GUIDE TO BUYING PROPERTY IN SPAIN

If you have decided to buy a second property anywhere in Spain, or would like to make Spain your permanent home, you should take the following into account:

• Every country has its own laws and customs but these may reflect procedures which are not acceptable or advisable in Spain. As an autonomous region of Spain, the Canaries also has its own distinct laws, different to those in force in other parts of the country, especially when it comes to tourism, touristic rentals, apartments, hotels, etc.
• Once you have decided to buy, don’t do in Spain what you wouldn’t do in your own country.
• Don’t hurry, there are lots of properties for sale. Take legal advice first, and buy afterwards.
• Unfamiliarity with the language can sometimes be an inexhaustible source of misunderstandings and legal problems. Make sure you have completely understood the content of every legal document before you sign it. Bear in mind that before signing your Escritura, you have the right at notary to have it fully translated into your own language.
• Avoid making payments in cash, and if cash is part of the negotiated agreement, always hand it over at notary at the point of signing the Escritura. Any cash sum must be identified in the clause in the Escritura dealing with the price and payment. Anything else would be anomalous.
• Take advice from qualified professionals with proven experience and a long and respected reputation. Ask for references: sometimes it is not enough that a lawyer can speak your language because professional prestige is earned by good work and proven trustworthiness.
• Using foreign firms of solicitors who do not have a presence in Spain could not only mean higher legal costs for the purchase but it is also hardly practical. Given their unfamiliarity with another country’s law, a good foreign lawyer will always advise you to seek legal advice from a local lawyer.

Such simple recommendations might seem obvious, but the majority of foreigners do not follow them, and find themselves involved in legal problems and misunderstandings. Don’t run unnecessary risks.

You may find below more detailed information about this subject:

Index:

1. Introduction and first steps (see above)
2. Documents that must be obtained from the seller

N.I.E

Banks

Land Registry

Ayuntamiento

Community of Owners

3. Contract of private sale or public title deeds (Escritura)?

Types of contract

Reservation or Deposit

Third parties:

1. a)    Estate agents
2. b)    Lawyers
3. c)    Powers of attorney
4. Signing the Escritura at Notary

Documents to be supplied by purchaser

Documents to be supplied by vendor

5. Special Purchases

Buying Off-plan properties

Buying Rustic properties

Buying Tourist Use properties

6. Mortgages

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2.- DOCUMENTS ONE HAS TO REQUEST FROM THE VENDOR OR ESTATE AGENT DEALING WITH THE SALE:

Once you have found a property, you need first to ask the vendor for a copy of the Escritura or title deeds of the property. It is possible that the owner acquired the property through purchase, inheritance, Court auction, payment in kind, swap, gift, marital settlement, etc. You must be sure that the owner’s title is publicly documented, namely in a notarized Escritura. In Spain, only documents drawn up by a notary can be inscribed in the Land Registry.

If you are faced with a private document, you should take great care because it is possible that the property is registered in the Land Registry in the name of someone else, and so would be vulnerable to the registration of any type of charge, embargo, mortgage and even sale to other buyers while it remains unregistered in the vendor’s name in the Land Registry.

With this in mind, if you do not understand Spanish you should take the Escritura to a lawyer to examine in detail to confirm ownership and verify the current legal situation in the Land Registry of the property being sold, i.e. who the owner is, whether there are any charges, embargoes, mortgages or other matters affecting the property’s value or title. It is also important to check that any purchase taxes were paid at the point of previous transfer.

The vendor must also be asked for a copy of the receipt for IBIs (rates) because a copy of this must be presented at notary when signing the Escritura. IBIs are a small municipal tax paid each year to the Ayuntamiento (council) local to the property’s location, the amount being contingent on the Catastral Value which is defined on the receipt. Indeed, the Catastral reference itself must be supplied both to the notary and to the Ayuntamiento after signing so that the council can change the name of the owner of the property.

The vendor should also supply the most recent receipts for electricity, water and basura (refuse/rubbish). If the property is an individual family dwelling the vendor must also be asked for a copy of the Cédula de Habitabilidad de la Vivienda (habitability certificate) nor called “Declaración del responsable”.

It is also a good idea to ask the vendor or community of owners for the official documentation of the building, namely the Licence of First Occupation and the architect’s Certificate of Termination of Works. Sometimes, when it comes to apartments in a block, these documents might not be available to the vendor but the administrator of the community or the promoter or builder should be able to supply them.

THE FOREIGNER’S IDENTIFICATION NUMBER (NIE)

In Spain, this is known as a NIE and serves to identify foreigners who are conducting official procedures in Spain. Acquiring a NIE does not mean that you have legal residence in Spain, nor will it act as an identity document for the police.

To obtain a NIE you must go to the nearest National Police station and ask for the Foreigners’ Office (Oficina de Extranjeros/Extranjería).

In the Extranjería, you will be given a form that is easy to fill out, and once completed, you will need to return it to the police with your passports.

The police officers will take the application and issue the original document . Once you have it, you will need to go to the nearest tax office (Delegación de Hacienda) to register your NIE and obtain a Fiscal ID card and labels.  (To be able to fill electronic forms and pay taxes you need to register with the tax office as they are not connected with the Police)

The NIE must be applied for and collected in person or by someone who has a notarized power of attorney. No-one can collect a NIE for someone else without such authorization.

THE LAND REGISTRY

To be able to buy a property safely and without any risk you need to understand how Land Registries operate in Spain.

First, they are generally open from 9am to 2pm for the presentation of any public document whose inscription concerns the person presenting it. The registries keep a day book which records the date and time of each document presented, the details of the person who presented it, and the reference number which has been assigned to it. This book is very important because it establishes the priority of rights of those individuals who present documents to the Land Registry following the general principle of right by chronological order: in other words, documents will be prioritized by order of presentation. If a creditor of the vendor presents an embargo order before you try to register your new ownership of a property, there will be a Registrar’s note indicating that the property has been bought with an embargo on it. This is why you must take the utmost care and request information of the property before making any payment. In general, there are three ways to request information from the Land Registry, as follows:

a)    Simple information note (Nota Simple Informativa)

b)    Certification of Ownership and Charges (Certificación de Dominio y Cargas)

c)    Examination of Land Registry entry (Exhibición de Libros

The commonest method is the Simple Information Note, though it is provides only the most basic information, and does not give a complete picture and may not reflect documents pending inscription in the Land Registry

The safest method is to request a Certification of Ownership and Charges. These are signed by the Registrar and confirm the ownership, whether any charges are lodged against the property and in whose name they might be, and finally whether there any documents presented to the Land Registry which could affect ownership or charges against the property.

Examination of the Land Registry entry is not possible in all Registries, but where it is, it is simply a matter of making an application to look at the relevant entry, and attending for a physical inspection provided by the Land Registry. The applicant then examines the entry and makes whatever notes are applicable.

To be able to get information from a Land Registry in Spain, an application form is filled out giving the registral details of the property concerned. If the property does not have registral details, or you don’t know them, you can request a Certificate of Ownership and Charges by specifying the name of the person who claims to be the owner, along with their NIE or Spanish ID number (DNI).

Anyone can apply for a Certificate. Registry staff will help applicants fill out the forms if they have the time to do so. Interpretation of the data which is registered can be quite complicated so it is always advisable to consult a lawyer, particularly since some details and information could involve legal terminology which is quite complex for the unqualified.

If you have decided to buy a rustic property, a plot of land to build a house, or even an apartment within a block it is always advisable, though not imperative, to consult the local council. Generally, this is essential when buying rustic land or building plots, as well as when buying property in construction. With older established buildings this is not vital but is still advisable. This check with the council is also essential for any properties near the coast because there are regulations in this respect which could affect them or restrict the buyer’s rights. There are two ways of requesting information from the councils:

• The first is to ask for an Urban Certificate (Certificado Urbanístico) to see if there are any types of problems or charges which affect the property.
• The second would be a verbal consultation with council technicians (architect).

THE COMMUNITY OF OWNERS:

Throughout Spain, all blocks of more than two dwellings are built under a regime known as the “Community of Owners”. A Community of Owners exists where there are common elements or areas within a building which are shared by all the owners. The costs incurred by these common areas must be shared between the owners according to a quota which is recorded in the Escritura. The Legal Regime of Communities of Owners was updated in 1999 with significant innovations, including the requirement for a certificate signed by the Secretary/Administrator of the community of owners. This must be presented at the point of signing at notary, and it will be approved by the president of the community and confirm that the property is up to date with all community fees. Without this document, the notary will not authorize the signing of the Escritura unless the buyer renounces his rights of being informed about any debts lodged against the property. Bear in mind that if you buy a property without such confirmation, you will be responsible for any debts the previous owner might have incurred in the year in which you buy and the three years prior to that. For his part, the vendor must inform the community of owners that he has sold the property, with failure to do so possibly resulting in joint liability for community fees following actual transfer of ownership.

It is also a good idea to request a copy of the Statutes of the Community of Owners and examine them carefully to see if there are any rules restricting or prejudicing owners’ rights in any way. You must also check that all areas of the property you are buying are privately owned and do not have any restrictions, or even belong to the Community of Owners.

3.- CONTRACT OF PRIVATE SALE OR PUBLIC ESCRITURA

Once you have decided to buy a property, you need to ascertain immediately how long it will take to get the money together to pay for it. When this is a couple of months or so, or even longer, it might be necessary to have a Private Sale Contract drawn up and signed to reserve the property and avoid it being sold to someone else. The contract will also fix the price so that the vendor cannot change it after agreement has been reached. Generally, there are various formulae for a Private Sale purchase, as follows:

a)    Precontract or Promise of Purchase

b)    Purchase Option

c)    Private purchase contract

To avoid complicated technical explanations the following is a straightforward definition of each type of contract, as well as their individual advantages and disadvantages.

A)   Precontract or Promise of Purchase. This contract confirms agreement by both parties on the essential elements of the purchase, e.g. the details of the property, the agreed price, and the date on which the Escritura is to be signed. To reserve the property, a sum of money called a deposit or reservation is handed over, and the signature of the Escritura is deferred to a later date. The contract or purchase operation will be completed only when the full purchase price is paid, usually at the point when the Escritura is signed at notary. Bear in mind that the Spanish Civil Code establishes that once the deposit or reservation is handed over, both parties are obligated by it, so that if the vendor sells the property to someone else, or refuses to sign the Escritura, he must return the deposit along with compensation for damages of the same amount as the deposit lodged by the purchaser. Alternatively, if the purchaser decides not to complete the transaction, the deposit will be lost, being retained by the vendor as compensation for damages and loss.

B)Purchase Option. With this method, an amount is handed over but is considered neither as payment on account nor deposit. Instead, the payment is known as a Premium of Purchase Option, and it establishes for a set period of time a preferential right to buy before anyone else. The parties are completely free to agree the amount of the premium, and can even have the Option drawn up and signed at notary, and then registered in the Land Registry, which is advisable when the Premium is high and the timescale quite long. This allows any other buyer interested in the property to see that the property is reserved in the Land Registry if they request a Simple Information Note. In practice, people who sign a Purchase Option do not draw it up as a public document nor present it to the Land Registry because this would entail the payment of a considerable amount in purchase taxes. Generally, the Purchase Option can be useful for those carrying out large-scale property transactions in plots of land or whole buildings where it would take some time to get the monies together to conclude a Purchase Contract. The Purchase Option contract must explicitly set out the means of notification by which the buyer exercises the preferential right to buy because the minute the vendor is notified that the Purchase Option should be activated the contract becomes a Purchase Contract.

C)Private Purchase Contract. This contract confirms the agreement reached by both sides about the property, its price, and the means of payment. There are no subsequent discussions and promises since there is a clear intent to buy the property. In this case, if the funds are available, it is advisable to sign the Escritura at notary without delay, and present it to the Land Registry. In certain circumstances, however, it may be necessary or convenient to leave it as a Private Document for a while. The Purchase Contract must be drawn up with precision, with special emphasis on what would lead to the cancellation of the contract for failure to pay, or for sale to third parties, or for discovering charges or encumbrances on the property that prevent the buyer freely completing the purchase. It is advisable to get the conditions for cancellation drawn up by legal professionals who will take into account the particular circumstances of the transaction. Purchase taxes can be paid on a Private Purchase Escritura though the majority of buyers prefer not to do so until signing a Public Escritura. You should be aware, however, that buying with a Private Purchase Escritura and not settling the purchase taxes for a prolonged period could lead to problems, possibly even insoluble, because as explained above, the property remains an open inscription in the Land Registry in the name of the vendor, and subject to potential charges and encumbrances against the property. If problems arise with the purchase, and the purchase taxes have not been paid, it will be very difficult to prove that the date and signatures of the private document are what they claim to be, and the matter would have to be resolved by the Courts with complementary evidence required for the identity of the parties, their signatures, the payment made, and the date of the contract. The advantage of the Private Purchase Contract over the other two formulae above is that in order to cancel the contract the Courts have to intervene, whereas for the others this is not necessary.

A) ESTATE AGENCIES:

No qualifications are needed in Spain to act as an estate agent. If you are buying through an estate agency you should make sure that the estate agency is authorized by the vendor in writing to offer the property for sale. Ideally, they would have a power of attorney from the vendor to sell, but if this is not possible, you should pay any monies by bank draft made out to the vendor, i.e. whoever is named as owner in the Escritura. You must avoid making payments in cash. Estate agencies assist buyers in all the ancillary procedures related to purchases, e.g. opening bank accounts, applying for mortgages, applying for information from the Land Registry, just as they will assist you in relation to which property best suits your criteria, and what your money can buy.

B) LAWYERS:

Lawyers are the only professionals qualified in Spain to defend the interests of others in Court. They also, evidently, engage in advising their clients and helping them avoid risks, this indeed being one of their most important functions. When contacting a lawyer, you should evaluate their professional experience, your ability to communicate with them in your own language, and agree the fee for whatever professional services the lawyer will provide. Once this has been done, you will be asked for a Provision of Funds to cover fees and expenses that the lawyer will incur in the agreed work. With this money the lawyer will deal with all the procedures related to the purchase, their qualifications and experience guaranteeing that the transaction is carried out to the buyer’s best advantage and without any risks. A lawyer who misadvises a client or fails to foresee an evident or verifiable risk in any Public Registry is liable for the damages that his client may suffer. Your lawyer will take responsibility for drafting Private Purchase Agreements, requesting Certifications and Information Notes from the Land Registry, checking the vendor’s documentation, and assisting you at notary when signing the Escritura: the lawyer can even act in your name with Power of Attorney.

C) POWER OF ATTORNEY:

If you are unable to come to Spain to sign the Escritura at notary, you can give someone Power of Attorney to represent you and sign on your behalf. The person appointed can be the lawyer, the estate agent, a relative or friend. Bear in mind that to appoint someone to act for you, their Power of Attorney must be granted at notary, ideally in Spain. If you grant a Power of Attorney in your own country, the document must meet specific requirements in order to have full legal effect in Spain, and so the best system is to grant Power before the nearest Spanish Consul. If this is not possible, you will need to find a local public notary and then send the document to your national Legalization Office. Under an international agreement signed in The Hague (Netherlands), any document drawn up abroad must contain the “Apostille” of the Hague International Convention, which certifies that the notary authorizing the document is legally qualified to grant public documents.

It is advisable not to grant General Powers of Attorney to people you don’t know since in your absence they could sell the property, receive the money in their name, and even mortgage the property without your knowledge. It is always advisable, therefore, that qualified professionals, lawyers or family members are appointed as Power of Attorney. A Power of Attorney can also be limited, something highly recommended since it defines the conditions precisely, e.g. the property being bought and the price being paid for it. Spanish Notaries take the limitations in such Powers of Attorney into account and will not authorize a document that fails to meet their specific conditions.

4.- SIGNING THE PUBLIC ESCRITURA

As mentioned above, only purchase documents granted before a public notary have access to the Land Registry to be inscribed with all necessary legal formalities. The Escritura must be signed before a Notary resident in Spain, and at the signing, buyers must appear in person with identifying documentation (national identity document, passport, Spanish residence card) because a notary cannot authorize an Escritura without identifying the party signing. Normally in Spain, an Escritura contains a declaration that payment for the property has been made prior to signing, but it is advisable rather that it should state that the payment is made in the presence of the Notary who confirms the fact.

Next, we list the documents you need to take with you when signing the Escritura:

Documents which the buyer must supply

• National identity document (Documento Nacional de Identidad – DNI) for Spanish nationals, residence card or passport as applicable for foreigners.
• The means of payment is usually a bank draft. Sometimes cash payments can also be made but this is not recommended since there is no record of it being received by the vendor.
• Tax Identification Number (Número de Identificación Fiscal – NIF), NIE. When the transaction involves a non-resident buyer and a resident vendor, the buyer will need to supply the Notary with a bank certificate which accredits foreign currency entering Spain and its purpose, i.e. the purchase of a property in Spanish territory. This certificate can be substituted by a copy of the bank draft issued by a local bank on a non-resident account in the name of the buyer.

Documents which the vendor must supply:

• Resident ID card, passport or DNI, and original Power of Attorney if applicable. The vendor must also provide the original certificate from the community of owners signed by the secretary administrator and approved by the president, confirming that the property is up to date with all quota payments.
• Latest receipts and proof of payment for IBIs and basura as well as for electricity and water.
• Where commercial premises are involved, the opening licence will also be required, and proof of being up to date with IBIs, economic activities taxes, and fees and taxes associated with the municipal opening licence.
• Powers of Attorney must be in date, though obviously they cannot be used if the person has died, since death automatically annuls the Power.
• If the vendor is a business, the company constitution Escritura must be presented at notary as well as the Power of Attorney granted to the person appointed to represent the company, and which has been inscribed in the Registry of Companies if the Power is a general one. Company directors should provide the notarial document confirming their status.
• When the property is brand new, the First Occupation Licence (Licencia de Primera ocupación) must also be presented along with the habitation certificate (Cédula de Habitabilidad) though this may be able to be substituted by a declaration made by the person signing under Power of Attorney. The architect’s End of Works certificate (Certificado de terminación de Obras) will also be needed as well as the notarized document confirming the termination of the works.
• With off-plan purchases, the vendors must guarantee the stage payments or instalments through bank guarantees or individual certificates issued by an insurance company.

Once the Escritura has been signed, buyers have 30 days to pay the purchase tax. The tax rate is 6.5% of the value declared in the Escritura for resale properties, whereas for newly built properties, VAT (IVA) is paid in Spain: the equivalent in the Canaries is IGIC, rated at 7% of the value declared in the Escritura. New Build property also attracts a Legal Documents tax (AJD – Impuesto sobre Actos Jurídicos Documentados) of 1% . Essentially, any purchase will have approximate costs of around 8-10% on top of the price paid for the property itself, as well as the legal fees payable to the lawyer instructed by the buyer. Apart from the 6.5% purchase tax, the rest of the 8-10% roughly covers notary fees, Land Registry costs, and administration. After signing, buyers must also visit the local council and submit a form together with a copy of the Escritura in order to settle the tax on the increase of urban land value: this tax is called Valor de los Terrenos de Naturaleza Urbana though it is commonly known as plusvalía. It is a tax that is the legal liability of the vendor though it is often physically paid by the buyer to ensure that it is paid and no post-sale liability devolves onto the buyer if the vendor is a fiscal non-resident in Spain.

5.- SPECIAL PURCHASES

Off-plan

Purchases of property in Construction are governed by a particular law (Law 38/1999 of Building Regulation). Great care must be taken when buying off-plan when it comes to payments, and buyers must confirm with the vendor-constructor that any advance payment is bank guaranteed should the company stop work or declare itself bankrupt, or go into receivership or liquidation. New Build homes must be handed over once they have an architect’s completion of works certificate which conforms to a specified model and is duly stamped and signed by the local Architects’ Association. For his part, the builder must hand over the keys along with all the documentation for the property so that water and electricity can be contracted because works’ supplies are provisional only. It is advisable to ensure that these documents are correct for presentation to the utility companies, and sufficient to acquire a personal supply. To be sure of occupying the property with all guarantees in place, there must be a First Occupation Licence issued by whichever local council granted the works licence. Finally, before embarking on an off-plan purchase, ensure that you have checked the architect’s project, identify your property in it, ascertaining that it is as described in any sales literature, and make sure that the builder has a works licence issued by the council for the construction of the building.

Rustic property 

When a property is in a rural area it is quite likely that there are zones that the local or regional authorities have designated as protected natural areas, or where special restrictions apply. It is essential, therefore, that this type of purchase is always overseen by a qualified lawyer. It is quite common for rustic properties and rural houses (casas rurales) not to have documentation as a result of their age, and sometimes they are not even registered in the Land Registry. If you are going to turn a rustic property into a private home by reforming an old house, and do not intend to carry out agricultural activities in it, you must take great care before paying any deposit. Rustic properties are often subject to easements such as access rights for water or electrical apparatus, rights of way, access for livestock, etc. Buyers must make sure that there will be no limitations on their ownership and use of their property.

Touristic Properties

Apartments or units in aparthotels are intended primarily for commercial use. This can sometimes be annoying or subject to restrictions. It is important, therefore, for buyers to make sure that the limitations imposed on the use of the property as a commercial venture do not affect their legitimate rights as owners. We recommend that buyers inspect the community rules or statutes because there may be restrictions concerning renting to third parties and tourists. The properties intended for tourism use are also subject to special administrative regulations because this activity is protected by the State and the Autonomous Communities. It is also common for community statutes to establish preferential acquisition rights in favour of in-house tourism development businesses. Finally, you must make sure before buying that your new property does not have current tourism development restrictions.

6.- MORTGAGES

If you are planning to buy a property with a mortgage you will need to approach a local bank, taking along your identification documents, tax reference number, NIE, proof of income, and evidence of any property owned in Spain or elsewhere. Normally, mortgage applications involve opening a bank account with the bank concerned and paying in some funds as well as covering the costs of a valuation of the property you wish to buy and bank charges to consider the application. These procedures usually take around a fortnight. If the purchase is entirely dependent on a mortgage being granted, make sure that there is a specific clause in the purchase contract so that you do not lose any deposit in the event that the mortgage is denied.