The first stage in buying a property in Spain is the signing of the contract (contrato).
Buying "Off Plan"
When buying an uncompleted property "off plan", take care when signing a reservation or option contract that isn’t a binding purchase contract. A reservation deposit, e.g.
3.000 EUROS, usually secures a property for up to 30 days. If you pay a reservation fee this is usually lost if you back out of the purchase, although some developers will return it. If a property is still to be built or completed, payment is made in stages. The contract should include 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, 35 per cent within 30 days, 35 percent on the completion of the roof and the final 20 per cent on completion.
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 within the specified time limit, you will lose your deposit. If there is any doubt about whether you can complete 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.
Contract Conditions
You can have certain conditions included in the preliminary contract that will protect your deposit in the event of the transaction falling through. Conditions usually apply to events out of control of the vendor or buyer, such as the buyer failing to obtain a mortgage. If any of the conditions are not met, the contract is suspended or declared null and void, and the deposit is returned. You should discuss whether conditional clauses are necessary with your legal advisor. Note that the vendor remains responsible for any major hidden defects in the property for six months from the date of signing the deed of sale.
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 90.000 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.
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.
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 are you the legal owner of the property.
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