Buying a property in Spain is basically a straightforward procedure,
albeit with its own peculiarities. There are powerful protections
provided by statute, and Spanish contracts tend to contain more
specific guarantees - for both sides - than their English law
equivalents.
General background
Buying a property in Spain is basically a straightforward procedure,
albeit with its own peculiarities. There are powerful protections
provided by statute, and Spanish contracts tend to contain more
specific guarantees - for both sides - than their English law
equivalents. In order to benefit from those protections, however, the
purchaser must understand what to look for, what to avoid, what to
require of a vendor, and what not to do.
From time to time one hears of reports, usually in the press, of
purchasers of Spanish property being misled or even defrauded. The vast
majority of cases, inevitably not publicised in the press, proceed
according to law and to the total satisfaction of the purchaser.
Indeed, those cases where there has been a problem are, with some rare
exceptions, usually not the result of an intent to defraud the
purchaser but unfortunately, and more commonly, the consequence of the
purchaser's insufficient knowledge of the laws and procedures.
There's a fundamental trick here. And it's not spectacular. At its
simplest, it involves finding and briefing a good lawyer to act for
you. After all, there are few people who would buy a property in their
home country without the intervention of a sound professional acting on
their behalf and seeing to the necessary due diligence investigations
before anything is signed. Spain is no different in that respect.
(Note, however, whilst it is perfectly lawful and permissible in
Spanish practice for one lawyer to act for both parties in a property
transaction it is, in our judgement and experience, unguarded to agree
to such an arrangement since differences of opinion and interpretation
can arise, and there is often some resulting conflict).
That which follows is a review of some points of note, some things to watch out for, and some definite dos and don'ts.
The property search
- Enjoy it. There are some beautiful properties and the views can be stunning.
- Check
on such matters as water and electricity supply to the property, and
physical access. In country properties, check that the telephone
company can provide a line if you want one.
- If you are buying land (or an old building) and want to build or renovate, check that building permissions will be available.
- It is not usual in Spain to have a structural survey. But if in any doubt instruct a qualified surveyor or engineer.
- Remember
that, as in any country (and indeed, any profession), property agents
can vary in their competence. Some are very good - others are less so.
They are keen to make a sale. Commissions in Spain are high and range,
generally, between 5% and 10%, so a sale is worth making. In some areas
of Spain, it is expected that the purchaser pay part of the estate
agent's commission.
- If you like a property, or indeed if you
are considering buying "off-plan" (that is a property not yet built,
from a developer), you may be asked to sign a "reservation document"
and make a deposit. Such documents vary hugely. The worst give the
purchaser no protection for their money, and bind him into signing a
purchase contract usually within a week. If you can resist it, do not
sign such a document, and do not part with any money, before consulting
your lawyer. Remember that if you do sign such an agreement, you may be
undertaking to do a number of things which may be either inadvisable or
even impossible (eg transfer cleared funds within a few days), or risk
losing your deposit.
- Ideally, before signing or paying
anything , you will permit your lawyer to investigate a number of
important matters, including whether the vendor has legal title to the
property.
Your costs
- You should calculate a figure of around 9% - 11% on top of the price for the direct costs of a purchase. This is made up of:
- 7%
stamp duty (generally - though in some parts of Spain it is still 6%).
Note that if you are buying a new house direct from a developer the tax
will be 8% (composed of 7% IVA (VAT) plus 1% documentary stamp duty)
- Notary and registry fees. Just how much these are will depend on the characteristics and the value of the transaction.
- Legal
fees. Again, these will depend on the value of the transaction.
Typically they will be in the average range of 1% - 1·5%, higher
percentages being applied to lower value transactions, and the lower
end of the range to the more expensive properties.
- Post-transaction costs, including presentation of the title deed to the registry for inscription
- In
addition, if you are intending to take a mortgage with which to
purchase the property, you will need to allow for some further costs.
They include:
- notarial and registry fees on the deed of
mortgage. How much these fees may be will depend on the features and
characteristics of the mortgage loan, but a figure of 0.5% (of the
figure described below) might not be too far out
- the stamp
duty on the mortgage deed of 1% of the amount of the charge on the
property - usually calculated to include not merely the principal, but
also the interest during the term, plus the estimated costs of exercise
of the security in the event of default.
Some other matters to bear in mind
- The purchaser will need to obtain a fiscal number (known as
the NIE for non-Spaniards). This is a requirement of law for any person
- resident or otherwise - who owns assets in Spain. The fiscal number
is necessary immediately following the purchase in order to be able to
deal with such matters as payment of the stamp duty. (Note that
obtaining a fiscal number can be a very bureaucratic procedure, and
thought should be given to this as early as possible in the process)
- Stamp duty must be paid within 30 days of the date of the transaction
- If
the vendor is not fiscally resident in Spain, the purchaser must -
except in some defined circumstances - retain 5% of the agreed price
(on account of the vendor's liability to capital gains tax) and pay
that over to Hacienda (the Spanish revenue authority), again within 30
days. Failure to do this will result in the property being charged with
the retention.
- It is not uncommon for the vendor to
propose that the price declared in the public deed be less than that
actually agreed between the parties. The benefit for the vendor is that
he may pay less capital gains tax (and the 5% retention will be less).
Vendor may propose to the purchaser that the benefit to him is that he
pays less stamp duty. However, the purchaser should bear in mind that:
- It is a fraud, and unlawful, to underdeclare
- The
revenue authority has the ability - nearly always exercised - to
establish what they consider to be the real value of the transaction,
and issue a tax re-assessment. This is always issued, in the first
instance, against the new property owner in respect of the stamp duty
(ITP), since a legal charge in respect of ITP is automatically entered
in the property registry against the property itself. The tax authority
may re-assess at any time within four years following the transaction.
- The
purchaser is effectively accepting some part of the vendor's capital
gains tax liability, and the problem will hit him when he, in turn,
decides to sell.
- There is a municipal tax, known as the Plus
Valia, which is a tax on the increase in the catastral value of the
land underlying the property. The law states that, in a sale and
purchase transaction, this is the liability of the vendor.
Nevertheless, many vendors attempt to obtain agreement by contract that
the purchaser pays.
- Most urban properties form part of what
is known as a Community of Owners (as required by law). It is therefore
essential to establish whether the property is up to date with its
Community payments. The Community is a preferred debtor in law and has
the right to apply to the court for an order to sell the property to
enforce payment of any debts to the Community, even where the debt was
created by the previous owner.
- Where there is a Community of
Owners, you will be a member with the right to vote. Make sure that you
obtain - and understand - the rules (Statutes) of the community. They
have an important influence on you and your property, and the decisions
of the Community are binding upon its members.
- Post
purchase, it will usually be necessary to re-contract services and
supplies (for example electricity, water, telephone) and to make
arrangements to pay the bills. Most will require bankers order which of
course, necessitates a bank account.
- With some exceptions,
non-resident owners of property in Spain must appoint a fiscal
representative, who must, in turn, report his appointment to Hacienda.
A fine of up to a figure just over €12,000 (formerly pts 2,000,000) may
be imposed for non-appointment of a fiscal representative
IMPORTANT NOTICE
This publication is based on Windram Miller & Company SL's
understanding of the law and practice as at January 2002. Whilst every
care has been taken in the preparation and presentation of the
information contained herein, it is purely orientative in nature, and
inevitably contains omissions, paraphrases and summaries, given the
abbreviated nature of the publication. Windram Miller & Company SL
does not accept responsibility for action taken or omitted to be taken
in reliance thereon. This publication is not a substitute for
professional advice.
Windram Miller & Company SL can help with an analysis and assessment
of any Spanish property matter and related issues, and with execution of that
advice where required.
The article was provided by Windram Miller &
Company, lawyers in Marbella ( www.windrammiller.com ). If you wish to
contact Windram Miller direct, you may do so on +34 95 282 0779 or at email@windrammiller.com. Windram
Miller retains copyright to this article which may not be copied or published
other than with specific written permission of Windram Miller & Company
SL.
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