The Purchase Process
There are differences in the following comments between off-plan or under-construction properties, where reservation and deposit payments are made, but completion is delayed for some time until the property is actually finished; and re-sale or existing properties (possibly including land) where a deposit payment is the first step in a (normally) fairly swift purchase and final payment process. Much is common to both, however.
Making An Offer
When you do find that property, ask the agent if the vendor is likely to accept an offer; some vendors price to sell, others price a little high and expect to be knocked down, others will wait until the market reaches the value they have set. It is impossible to generalise as we have so many different nationalities living here all with their own sales - purchase cultures, so let your agent (hopefully Greyfox!) be your guide.
The Reservation Payment
The property market in Andalucia is buoyant - this means that good properties sell extremely quickly, so be prepared to make a fast decision and back this up with a reservation payment (usually around 3,000€) to secure a property and remove it from the market. The reservation can be made in cash or by credit card. A reservation payment may or may not be refundable, so get this absolutely clear and confirmed beforehand.
Spanish Law and Lawyers
We cannot over-emphasise enough the importance of appointing a legal professional to look after your interests when you’re buying a property in Spain.
When choosing a lawyer, make sure that he or she fluently speaks and writes a language that you understand and don’t hesitate to ask questions. Lawyers need to act for you alone, so whilst you may be pleased to receive recommendations and suggestion of suitable firms (this is helpful and professional), never use a particular lawyer if you are 'obliged' to do so (maybe their services 'come free'?) (of course, there's no such thing . . .) or if the lawyer is in any way obliged to the vendor, the agent or the developer. There are developers that 'own' agents, and lawyers, with the result that problems and delays can occur with impunity - no-one will act or speak up on the purchaser's behalf.
We will be pleased to suggest (without any obligation)
the professional firm that we ourselves use - contact us if you wish
Spanish property law is complicated and there have been some cases of unwary investors being misled by unscrupulous sellers. Under Spanish law only the person named on the title deed has the right to sell the property - some investors have been tricked into paying large sums of money to people who were merely tenants of the property.
Instructing a Lawyer - Form of Words
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This is to instruct you to act with regard to the purchase of land/a property situated at - - - - - - - - - - - - - - . The reason this land/property is being purchased is - - - - - Please carry out all necessary and appropriate searches and before making or allowing me/us to make any payment to the builder, please carry out a company search to ascertain the financial viability of his company. If either the property or land upon which he is building is mortgaged, please advise us accordingly and further advise as to how we can be protected again the effect of his failure should this occur. If the property is resale, please ensure that there is full and free title and that there are no charges or debt attached to the property. These instructions are given only on the basis that there are no conflicting interests between the parties and that you act for us solely and exclusively in this transaction and that there is no financial relationship between you or any party concerned with the sale or purchase of the land or property which we are buying apart from ourselves who will be responsible for your professional fees. I/We have no in depth understanding of property law in Spain and at all times will be relying upon your advice and services to represent our best interests. Please inform us immediately of anything which may have a detrimental affect on this purchase and do not allow this sale to proceed if there are any reasons you are aware of or which your research may discover and which are or may be detrimental to our interests. |
You may think the above is quite reasonable but you may find that there are some lawyers who will decline your business. This is excellent and the very reason for putting your instructions and requirements in writing. Good lawyers may smile wryly but be happy to accept your instructions. However, rest assured that you will certainly be uppermost in their minds during the time spent conveying your property.
The Deposit Payment
The amount you will be required to pay as a deposit is not written in any law. However in most cases the deposit would be between 10% and 15% of the agreed purchase price, to be paid within 30 days of making the reservation payment. Always consult an independent solicitor prior to making the payment and signing the contract, as deposits may not be refundable if you change your mind. When buying a property in the UK you can run the risk of being ‘gazumped’; in Spain this would not happen as the moment an offer is accepted be that verbally or written, you are deemed to have a deal.
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Caveat Emptor? Amongst the enormous numbers of people and properties in Andalucia there is the awful, the mundane and the excellent. There is every opportunity to avoid the unscrupulous, and every nightmare reason imaginable to steer clear. |
The Purchase Contract
Against the paying of the Deposit, you will be asked to sign a purchase contract that outlines all of the conditions of sale as agreed with the seller or their representative. Even though you are not required to sign a Private Contract it is important to use this type of document in order to secure the terms and conditions of sale. Do not sign anything without the express permission of your lawyer.
Give careful thought to the inclusion of a definite delivery date. If your property has been promised in 9 months, then have those selling it to you put this in writing. Further get your lawyer to negotiate compensation for late delivery. Bearing in mind that some contracts can run 200% over time this is not a bad thing to do - especially if you intend to buy a property for use as your primary home.
Re-Sale (Existing) Properties
The legal procedure is fairly quick - on average 4 weeks, although each transaction is completely different. Mortgage issues, title issues and inheritance issues, (i.e who actually owns the property if passed down from generation to generation) are examples of what may delay the process.
The contract will usually specify a completion within one month, [but other periods can be agreed to suite both parties] and the penalty for not doing so [usually loss of your deposit]. The private contract should include all the points covered in the negotiations and it should also state that the property is sold free of all mortgages, liens and embargos, that all bills are paid up to date and all the household equipment [listed] will be in working order.
The Price (Re-Sale Properties)
It used to be common practice to grossly under-declare the sale price in order to reduce the 7% transfer tax ITP on resale properties, or the 7% IVA on new properties, and capital gains taxes of up to 35%.
Under-declaring a sale price will usually benefit the seller more than the purchaser, saving the seller up to 35% tax capital gains or corporation tax on the undeclared amount. Although the purchaser may save 7% now [or possibly 16% on newly divided land], it is the buyer who will ultimately have to pay Capital gains tax on the difference between the declared value when purchased, and the declared value when sold, of up to 35% if non-resident or up to 20% if resident.
Tax inspectors now make their own assessment based on market values. There are penalties for both the seller and especially the buyer that will be swiftly applied if it is considered the declared price is not the market value. Your lawyer will advise you on what you should declare and if it is in your interest.
Company Properties
You should also consult a specialist lawyer if the property that you wish to purchase is owned by an offshore or Gibraltar based company and you wish to consider purchasing the company that owns the property. You will then not only be dealing with a property purchase, but the cost of maintaining an offshore company or companies, Spanish and international taxation.
The administration costs, new laws and taxation, now applied to properties owned by offshore companies must be carefully studied - these companies are set up by specialist tax lawyers, and you should use one too if you are considering buying such a property or the company that owns it.
Most of the advantages previously applicable to properties owned by offshore companies are now heavily taxed; the Spanish tax authorities are well aware of all the practices and will fight you for every cent of tax advantage. Properties owned by Spanish S.L. companies also need close assessment, if the tax authorities think the beneficiary of a property owned by a company has changed, all the transfer taxes will still have to be paid in any case, you will need specialist advice.
Searches
As well as giving legal advice at each stage of the process, the lawyer will apply for a Land Registry Search or Nota Simple from the Registro de la Propiedad in the municipality of the property. This search will show the full history of the property together with any mortgage charges, debts or any other encumbrances on the property. This document is applied for when you pay the deposit and again prior to completion. If anything untoward is discovered he will advise on how best to deal with it and whether you should, in fact, proceed at all.
Completion
When you reach your completion date as stipulated in the purchase contract you will be required to pay the balance of the money and sign the title deeds in front of the Public Notary. The document completing the sale is the Escritura de Compraventa and it must be signed by the buyer and the seller in the presence of a Spanish Notario in order to make it legally binding. The seller or the buyer can make a Poder [power of attorney] allowing another person to sign instead.
The Notario is an official witness to the sale and will ensure that each party has sufficient legal authority to buy or sell the property. As a public official, he certifies that the contract has been signed, the declared money transferred and he advises both parties of their tax liabilities for the purchase.
He will also inform you of the actual situation the property is in, in respect of any debts, charges or encumbrances. This information is supplied to the Notary directly from the Land Registry and the Notary will not allow the completion without this information. This acts as extra guarantee that the property has no debts which could be passed on to you.
Any other payments should be made in the presence of your lawyer outside the Notario office. The Notario is not responsible for the accuracy of statements in the contract, which is your lawyer's job.
Registration
After completion has taken place your lawyer will lodge the title deed with the land registry and then possibly also take care of any remaining formalities such as opening accounts with local utility companies in your name and the payment of any transfer taxes.
The Escritura de Compraventa must be registered with the Spanish property registry to make it Escritura Publica and fully install your title to the property. You should receive this from your lawyer within 5 - 6 weeks of the purchase, if not pursue it with your lawyer [you have been charged 0.2% for this registration]. Until you have the Escritura Publica you do not have full title to your property and you are not the registered owner.
