The process of acquiring property: the conveyance process

Searching for a home in Spain is not more difficult than in the U.K. although you are likely to face additional challenges such as the language and legal and tax concepts, most of them foreign to the Irish system.

Nevertheless, our experience is that despite the difficulties, the level of satisfaction of the foreign purchaser after acquisition is generally high.

The next thing to consider is choosing a Spanish Lawyer (Abogado), specialising in property transactions and the various tax implications for the U.K. client. The Abogado must be registered with the Law Society (Colegio de Abogados) and must speak English and Spanish. If you are using an U.K. Solicitor the same principles will apply, and the Solicitor must be qualified to give advice in Spanish Property Law and Tax.

First steps

Let us now outline the legal consequences of the acquisition process, from choosing the property until registering the Public Deed (escritura) in the Land’s Registry (Registro de la Propiedad). A summary flow chart of the Spanish conveyance process is shown below.

Although these are the basic steps involved, there are multiple variations especially in the initial stages. The parties are free to negotiate the terms and conditions of the Private Purchasing Contract (Contrato Privado de Compraventa), with the limits established by certain statutory provisions.

Every transaction must be considered taking into account the particular circumstances and the will of the parties.

Please find below a brief resume. The first column for PURCHASE STAGES , the second for FUNDS and the third for PARTIES INVOLVED.

Preliminary arrangements

After selecting the property, the transaction process starts with the preliminary agreements. The vendor and the purchaser, without committing formally, express reciprocally the intention to draft a contract.

Before committing in writing, the nature of the agreements should be crystal clear for both parties.

As part of these arrangements, It is very frequent that a small reservation fee or deposit is paid through the real estate agent involved in order to take the property off the market. This reservation deposit should be subject to a satisfactory due diligence check of the property to be carried out by your Abogado.

The private purchase contract

The proper contractual relationship starts when the object of the contract (property) and the price have been determined and agreed by the parties. A private purchase contract (Contrato Privado de Compraventa) may be drafted at this point and the parties should fully understand and agree the nature of the obligations and rights arising from this contract, before signing it and make it executable.

The private contract serves as the legal instrument to clarify the will of the parties, with the intervention of their respective lawyers.

The Purchasing Contract is an agreement between two parties, the vendor, offering the property and the purchaser, accepting it. The agreement is made on the transferring of a clearly defined property by receiving a payment as a counterpart the transfer of the property and the payment do not need to happen simultaneously, and specific terms may be negotiated on that aspect.

One important area is the down payment. The most habitual legal form of this deposit is the payment of a signal (arras o señal).This signal, if the agreement is properly drafted, may be considered as a forfeit which can be lost if the purchaser defaults any term.

If the sale is agreed, this type of deposit is described as a down payment or deposit and will constitute the first installment of the final sale price.

When paying any monies on account for properties under construction, proper bank guarantees or insurance policies should be arranged There are statutory provisions (Spanish Laws L 38/1999 and L 57/1968) for the developers and agents to guarantee the payments on account for properties in progress, until the completion stage. There are also statutory provisions to guarantee the properties themselves against any building defects up to ten years after the construction date.

The signature of the Public Deed

The Escritura de Compraventa is technically the public transfer deed. There are no title deeds as such in Spain and proof of ownership is provided and guaranteed by registration of the deed of transfer at the Land’s Registry (Registro de la Propiedad). The original deed of transfer is retained indefinitely by the Notary, who would be able to issue copies as requested.

The registration of the Escritura de Compraventa in the Land's registry is the step needed for the purchaser to be registered as the owner of that property. The Land's registry can issue a certified copy of the entries in the Registry (Nota o Certificado Registral), however this will not act as deed of title.

The role of the Notary is to draft and authenticate the contract, to witness the signature, as well as to advise the parties of some of the statutory civil, administrative and tax provisions. The Notary will verify that certain taxes have been paid, as well as corroborate that the price of the property has been paid in full. If the property is going to be mortgaged, it can be done at this stage, as well as to cancel pre-existing mortgages or charges.

The Notary in Spain fulfils a very important role in the transaction and his function can be summarised as:

• To prepare the document, based on the instructions of the lawyers to make sure that the intention of the parties is clearly represented.
• To identify the parties and determine their legal capacity to complete this transaction and witness the signature of the document, giving it probationary status.
• Give the information needed to comply with certain legal, tax and administrative regulations governing the transfer of property and ownership, including the need to declare the true price of the transaction and the applicable taxes to be paid.
• To retain the original deed in his register and issue certified copies.

The Land's registry

After signature, the notarized deed needs to be submitted to the local Land’s Registry (Registro de la Propiedad) in person, by mail or fax. The registration of the deed provides the highest public level of protection.

The registration in the Lands registry is the only public record available to demonstrate the ownership of the property. The local Land registry keeps historic records of all the charges related to every single property in that location. Registration is fundamental to protect the purchaser against third party claims against the vendor.

The process of acquiring property: Ownership in Spanish Law

There is a singular concept of property in Spain, known as Horizontal Property (Propiedad Horizontal) regulated by specific laws. The horizontal property is defined as the property of a complex where private and common elements coexist in the same building or development. Usually the rules to determine the rights and obligations of the common elements are determined by the establishment of a community of owners (Comunidad de Propietarios). The regime may establish certain limitations affecting the use of the owner of the individual property.

Villas and independent houses

The acquisition of an independent house or villa already built is usually a very straightforward process if the Land’s Registry position is clear. However, the purchaser may find that the property being acquired is not fully registered and new additions to the property over the years have not been updated in the Land’s Registry. This should be a cause of concern and although a specialized lawyer in Registry Law would be able to clarify the position; substantial legal costs may be involved in this exercise.

New Properties "off plan acquisitions"

When buying new property in a building development, the acquisition is off plan i.e. before it is built. A complete description of the property to be built with the specifications, municipal permissions and other details should be made available to the purchaser of the developer or agent.

The private contract should be signed at this stage, containing a clear description of the property to be bought, schedule for completion and stage payments as well as all the other elements established by legislation and which should be included in this type of contract.

To protect the purchaser when acquiring residential property, there are certain statutory provisions which the developer or agent should meet, such us:

• Secure the payments on account given to the developer or agent. The former must issue a guarantee insurance policy with the purchaser as the beneficiary.
• Maintain a separate bank guaranteed account to receive the payments on account.
• Provide a ten-year insurance policy to guarantee against loss due to building defects.

Apartments, flats and terrace houses

Flats, apartments and terrace houses are regulated under the horizontal property regime mentioned above. The independent flat owners own not only their homes but also a share of the common elements of a building or development, i.e. gardens, stairs, entrances, sport facilities, pools and so on. One of the advantages of buying such a property is the sharing of the common property taxes and expenses; however the community charges may override the benefits.

The process of acquiring property: Checklist before entering into a contractual agreement

Requested by the lawyer acting on behalf of the purchaser:

• To obtain all the details of the private individual selling the property and copy of the Deed of Transfer (Escritura de Compraventa).
• If a company sells the property, the details of the registered Power of Attorney should be obtained before signing any document.
• Land Registry details, including the registration complete references, as well as any charges or mortgages on the property, and updated copy of the Land’s Registry entry (Nota o Certificado Registral). A current registry certificate will be requested again before signing the public deed of transfer. If there is a mortgage on the property, a copy of the mortgage terms should be obtained.
• If a new property is being acquired, copies of the building permits, architect's completion certificate and habitation certificate should be requested, although not all of them will be available until completion.
• To check the situation of the utility contracts, local taxes and community service charges and make sure that payment of bills is up to date as well as making sure that water, electricity supply situation is clear.
• If the property is part of a community of owners, the articles of association (Estatutos de la Comunidad de Propietarios) should be reviewed together with the last accounts and details of any extraordinary expenses made during the current accounting year or which are anticipated. It is advisable to obtain a certificate from the community chairman stating that there are no outstanding payments due in respect of that property.
• It is always recommended to make a personal inspection of the property to determine the state of the building. A surveyor's report is not a usual practice in Spain, however if there are serious doubts in respect of the property, this report should be requested.
• When purchasing furnished property the value and details of the furniture should be inventoried.

The process of acquiring property: Additional legal considerations

It is almost impossible to cover all the legal implications of purchasing property in this short booklet and we strongly recommend checking with a professional regarding your particular case before making any decision to buy.

Due to the fact that the property is located in Spain, most of the legal conflicts would be dealt with according to Spanish Law. Most of the contracts would usually state that Spanish Law would govern the transaction and establish that any claim must be brought to the Spanish Court where the property is located.

When requesting professional advice from a Spanish Abogado or tax specialist it is important to check that the professional is properly registered and insured to provide this advice according to the standards of the Bodies regulating their professions. All the disputes in relation to the services provided by the professionals or any problems will be dealt with according to the rules of the professional body in the jurisdiction where the services were provided. In respect of legal, financial or tax Spanish implications, overseas purchasers should be familiar with the different requirements involved in the conveyance and should proceed with the same care as when purchasing property in the UK and Ireland. If this is not the case, it is strongly recommended to seek professional advice in the following areas.

• Financial advice regarding financing the acquisition.
• Legal advice to make sure that legal and planning enquiries are conducted and a proper private contract is negotiated
• Tax advice to find out the most tax efficient way to acquire the property, considering the tax position in the UK and Ireland and Spain for all the different taxes involved, including Capital and Inheritance tax potential liabilities.

The process of acquiring property: Other considerations

Summary of costs involved in the acquisition of property

• Municipal capital gain tax on the value of urban land (Impuesto sobre el Incremento de Valor de los Terrenos de Naturaleza Urbana). It is a direct tax payable by the vendor.
• VAT (IVA) on new properties. New properties are levied a 7% VAT charge payable by the purchaser. Also for new properties there is the AJD stamp duty of 1% of the price.
• Transfer Tax is charged at 7% on the value of the property on second and subsequent transfers of the same property.
• The purchaser pays the bank charges involved in the transaction, until the monies reach the vendor’s account.
• The purchaser pays the expenses related to changing the names in the utility contracts.
• Contents and building insurance should be undertaken.
• Must be registered with the Spanish Tax Agency and obtain a Foreigner Identification Number (Numero de Identificación de Extranjeros or Nie).

The total costs involved including VAT or Transfer Tax, Notary and Land Registry Fees, Law Agent and Lawyer fees should be in the region of 10% to 11% of the purchase price.

Mortgages

The most usual mortgage terms will allow you to borrow between 60 and 90% on valuation for up to 30 years, depending on income and age, although other arrangements may be possible with specific banks. For an U.K. purchaser, usually a P60 form from the previous tax year and 3 payslips, or any other proof of current income, plus proper identification are the only requirements to apply for a mortgage in Spain.

Spanish loans can be arranged with a fixed or variable rate mortgage to a fixed rate mortgage at any time with repayment using the capital and interest repayment method or interest only.

Redemption penalties may be charged for early repayment of mortgages and this should be discussed with the bank. For the majority of mortgages, insurance policies are a requirement and you should check the details with your bank.

Bank fees covering the bank’s administration costs are variable and can be negotiated, although usually there is a 0% to 1% charge for applying for a mortgage loan and the applicant will need to pay the Notary costs, Stamp Duty and the legal fees for preparation, review and signature of the deeds.

Opening a bank account.

Non-Spanish nationals may open a resident or non-resident bank account and the only requirement is to provide your passport and the Foreign Identification Number (NIE). When opening the bank account, you will need to show proof of identity, your residence card and may be asked for proof of income.