (Actos Jurídicos Documentados) which sits between 0.5% and 2% depending on the region in which the property is purchased.

• When buying from a non-resident you must pay a withholding tax which is 3% of the property value.

• Local municipal tax (plusvalía). This tax is paid by the seller and is determined by the corresponding Town Council on the basis of the increase of the cadastral value of the property and the time lapse between the acquisition and sale.

iii. Tax on constructions (Impuesto sobre Construcciones, Instalaciones y Obras)

Any new constructions, extensions or improvements in a property are subject to an approximate levy of 2% (varies depending on the municipality) of the costs of the works.

iv. Annual property taxes:

Once you become the owner of a property, there are taxes which should be paid on an annual basis:

• Real Estate Tax (Impuesto Sobre Bienes Inmuebles): calculated on the basis of the cadastral value and will be determined by each town council. This tax must be paid by the person owning the property on 1 January of each year.

• Waste collection tax (Impuesto de Basura): tax determined by the corresponding town council. Expect to pay a rate between EUR 200 and EUR 250 per year.

• Wealth Tax: tax on the value of anyone’s assets in Spain, including property. Rates vary between 0.2%–2.5% on a sliding scale.

For further information on property related matters do not hesitate to contact us by emailing info@carlanderlaw.com.