VON BERG & PARTNER

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SPANISH REAL ESTATE LAW

This information sheet shall provide first insights into those fields of Spanish law that are of interest to most current and future property owners.

Certainly, the following pages will not be able to offer an adequate replacement for comprehensive and case-oriented advice. The information provided in this brochure is of general nature and for purely informative purposes only.

If you have individual questions, we would be happy to fix a personal consultation with you.

Purchasing a house or property

If you have found your desired house of dreams or a piece of land in Spain after an often tedious and exhausting search, many decisive questions arise with regard to the legal handling of the purchase and the documentation of the property in the land register.

First of all it shall be noted that Spanish real estate law applies to property in Spain and its purchase, mainly because of the national system of property ownership. This fact not only causes insecurity and sometimes even resignation, but is also often underestimated by many property buyers and sellers in terms of risks that may be involved.

If you consider buying real estate in Spain, you may first of all think of applying for a so-called NIE number (Número de Identidad de Extranjero). The NIE number is a tax number for foreigners, which is indispensable for your future stay in Spain and all legal transactions required for this purpose. The lack of such a NIE-number considerably complicates the purchase of property and the payment of taxes associated with it. You can apply for a NIE-number here in Spain but also at Spanish consulates in England. You need to be aware of certain points when you apply for this number. We will be pleased to assist you in the application process with our expert advice.
Please note that several weeks may pass between the application and the issue of the NIE-number. We therefore recommend at any rate that you consider applying for such a tax identification number early enough.

Type of contract

A real estate purchase contract presupposes that the parties involved agree on a defined object and a defined purchasing price. If a price is negotiated that is mutually acceptable, caution should be exercised.

The privately signed purchase agreement

Here in Spain an orally concluded agreement in connection with the power of disposal over the object may suffice to effectuate a transfer of ownership.

Usually, however, a privately signed purchase agreement (contrato privado de compraventa) is signed between the parties in order to document the deal. Note that this is an agreement that bindingly regulates the duties of both purchaser and seller. Stepping back from this agreement or dissolving the contract is normally not possible any longer or only under very strict conditions.

Therefore, such a privately signed agreement should never be concluded only to secure an object on the market for some time.

If a contract is to be signed, you should beforehand seek legal advice from a lawyer that is familiar with the matter. Loopholes in existing legislation are often not visible for and recognisable to the layperson and are often even knowingly hidden by the seller.

Sellers or real estate agents also often press ahead with the conclusion of a contract, which, however, should not lead to overhasty decisions on part of the considerate buyer. Whenever you feel that somebody exerts pressure or precipitance on you to make a purchase decision – and sellers or real estate agents are mostly very creative in finding suitable arguments – you should be even more careful, because purchasing property is not an everyday decision for the majority of the readers of these pages, and the amounts of money involved - for which the purchaser had to work hard an entire working life - are often enormous. We therefore strongly advise you to take advantage of legal assistance by an independent lawyer of your free choice during the whole selling process, who represents only your interests and not those of real estate agents, sellers, or any other persons or circumstances in relationships of dependence. This is the only way your dream of a home under the Spanish sun will not turn into a legal fiasco.

COMPREHENSIVE REVIEW OF THE PROPERTY FOR ENCUMBRANCES PRIOR TO THE CONCLUSION OF A CONTRACT ONLY THROUGH YOUR LEGAL EXPERT!

For a start, in order to review the desired property for encumbrances and defects of title you need to request an uncertified extract from the land register (nota simple) to make sure whether the seller is even entitled to sell the property. If the owner is not entitled to sell the property on his own, i.e. a sale requires the permission of third parties, it must be reviewed whether relevant powers of attorney are available. A power of attorney is a document. If a document drafted in England is used in Spain, it usually needs to be certified by means of an apostille. Put simply, an apostille is a form of legalisation in which a national authority verifies a signature without the cooperation of a consulate. It shall be noted with regard to powers of attorney that prior to purchasing a property, this form of authorisation should list very precisely all parts pertaining to the estate that is up for sale, including cellars, garages or parking spaces. If any mistakes are made in this regard, time-consuming and laborious amendments to the power of attorney are pre-programmed.

You may also find other encumbrances in the land register, including rights of use, usufructuary rights, residential rights, rights of way and mortgages of any kind. Each type of encumbrance should be explained by your lawyer in detail.

A comprehensive checking, however, goes further still: The review of legal verifications with regard to security and safety of buildings, land quality, the definition of the limits of the property, the real size of the parcel, the existence of a building permit (licencia de obras) for the main building and all cultivations, the statement of building completion (final de obra) and the certificate of habitability (cédula de la habitabilidad), the implementation of rightful construction, paid taxes such as the property tax, paid fees for garbage collection, water, electricity and telephone is absolutely indispensable.

It is of particular importance to mention that the situation should be checked with regard to upcoming or accrued costs for urbanisation. It is not unusual that new property owners who made an all too trusting purchase are confronted with thousands of euros in expenses to be paid to the municipal administration, which could have been avoided by clarifying the situation in good time.

Administrative authorities abroad usually work differently than at home. In Spain, tax debts are not treated as trivial offenses. Even minimal outstanding amounts may result in the auctioning off of the property. Such proceedings may also be launched during your absence or without you being informed about them. It is therefore also advisable to have a permanent legal representative on site in Spain, who is legally entitled to receive letters from official authorities and who is capable of reacting in a competent manner. We would be pleased to explain to you various possible solutions for this.

If you find out that any expenses, charges or taxes related to the property are still outstanding, they should be rigorously deducted from the purchase price to make sure that these charges are really paid. Unfortunately, our law firm often experiences that one must not trust with unquestionable confidence in promises made by sellers that all charges have been or will be paid, particularly with regard to the fact that many former owners return to their home countries and that the assertion of any claims can thus become very complicated if not at least time-consuming and laborious.

Other factors that have to be taken into consideration at any rate may be related to the geographical location of the property, such as its proximity to the coast or the beach or nature conservation zones as well as to agriculturally used areas that are particularly protected under Spanish law. If you plan to acquire real estate in Aragón, the Balearic Islands, Catalonia and other specific regions in Spain, special provisions apply that we shall not discuss in detail at the moment.

If a prospective buyer discovers that the construction is defective or if it reveals any faults, or if the size of the lot perhaps does not match the previously stated number of square metres, it may become necessary to obtain an expert opinion by a building expert and/or a surveyor. Defects as to the quality of the object are just as bad as defects of title. They may include moisture damage, statics problems or delays in maintenance and repair, among others.

Moreover, the description of the cultivation itself in the extract from the land register should correspond to reality. If it does not, you should find the reason for this divergence. In most cases, additions to the land register of cultivations that are not yet registered are possible by means of so-called declarations of new-construction projects (declaración de obra nueva). Here, it is important to note that such declarations are associated with costs and taxes that usually have to be borne by the seller. The seller should settle these costs prior to the purchase.

In addition to obtaining an extract from the land register, it is also essential to send a request to the land registry and to obtain a so-called “urban report” issued by the relevant municipal administration.

As soon as the comprehensive checking with regard to encumbrances is complete and as soon as it has been proven that the property may be purchased without suffering legal disadvantages, a lawyer should be commissioned to draft a private written contract or to review a contract presented by the seller to the purchaser.

Here too, the general principle is that you should never sign anything that you are unable to understand because of language problems. Do not sign Spanish texts, even if you have been assured that the documents are to your advantage.

In plain language, this means that private written contracts should only be signed if they are written in your native language. Our law firm only drafts contracts that can be read and understood by all parties, i.e. they are written in several languages. In this context, your lawyer will tell you precisely which kind of private written contract should be chosen, because there is a difference between the actual purchase contract, the reservation contract and the option-to-buy contract. Generally speaking, and unless otherwise agreed, a 10 % advance payment is made to the seller – and do note, to the seller and not to a real estate agent – with the signing of the private written agreement.

Among various other important points, it is also essential to arrange a notary public appointment. Despite the fact that private written contracts are valid and binding, they are not sufficient for the registration of the transfer of title in the Spanish land register.

If the purchase is being transacted through a real estate agent, the legal relationship to the agent should be quite clear. The amount of commission to be paid should be fixed between the parties in advance. It should also be made clear whether the buyer or seller must bear these expenses. No general statement can be derived here as to the “usual” amount of the commission. However, agent commissions for the most part are between 3% and 7% of the purchase price, depending on the value of the object. Please note that it is the agent’s sole task to facilitate the sale of a house, i.e. to succeed in bringing together a solvent buyer and a willing seller. Any further organisational work and elaborations such as the drafting of contracts and the checking of the property should not be left to the agent, but to a lawyer that was especially trained for this purpose. Furthermore, you should also always bear in mind that an agent is not necessarily a legal representative of a party who decisively aims to effectuate the purchase. The selling party should therefore only commission a real estate agent to search for a suitable buyer of an object. A sales mandate, i.e. the authorisation to sell a house, should never be given to anyone, because the only person entitled to sell a house is the owner, or the selling party.

At the latest immediately prior to the signing of the notarial purchase contract, the buying party should know under whose name the property is to be registered in the notarial deed and subsequently in the land register. At this point in time, many buyers may think of already transferring their property to their own children or their legal successors and to only register usufructuary rights in favour of the buyer.

It should be noted that you should think well about this first, because whenever family members become owners or co-owners during their lifetime, some relationship of dependence arises. And, as we all know, manifestations of irritation may happen in the best families. Some models, according to which the legal successors are registered in the land register as the owners, often aim to counter the payment of considerable amounts of inheritance tax in Spain by means of prematurely transferring ownership to the potential heirs. You should discuss this calmly with your lawyer and analyse your individual family circumstances to find out which solution would be most suitable.

Notarial purchase certification
A private written contract signed by the parties involved cannot be registered at the land registry. For this purpose, a notarial purchase contract (escritura de compravent) is required. Registering the purchase at the land registry provides the buyer with the guarantee to dispose of the property as the owner.

In contrast to private written contracts, notarial purchase contracts are only drafted in Spanish and signed as such. As a rule, the content of notarial contracts is similar to the content of private written contracts, but it is nonetheless important that you are accompanied by your lawyer when the contract is signed, because only your lawyer will detect discrepancies in the Spanish text of the contract and can inform you about these.

Therefore, it is important that your lawyer is present during the notarial certification. Practice shows us that purchasers abstaining from being accompanied by their lawyers are often exploited and suffer legal and economic disadvantage that only shows afterwards.

The so-called “undervaluation” or “underdeclaration” is a much-discussed issue within the framework of the notarial certification. This means that a selling price is listed in the notarial purchase contract that is lower than the factual price that was previously agreed upon by the parties involved. As a result of this, the seller has to pay less realty transfer tax (for more details see below).

Undervaluation is therefore nothing else than tax evasion. We strongly advise you to abstain from this, because undervaluation usually provides you with only short-term economic benefits but entails disadvantages in the medium and in the long run, especially when the property is up for sale again in the future and not to mention, of course, possible criminal sanctions of such action. Moreover, by means of undervaluating, the new property owner runs the risk of being reviewed by the local tax authorities and of paying subsequent, additional taxation that can only be counteracted, if at all, by way of a complicated administrative procedure.

As a general rule, after the notarial “escritura” is signed, the property ownership is transferred and the keys are handed over, unless indicated otherwise. After signing the escritura, it is important for the buyer to have full power of disposal over the purchased object. For the seller it is very important to receive the total amount of the agreed purchase price against handing over the keys right after the notarial deed has been issued, because it already happened to some well-intentioned sellers that the promised payment of the deferred purchase price was not made in time or even not at all. Despite the fact that there are safe options for the buyer to arrange payment by instalments, these options should be considered with appropriate caution and with the required full knowledge of the facts in order to avoid legal disadvantage in this context beforehand.

PLEASE NOTE:

The notary public does not review whether the object of purchase is fully free from claims (encumbrances).

In Spain, the notary public does not pay attention to ensure that reservations are registered at the land registry because the legal institution of reservation does not exist in Spanish real estate law.

The notary public does not automatically facilitate tax payments on behalf of the parties involved in the purchase.

The notary public does not legally accompany the purchase of an object.

The notary public does not automatically check the receipt of payment with regard to the purchase price and does not normally provide escrow accounts.

The notary public does not have the legal responsibility to forward notarised contracts to the land registry for registration.

We would be glad to take care of all above-mentioned tasks!

The notary’s fees are based upon the value of the notarised item.

The land registry
The land register (registro de la propiedad) is the register in Spain where rights and ownership structures as well as ownership-like rights, respectively, are registered. With this, legal force of the land register and safety of legal relations are established.

However, as described above, the transfer of ownership can take place prior to the registration in the land registry. In such cases, the land registry does not reflect the actual ownership situation but protects those who put their trust in a registration at the land registry in good faith. Real legal certainty after the purchase of property is established only by means of the notarial certification and the registration at the land registry. As long as the ownership right is not registered at the land registry, there is a risk for the original buyer and not yet registered “real” owner that a third party acquires the object in good faith and in a legally binding manner – which is still registered at the land registry under the name of the former owner – even if another purchase contract was concluded beforehand.

After the conferral of the notarisation, the notary public will not automatically bring the notarisation to the land registry, as mentioned above, but will only report to the registry that the purchase took place during the notary public appointment.

As soon as the change of ownership has been registered at the land registry, the authority will send you the original purchase certificate in addition to the confirmation of registration.

The interval between the drafting of the escritura and the registration at the land registry is about two months. The land registry’s fees are based upon the value of the notarised item.

Particularities with regard to the purchase of undeveloped land

If a piece of land is still undeveloped, the above-mentioned review procedures concerning ownership rights and possible encumbrances are also indispensable. Since the land is still uncultivated, information must be obtained from the competent municipal administration as to how the site can be developed. This means that you have to find out how many storeys your building(s) may have, for instance, or which distance is to be kept to the neighbouring lot. Upon request, the municipal administration will subsequently provide a written statement on the corresponding possibilities of development.

In purchasing a vacant lot, you should consider getting in touch with a competent architect as soon as possible at any rate. The architect will assist you in terms of legal aspects that have to be taken into consideration and, of course, also when it comes to architectural requirements and/or future construction supervision.

You should pay very special attention if you intend to buy a site that is not situated in an urban region but in an outlying area. In such areas, you are normally required to acquire at least 10,000 square metres of land in order to be granted development rights. Moreover, you will need further special building permits for the development of real estate in outlying areas.
We would be pleased to provide you with further information in this regard.

Additional notes prior to buying a flat in Spain

As with purchases of houses, in purchasing a flat you must make sure that you acquire the desired flat from the real owner and that the flat is free from encumbrances. The above-mentioned explanations therefore also apply to the purchase of flats.

If you plan to buy a flat in a building that is under construction, you must check whether the seller has corresponding guarantees and insurance arrangements. Contracts stipulating a purchase in instalments and associated procedures herewith need to be checked by an expert.

Moreover, you should make sure that the flat is free from upright rental agreements or lease relationships. The sentence to remember “contract of sale does not break tenancy agreement” has caused concern among many overly trusting buyers over the years, because tenants will usually only agree to the preliminary cancellation of a long-term tenancy agreement if they receive a high compensation payment in return.

You should also determine whether overhead expenses are still outstanding on the part of the former owner, because the new owner can be made liable for them. Please also consider reviewing expenses for electricity, water supply, garbage collection, telephone bill and property tax payments.

Moreover, you should also make certain whether your flat’s external façade appearance corresponds to the appearance of other flats or if the former owner has meanwhile made structural changes to the building without permission.

It should also be checked whether the construction contract provides for special rights of individuals and if, in this context, individual flat owners are entitled to use certain buildings or parts of buildings, respectively, such as gardens, yards, hallways or the like. Here, the question arises as to what is special property and what is community property that can be used by all co-owners?

Does the new owner agree with the existing house rules or do they contain regulations, for instance the times when it is allowed to use the pool, that are incompatible with the planned individual use? Furthermore, a trustworthy local representative should be chosen for the delivery of notifications or decisions made during owners’ meetings.

If at all possible, it should be ascertained whether the area in which the flat is located is a peaceful one or if constantly changing short-term summer tenants in individual ownership units put at risk your own tranquil summer holiday experience. Everyday law practice shows that quite many new owners are confronted with considerable neighbourly annoyances and that such annoyances on part of tenants that live on the premises are hard to counter. In this context, all prospective buyers interested in acquiring such property should bear in mind that they form part of a community, despite the fact that they are able to dispose freely of their property. Under adverse circumstances, however, they may have to face considerably more disadvantages than the owners of an individual lot that is completely shielded against external influences.

Prior to making a purchase, the prospective buyer should clarify whether the costs and taxes related to the acquisition are included and whether frequent overhead costs will be financially viable for the future owner. It is not unusual that luxuriant facilities that form part of the commonly used property, such as lifts or large swimming pools, incur enormous maintenance costs.

Taxes associated with buying a house

In Spain, a tax is principally imposed on the transfer of goods and rights. Tax amounts vary depending on the type of legal transaction. If you buy a house, for instance, you will most likely have to pay 10% in property purchase tax. Should the occasion arise, another 1% must be paid for further legal transactions such as the creation of mortgages and the declaration of new-construction projects.

The property purchase tax in the amount of 10% will only be waived if the property is purchased by a company that is subject to the payment of value-added tax (VAT). In such a case, the purchase has to be facilitated including VAT (Spanish: IVA).

It is also important to note that the buyer is legally obliged to retain 3 % of the purchase price (retención), i.e. the buyer only disburses 97% to the seller. The said 3% are directly forwarded to the competent fiscal authorities by means of a corresponding tax declaration and by using the appropriate form destined for this purpose. These 3% constitute a lump sum: One could also state that this is an advance payment for the speculative gains tax that every non-resident has to pay in Spain. Therefore, it is a tax that has to be borne by the seller, but the buyer is liable for the 3% that are retained from the purchase price.

The buyer himself/herself is obliged to retain these 3% and pass them on to the fiscal authorities. This is not the notary public’s task.

The seller’s taxes

As already mentioned above, the non-resident seller is subject to the payment of speculative gains tax in Spain, which is currently 19,5% on the value of the capital gain, i.e. the profit made from the difference between the original purchase price that the seller paid when he acquired the property, and the new selling price. The difference between these two amounts is currently taxed at a rate of 19,5%.

It is worth knowing for the buyer that he or she is not liable for the total amount of these 19,5% of the speculative profit, but he or she is only obliged to pay 3% of the declared purchase price in the form of a lump sum on the seller’s potential speculative profit to the competent fiscal authorities. If the amount of the tax on profits to be paid by the seller is lower than the 3% lump sum of the declared purchase price, the seller has the option to regain the 3% (or a share of these 3%) paid by the buyer from the fiscal authorities by means of submitting a corresponding tax declaration.

If the speculative gain is higher than those 3% the buyer pays to the fiscal authorities, the seller has no chance of regaining these 3%. On the contrary, it is quite likely that the total amount of tax due is even higher than those 3% the buyer already disbursed to the fiscal authorities.

Furthermore, the seller is also subject to a municipal increase-in-value-tax („plusvalia municipal”) in addition to the above-mentioned capital gains tax. With this tax, the municipality in which the property is located, once again taxes the increase in value between purchase and sale. It is impossible to make a generally valid or abstract statement as to the increase in value with regard to what the property is worth. Each municipal administration has different standards in assessing this value.

Generally, the value of the original purchase price is taken into consideration. The longer a seller owned a property and the more high-grade this property is, the higher will be the municipal increase-in-value tax. We strongly recommend both the seller and the buyer to determine the amount of plusvalia to be paid prior to meeting the notary public. With this, corresponding retentions of the buyer to the seller with regard to the plusvalia to be paid can be effected in time before the purchase.

Taxes after the purchase of real estate

After the successful purchase of real estate and after the payment of property purchase tax, the buyer has to take into consideration that he or she will have to pay an annual property tax. The owner is liable to pay the property tax, and the property itself is liable for current taxes or taxes that might not have been paid.

The amount of property tax to be paid varies depending on the location of the property (for instance, inner city lots versus rural areas). The so-called cadastral values constitute decisive factors for the calculation of the property tax. By means of municipal rates fixed by the municipalities themselves, they calculate the amount of property tax to be paid. Therefore, the tax amounts to be paid can differ from municipality to municipality. On principle, the owner is obliged to pay the tax. It is important to note, however, that the real estate itself is not liable for the paid property tax of the current year or of previous years, as previously mentioned. In the process of acquiring the property, it should be checked whether the former owner has paid the property tax due for the previous year before the ownership is transferred to the new owner.

Beginning with 2005, several municipal administrations started to revise their cadastral values, which resulted in considerable increases of the amount of property tax to be paid. Many of these increases were not carried out lawfully. It may therefore be possible to make a-posteriori corrections with regard to the cadastral value.

DO NOT GIVE UP. WE HAVE FACILITATED HUNDREDS OF HOME SALES WITH OUR LEGAL ASSISTANCE AND THEY CAME TO A HAPPY ENDING!

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