Guide to Buying a Property in Spain

Introduction

We are proud to present our series of Free Legal Advice Guides.

For many years now, individuals and families from different countries, have been visiting or moving to Spain looking to retire or to start a new and different life. Visiting or moving to a different country to the one you’re used to is never easy. The different and varying obstacles can sometimes seem difficult hurdles to overcome. A different language, different laws and rules, and different cultures and traditions can make you feel vulnerable and as if you’ve made the worst mistake in your life. And we know because we too have been there and done it.

To facilitate things for visitors and newcomers, we’ve prepared this collection of free guides, designed to put at least some knowledge and advice within your grasp.

One that you can access in English. Our guides include valuable legal information if you buy a property, rent or let an apartment or villa, bring or buy your car, work or employ people in Spain or if you need to understand national taxes.

These guides aim to help you by explaining in detail issues that may help you to avoid mistakes rather than doing something that you don’t really understand in Spain.

Better safe than sorry as we say in English or mejor prevenir que curar, as we say in Spanish!

We also wanted to offer you these guides so that you have the basic information as well as a lawyer representing you and protecting your best interests. Unfortunately, our experience shows that a significant number of people have been disappointed and mislead by precisely those people and professionals who were supposedly there to protect them.

However, Spain has an excellent legal system, that, despite its weaknesses (common to all legal systems), works and helps to amend others’ wrongdoings. Knowledge and information are power, and with this information, we would like to bring this power within your reach as your best warranty, especially if you wish to count on a lawyer that you can trust.

Who are we?

Costaluz Lawyers was established in 2006 by Maria Luisa de Castro who began to assist foreign buyers (mostly from the UK) who were facing various difficulties with their off-plan property purchases.

Our clients services soon began to require other services to assist the growing number of non-Spanish speaking clients who needed qualified legal assistance and dedicated and meticulous customer service.

Our Mission

To provide nationwide independent, efficient and high-quality legal services to non-Spanish speakers who visit or live in Spain.

Our Values

Truthfulness, commitment, honesty, personalized attention.

Buying Property in Spain

It is always advisable to count on the knowledge, support and experience of an independent lawyer, to look after your interests when buying a property anywhere in the world.

Over the last few years, you or perhaps people you know, have come across property related problems in Spain, usually because there wasn’t the necessary, trustworthy and ethical legal support in place.

Lack of building or first occupation licenses, hidden defects, lack of the features included in the original prospectus, issues with the community of owners, tax debts, and unsettled fees are just some of the problems that tend to arise when you buy a property without the legal advice and support.

These issues have led us to develop a three-stage checklist to advise and support people who are planning to buy a property in Spain.

This guide intends to provide you with the necessary tips to avoid problems before a property is bought and to prevent those that may appear over time.

Nevertheless, the assistance of an independent lawyer of your choice is highly recommended.

Our 3-stage check list to purchase a property in Spain is as follows:

1. Pre-purchase Stage
2. Purchase Stage
3. Post-purchase Stage

A) Pre-purchase Stage:

This stage is of extreme importance to assure a safe purchase as it includes the necessary research and verification of the owner and property’s legal status and documentation.  The documents that need verification depend on whether you are buying the property from the developer (new property or first transfer) or a second owner (resale property or second transfer).

During this stage you or your lawyer should also make sure that all the running costs and tax payments for the property are up to date.

Preliminary Actions and Requirements

1) Appointing a Lawyer

It is strongly recommended to appoint a legal representative to carry out all the necessary check that ensure a safe property purchase.

When you appoint a lawyer, he/she will explain all the legal details involved in purchasing a property. Plus your lawyer will make sure that you are buying a legal property with all the right licenses and permits in place, free of all charges and liens and that you sign a fair agreement and/or purchase contract that will protect your best interests.

2) Power of Attorney

When appointing a lawyer to represent you during the purchase of a property process, you will need to grant a Power of Attorney (PoA) in his/her favour so that he/she can act on your behalf when carrying out all the necessary diligences involved in the purchase.  The PoA will include a list of all the actions that your lawyer may carry out such as:

1. Paying the deposit and signing the private purchase contract
2. Paying related taxes and fees
3. Connecting utilities
4. Obtaining your NIE number
5. Registering your ownership at the Land Registry and Cadastral Registry.
6. Make payments and operate bank accounts.

The PoA contains a clause declaring that all these actions will be conducted for the granter’s (your) benefit. The most important aspect, however, is to freely choose a lawyer you trust and rely on completely.

3) NIE – Foreigner’s Spanish Fiscal Number

When you buy property in Spain, you need a tax identification number (known as a NIE in Spanish). You need a NIE (amongst other things) to pay the taxes associated with property. If you appoint a lawyer, he/she can obtain it for you. You can also request your NIE yourself at a police station.

4) Non-resident Certificate

If you are not a resident in Spain, it’s important to obtain a non-resident certificate so that you can register as a non-resident taxpayer. You can also use it to open a bank account and possibly speed up property purchase payment procedures.

5) Opening a Spanish Bank Account

Although not strictly necessary, opening a Spanish bank account may help to speed up the property purchase as it will help the buyer overcome obstacles such as:

• Getting certificates that demonstrate the legitimate source of funds for the purchase.
• Cheques issued by non-residents.

Property Legality

It is important to verify the existence and authenticity of the different documents that prove the ownership and legality of the property. The type of documents that you will need to examine vary depending on the kind of property you are purchasing, i.e. whether it is an off-plan or new property (first transfer) or a resale property (second transfer).

Purchasing an Off-plan or a New Property

When you purchase off plan, you must make one or several payments in advance for a property that has not yet been built.

Spanish Law requires that off-plan purchase contracts contain the following information:

• Completion and delivery date of the property.
• The bank account number (Escrow Bank Account) to which payments are to be transferred or deposited.
• Construction specifications: materials to be used, property features, facilities and communal areas.
• Reference to the guarantee for the refund of advance payments to cover delays.

The law also establishes that both the developers and the bank are jointly liable in ensuring that you are provided with a bank guarantee in which you are the beneficiary to safeguard the deposits and advance payments made to the developers. This bank guarantee is valid until your property receives the first occupation (Habitation) license from the town council, thus ensuring that completion of the purchase can take place.

Before signing the reservation or purchase contract you should always check the following documents are in place:

• Documents that identify the builder, the architect, the project manager, the developer and any other intermediary or broker involved in the sale.
• The contract states the construction specifications and material to be used.
• There is a building license in place in accordance to urban planning regulations.

When asked to complete your purchase make sure that you have:

1. First Occupation License
   
   There is a first occupation license in place (licencia de primera ocupación in Spanish). Never complete an off-plan purchase if there is no first occupation license in place.
   
   
2. IRS (tax authorities) Property Registration – Declaración de Obra Nueva and IBI
   
   Before completion, make sure that the new property has been registered with the tax authorities for the local property tax (known as IBI in Spanish). To register the property with the tax authorities, the developer must draw up a “Declaración de Obra Nueva” (declaration of new building work) and pay the associated tax.
   
   A new property bought from a developer will not have an IBI receipt yet so it is your responsibility to register the property for this tax.
   
   
3. Title Deeds
   
   Before completion, make sure that that the title deeds correctly describe the property you have bought and if applicable, the exact amount of mortgage debt . If you are buying with a mortgage, you will sign two different title deeds at the Notary at that moment. Check that the conditions of the mortgage you agreed with the bank are those included in the mortgage deeds you sign at the Notary.
   
   
4. Snagging Report.
   
   Sometimes it’s advisable to hire an expert to check the property for possible building defects and issues.

Purchasing a Resale Property (Second Transfer)

Before signing anything, even a small reservation agreement by either or both a Contrato de Arras o Contrato de Depósito (Purchase deposit agreement), you should see:

1) Title Deeds (Escritura Pública):

The Escritura Pública is the registered title deeds of the property. It is the only document that can be registered at the Property Registry (Registro de la Propiedad).

The title deeds should include:

1. A full description of the property.
2. Details of the owner.
3. Mortgages, seizure orders, encumbrances, easements (rights of way) that exist on the property.

The property’s owner(s) should be able to give you a copy the property’s title deeds (known as a copia simple). It is advisable to check that the property has been duly registered at the Property Registry by asking for a nota simple at this appropriate Registry.

2) Nota Simple From The Property Registry

The Property Registry in Spain has the role of safeguarding property transactions. It is the most important authority on the status of ownership rights. The Nota Simple (see image) is a document that contains information registered in the Land Registry about the property. Properties are identified by a 5 digits numbers as a general rule.  Under Spanish law, all information/details contained in the Nota Simple are binding; anything not registered is not binding to you or any other third party. This point is essential for understanding conveyancing processes in Spain.

1. Property Registry that issues the Nota Simple

2. Local Property Registry number

3. IDUFIR: Exclusive Spanish Property Registry Number

4. Property Description.

5. Ownership – Current Owner(s)

6.  Authorised by: Notary Public who certified the property’s origin and date on which this certification was registered

7. Charges and liens.

8. Date of issuing by the Property registry and indication that there are no documents pending to be processed.

3) IBI Receipt

The IBI (Impuesto sobre bienes inmuebles or Property Tax) is a municipal tax rather like rates in the UK. When purchasing from a second or third owner, it’s advisable to request the last 5 years paid-up receipts of the IBI to confirm you will not be liable for back taxes and penalties. Note that the number of IBI payments varies from once or twice a year to several installments. A new property bought from a developer will not have an IBI receipt yet and it will be your responsibility to register the property for this tax.

The IBI receipt shows the property’s Catastral reference number and the Catastral Value, which is the officially assessed value of the property.

4) Catastral Certificate

Every property sale must include a mention of the Referencia Catastral. As mentioned above, this reference number appears on IBI receipts.

The Catastro is a second system of property registration. It focuses on the exact location, physical description and boundaries of the property while the title deeds concentrate on ownership and title.

5) License of Property Use

Make sure that the property’s license of use matches with the purposes of use for which you are purchasing the property.

There could be 3 different kinds of licenses:

1. Residential Purposes
2. Commercial Purposes
3. Tourism Purposes

You will not be allowed to use a property for residential purposes if it has a license for commercial use or vice versa.

6) Community Of Owners Fees, Statutes and General Meetings

If you are purchasing a flat, townhouse or villa that forms part of a development request the latest paid-up receipts for Community of Owners fees. The community is like a condominium in the US and is in fact the legal body that controls all the communal elements such as lifts, gardens, pools and access roads, etc.

Each owner is assigned a quota as a percentage of the expenses that you must pay by law. The receipts for community fees prove that the fees have been paid and also give you an idea of the future charges.

Read the community of owners’ statutes and the regulations because they are binding on the purchaser once the purchase contract is signed. If you have pets, make sure that the statutes do not prohibit keeping pets in the building or complex.

Asking for and reading the Annual General Meeting Minutes Book can give you an idea on the latest issues or problems discussed at meetings and how they could affect you.

7) Utilities Services – Bills and Ownership

It is advisable to check the paid-up receipts for utilities such as:

1. Electricity
2. Water
3. Telephone
4. Refuse Collection

When you purchase, make sure you change the ownership (known as titularidad in Spanish) of the utility services from the former owner’s name to yours.

If the previous owners have unpaid utility bills and they’re reluctant to pay them, let the companies cut off the services if it costs less to sign a new contract than pay off the previous owners’ debt. The fee for a new contract is usually the same as the charge for transferring a contract to a  new name.

8) Survey

Sometimes it could be advisable to get a survey carried out on the property before you commit to the purchase. A surveyor will check the building for possible structural defects, any major maintenance issues and double-check the size of the property and plot (if applicable). This is particularly important if you’re buying an older property or one in the country.

9) Purchase Deposit Agreement

Once your lawyer is satisfied with all the checks on the property, and you and the seller have agreed on a price, ask your lawyer to make the necessary assessments of the amounts of taxes and fees that will be paid on the transaction and negotiate with the vendor who will cover for these fees and expenses. Once this is agreed, you can proceed to draft the Purchase Deposit Agreement (Contrato de Arras in Spanish) and/or the Private Purchase Contract (Contrato de Compra-venta in Spanish).

It is normal practice for the buyer and the seller to sign both a deposit and a private purchase contract before signing the final title deeds.

The Purchase Deposit Agreement is a contract under which you, the buyer, reserves the property while you get the funds for purchase (including obtaining a mortgage if necessary) or the seller completes construction of the property if it’s off-plan or new.

This kind of contract protects the buyer should the vendor decide to sell the property to another buyer willing to pay more. This would give the original buyer (you) the right to claim twice the amount of the deposit back. If you, the buyer, fail to complete the sale, you lose your deposit.

It is advisable not to pay the deposit directly to the seller. It is better to deposit the amounts into an escrow account (Bonded Client Account), from which the money will not be released until completion of the sale. In off-Plan or new properties the vendor is obliged to provide you with a bank guarantee covering all payments made in advance.

Private Purchase Contracts include other details of the agreement, such as payment terms, completion dates and who pays for which fees and expenses. Note, however, that this it is not the final document for the sale.

It is always strongly recommended to ask your lawyer to draft a contract specifically for you or to revise the vendor’s so that you sign a balanced and fair contract. In other words, a contract that is equally favourable to both the purchaser and the seller in terms of penalties, cancellations, expenses, etc.

Most property transactions between individuals follow this system of deposit and private purchase contracts, followed by completion through title deeds signed at a Notary and final payment. However, it is not obligatory under law and the same purchase can take place by just signing the deeds and making payment.

B) Purchase Stage

At this stage, you will be able to complete the purchase by signing the deeds before a Notary.

1) Closing the Terms and Conditions of the Purchase.

If no Private Purchase Contract was signed prior to the purchase of the property, it is very important to settle with the vendor or his/her lawyer the terms and conditions for for expenses and penalties as well as any inventory items (e.g. furniture and or appliances) included in the sale of the property.

2) Transfer Costs

Every property purchase involves at least two taxes and two fees to pay.

1. Notary: Fees are fixed by an official scale and vary depending on the size of the land, the size of the property and its purchase value.

• Property registry: The property registry charges for the inscription of the property in your name in the official Registro de la Propiedad. Fees are similar to those of the Notary.

• Transfer Tax or VAT: If you’re buying a resale property, you’re liable for Transfer Tax o Impuesto de Transmisiones Patrimoniales/ ITP. The amount varies from region to region in Spain, but generally it is between 6 and 11% of the value declared in the contract. If you’re buying a new property (ie you are the first owner), you pay VAT (Impuesto sobre le Valor Añadido) at a flat rate of 10%. You’re also liable for Stamp Duty (Actos Jurídicos Documentados/ AJD). This rate varies in different regions – expect to pay between 0.5 and 1.5%.  

• Plus Valía: Officially called arbitrio sobre el incremento de valor de los terrenos, this is a municipal tax charged on the increase in value of the land since its last sale. This tax is assessed upon the official value of the land, which is always lower than the market value. Always check that the vendor pays this tax because it can be charged against the property itself making you liable for any unpaid debt from the Titeprevious owners.

3) Title Deeds.

The title deeds are the final document for the sale and must be signed by you or your representative and the seller in the presence of a Spanish Notary to make the sale legally binding. If a representative is signing on your behalf, he/she must have a Power of Attorney signed by you as explained above (Pre-Purchase Stage – Appointing a Lawyer and Power of Attorney).

The title deeds must describe the property accurately and identify Buyer and Seller.

4) Completing the Purchase-Sale – Signing the Title Deeds before a Notary

When you sign the title deeds at a Notary, take a translator with you, so that you are fully aware of what you are going to sign. If you have appointed a lawyer, he/she will usually translate for you.

If you sign the deeds in person, make sure you take your passport as the Notary will identify you through this document.

The Notary’s duty is to certify that the contract has been signed, the money paid and that the seller and the purchaser have been advised regarding their tax obligations. The Notary does not certify or verify that all the statements in the contract are true; this is another reson why it is strongly recommended to hire a lawyer to protect your best interests.

5) Title Deeds Insurance

Title Deed Insurance is an optional insurance policy that you may contract if you want to protect your property purchase against unforeseen eventualities. If you trust your lawyer and his/her professionalism, this policy is not necessary, as your lawyer will make sure that your purchase is legal and fulfils all the requirements.

This kind of insurance policy protects your rights on the property in the face of possible problems that could occur in the 20 years following your purchase. This 20-year period is the legal time limit during which any action could be filed by anyone wishing to claim a right on your property.

These problems could be:

1. Property smaller than stated.
2. Bankruptcy of the seller.
3. Boundary disputes.

C) Post Purchase Stage

During this stage make sure you:

1. Collect the signed and notarized documents from the Notary.
2. Pay the appropriate property taxes.
3. Register your ownership in the corresponding Land Registry.
4. Change the liability for local property tax (IBI) to your name at the local council.
5. Change ownership of utilities and services to your name.

DISCLAIMER:

The information contained in this guide is for general information and interest purposes only and may not to be construed or intended as a substitute for professional legal advice. The information is provided by Maria Luisa de Castro and Costaluz Lawyers and while we endeavor to keep this information up to date and correct, proper legal advice is strongly recommended before taking any decisions.