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Buying a property in Spain, as in any country, requires a sound knowledge of the legal requirements involved. With Spectra Properties as your Estate Agent, working closely with our own lawyers, we will act in your best interest, making sure that you get value for money and taking into account all the legal issues. In addition, when purchasing your property, we will explain the procedures and all associated costs involved. We can help you find the right property, the best areas to invest in, comparing prices and quality.
When looking at a property, you should also consider the running costs or yearly outgoings to maintain the property, namely the Annual Real Estate Tax (IBI), the community fees, rubbish collection, water rates, electricity charges and Property Income and Wealth Tax.
Listed below are a few brief explanations of some of the legal documents and common issues.
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Purchase Contract (contrato de compraventa) |
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The first stage in buying a property in Spain is the signing of the contract (contrato de compraventa).
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Buying "Off Plan"
When buying an uncompleted property "off plan", a reservation deposit, e.g.
3.000 Euros, usually secures a property for up to
4 weeks. If you pay a reservation fee this is usually lost if you back out of the purchase. If a property is still to be built or completed, payment is made in stages. The contract includes details such as the purchase price, the payment of a deposit, the schedule for payment of the balance or stage payments, any extras that you have agreed to purchase, and the intended date of completion. The normal stage payments are 10 per cent on signing the contract, 30 per cent within 30 days, 30 percent on the completion of the roof and the final 30 per cent on completion. The completion of each stage should be verified by your own or a representative in Spain.
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Buying a Finished or Second-Hand Property
When you sign the contract (contrato privado de compraventa) for a new or a second hand property (or a plot of land) you must pay a deposit. If you are buying a property privately, you must usually pay a deposit of 10 per cent when signing the initial contract, although the actual deposit is negotiable, particularly on expensive properties. Once you have paid the deposit there is a legal binding agreement between you and the vendor. Note that if you fail to complete the sale within the specified time limit, you will lose your deposit. If there is any doubt about whether you can complete the sale in the specified time, you should sign a contract with an option to purchase (contrato de opcion de compra). In this case the deposit is paid in the form of an arras or señal and the contract can be cancelled by each party, with the buyer forfeiting his deposit or the vendor paying double the deposit.
When you have decided on the right property to buy, you will be asked to make a small payment of the Reservation Deposit along with signing a Private Contract, which is drawn up by the lawyer, indicating an agreement which outlines all the terms and conditions including a completion date. You will then have a period of 4 weeks to make the first payment, which is around 10% minus the reservation deposit.
It is customary to pay a Reservation Deposit of around ten per cent of the price which is not refundable if the purchaser defaults. Conversely, if the vendor fails to perform his obligations, you would be entitled to rescind the contract and claim damages. In our experience we have found that clients need time to raise this amount of money, but do not want to risk losing their purchase. For this purpose Spectra Properties have allowed a smaller deposit (non refundable) on expensive properties plus a period of 4 weeks to allow clients the time to arrange monies from their home country.
From now on until after the completion of the purchase, our lawyer will take care and assist you in all the different steps involved in the transaction, insuring that all Spanish Legal requirements are met, that the property is registered in the vendor's name and that it is free of any outstanding mortgages, charges, encumbrances, debts or other liabilities. The purchase terms should not be limited solely to price but should also cover in detail all your requirements, for example, the completion date, the form of payment…etc.
Finally on the day fixed for the completion, our lawyer will go to the Notary Public to sign The Title Deed, making the final payment to the vendor, who will simultaneously pass over possession of the property to you, handing you the keys. At this stage the sale is completed. Immediately after completion, the notary will fax details of the title deed to the local land registry to inform them of the identity of the new owner so as to prevent the property being sold twice. In this way the Notary and the Land Register act together to protect and guarantee your interests. You will then have to pay the relevant taxes and have the original title deed submitted to the Land Register for registration of your title.
We can also arrange for the transfer of the utilities and services, such as water and electricity, to your name and organise their payment through a local bank.
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Escritura Publica
The most basic paper of all is your title deed. This shows the registered owner on record with an incontestable title. The original title deed is always filed at the Notary, so you will receive an authorised copy. Unlike some systems of property registration, in Spain it is not the piece of paper itself which counts but it is the inscription in the Registro de la Propiedad, the property registry office. If you lose your deed, you can always get another copy from the Notary.
Listed on the inscription in the property registry are any liens, charges or mortgages against the property. Back taxes however are not listed. A prospective purchaser will need to get a Nota Simple from the registry, which is an extract showing the basic information and any charges against the property. However, it would be wise to see a copy of the full title deeds as well.
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Inheritance and Capital Gains Tax
Before registering the title deed, carefully consider the tax and inheritance consequences of the person(s) in whose names the deed will be registered. Property can be registered in one name; both names of a couple of joint buyers names; the names of the children, giving the parents sole use during their lifetime (usafructarios); or in the name of a foreign (e.g. offshore) or Spanish company (although this is generally advisable only for very expensive properties). It is no longer possible to avoid Spanish capital gains and inheritance tax by registering the property in the name of an offshore company, as the actual owner must be declared to the Spanish tax authorities. If this isn’t done a punitive tax (impuesto especial) of 5% of the property's value must be paid annually.
A property in the name of one person can be changed to joint ownership with a spouse, providing the couple are married under joint ownership of goods (sociedad de ganaciales). Joint resident owners can each claim 60.100
EUROS exemption from wealth tax. Whatever you decide, it should be done at the time of purchase, as it will be more expensive and may be impossible to do later.
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Signing the Deed of Sale
The final act of the sale is the signing of the deed of sale (escritura de compraventa) and the payment of the balance due, usually paid by bankers draft unless otherwise arranged. Non-resident purchasers must obtain a certificate from a Spanish bank stating that the amount to be paid has been exchanged or converted from a foreign currency, a copy of which is attached to the title deed. It is normal for both parties to be present when the deed is read, signed by both the buyer and the seller, and witnessed by the notario. If you don’t understand Spanish, you should have an interpreter present. In practise, a copy of the escritura will usually be available for scrutiny before signing and if you don’t understand it, you should obtain an official translation. You can give a representative in Spain general power of attorney (poder general) to sign a contract on your behalf. This is quite common for foreign buyers, although you must be careful who you choose.
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Registration
When the contract is signed, the Notary will give you a certified copy (primera copia) of the deeds. A notarised copy is lodged at the property registry office (registro de la propiedad) and the new owners name is entered on the registry deed. Registering ownership of a property is the most important act of buying property in Spain, as until the property is registered in your name, even after you sign the contract before the notary, charges can be registered against it without your knowledge. Only when the escritura de compraventa is registered and becomes an escritura publica
you are the legal owner of the property.
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IBI Receipt
Your receipt for the paid-up Impuesto sobre Bienes Inmuebles, the Real Estate Tax, is an important item. The IBI receipt shows first that the estate tax is paid for the current year. Also it shows the amount of the Valor Catastral, the official assessed value of the property for tax purposes. This value is almost always less than the real market value, but is gradually being raised. The IBI receipt also confirms the existence of the house and as such is therefore registered for taxes, which can be an important point when no Escritura Publica exists and the owner holds the property only by virtue of a private contract. Finally, the IBI must be presented when you sign the contract at the notary as it also displays the number of the Referencia Catastral, which, since 1997, is a required part of the documentation in property transfers.
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Referencia Catastral (Catastral Reference)
The Catastral Reference is the file number of the properties registration in the land registry, which in Spain is called the Catastral, a word that exists but is rarely used in English, and which means the land registry. Property is registered here by its measurements and boundaries and physical characteristics, unlike the Property Registry which is more concerned with ownership and mortgages.
Land descriptions on the title deeds are often quite vague, even misleading. The Catastro is usually more accurate, because they have been updating their information for some years now, with regular inspections using aerial photographs to check physical reality of land and houses.
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The Fees
The purchase of the property will involve the following expenses:
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Notary, who charges according to a fixed scale, their charges may range from 300
EUROS for a property price of 120.000 EUROS to 601 EUROS for a property price of 600.000 EUROS
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Land Registry, as a rule of thumb, 40% of what the Notary charges.
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The lawyer will charge fees for his professional services normally at 1% of the price plus VAT (currently at 16%).
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The
Taxes
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If you are buying a re-sale property you are obliged to pay a Transfer Tax (ITP) at
7%.
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If you are buying a new property or a property in the course of construction from a promoter, developer or habitual trader, then you should pay VAT (IVA) at 7% plus Stamp Duty at
1%.
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The VAT (IVA) rate increases to 16% if you are purchasing plots of land, commercial premises or garage spaces through a Real Estate Company or any other organisation involved in the buying and selling of properties.
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Plusvalia is a tax levied by the local Town Hall based on the particular area in which the property is located, on the surface area of the land, on the catastral value and on the date of the previous title deed. This tax may range from a few hundred Euros to as much as several thousand Euros on larger properties with a lot of land. By the law the vendor is obliged to pay this tax however it is common practice for the parties to negotiate on who is to assume this liability.
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NIE - Number
This is the Numero de Identificacion de Extranjeros. All property owners in Spain - whether resident or non-resident - must obtain the NIE. It is simply a fiscal I.D. number. You will not be able to pay your taxes or register your property without it. The easy to complete application forms are available from the local Commisaria (Guardia Civil Police Station) or the nearest Tax Office.
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