1. Previous Steps
Once you have narrowed down your choice to a particular property, it will be very important to check the following documentation before you sign the purchase contract or that you make a deposit to reserve the property:
- Ask for a note of information at the Land Registry, in order to obtain full details of the owner, exact size of the property, whether the property is free of charges or is otherwise subject to mortgages, restrictions on use, court orders for seizure, rentals ;In case there exist a mortgage on the property, make sure that the seller proves that the payments are updated, otherwise the bank could seize the property.
- Check if the house is rented out as the Spanish rental law protects the tenants. For such purposes, make sure that the purchase contract states that the house is not rented out.
- In case you buy an apartment, it is advisable to ask the President or Administrator of the community of property owners, whether the monthly community fees are paid or not, since the buyer should pay any pending fees. Notwithstanding, the seller must provide you with a certification, which shall specify that the monthly fee payment is updated.
- Check on the paid-up local real estate tax (IBI- Impuesto sobre Bienes Inmuebles) to make sure that its payment is up-to-date, otherwise the buyer should pay the back tax and penalties.
- It is necessary to obtain your NIE no., as it is required in order to be able to sign the purchase deed before the Spanish Notary.
2. Taxes to Pay
If you are willing to buy a second hand property in Spain, keep in mind that you must pay for a number of taxes:
- The transfer tax (Impuesto de Transmisiones Patrimoniales – ITP) The purchaser must pay this tax upon signature of the sales contract. Its value is different in every Spanish region, it is normally around 7 % of the purchase price, notwithstanding, we recommend you to ask your lawyer once you have narrowed down your choice to a particular area. Be aware that if the purchase price declared is much lower than the reasonable market value the Tax inspectors could feel that the purchase price is too low and you may be applied heavy penalties. Your Lawyer can help you in this matter by asking the tax office what is the market value of the property that you are willing to buy.
- Capital Gains tax on land (Plusvalía): This is the local tax on the increase in the value of the property since the last sale : Although it must be paid by the seller, sometimes the parties agree that the buyer covers such tax. This tax should not be confused with the personal income tax
If you are willing to buy a property in Spain you should first get the NIE no., which allows you to pay taxes in Spain.
3. Fees to Pay
Apart from the corresponding taxes, you must pay the following fees:
- Notary (Notario): You must pay the notary fees when you sign the deed. The amount of such fees is based on official rates depending on the price and size of the property.
- Land Registry (Registro de la Propiedad): You must pay the registration fee for the purchase deed to the Spanish Land Registry so that title on the home is duly transferred to you. Before going to the registry, you should have paid the corresponding taxes, and provide the Registry with the relevant tax receipts; otherwise you will not be allowed to register your property.
4. The Sales Contract. Signature of the Deed
You should sign a sale and purchase contract (Contrato de Compraventa) before a Notary, which shall contain the mortgage contingency, and the specifics of it: amount, rate and term, where applicable. The contract must accurately describe the property you are buying, fully identify the seller and buyer, and state that the property is free of charges, etc.
The Notary is the public official who makes this contract to be legal. He certifies that the parties sign the contract properly. He keeps the original document in his files in case any problem could arise later. Note that the notary does not certify that all statements are true, only that the parties have sworn to them.
The purchase deed must be registered with the Spanish Land Registry (Registro de la Propiedad). Once it is done, the title deed (Escritura Pública de Compra-Venta) fully assures your title: the registered contract makes you the owner of the property.
Registration of the property is also important for tax purposes, the real estate tax ( IBI tax ) shall be paid every year since you could be fined by the tax authorities.
If you cannot be present to sign the contract at the Notary office, you may grant a power of attorney allowing another person to sign it on your behalf, if necessary.
You shall be receiving the keys of your property upon signature of the contract in the presence of a Notary.
5. Reservation of the second hand Property. The «Arras Agreement»
Let’s suppose that you are willing to purchase a property located in Spain, but you need some more time, either to assemble the money, or obtaining the mortgage to pay it, what you can do is to make a reservation of the property by signing an “arras agreement” and paying a money deposit.
When you sign this kind of agreement, you are putting-down a deposit to reserve the property, the other side of the coin is that the purchaser will lose this deposit if the sale is not completed on the date stated, or that the vendor shall return double the amount deposited, was he finally not to honour the contract in the stated date.
This deposit normally takes part of the total purchase price.
It is advisable to put the deposit into a blocked bonded client account.
You will need skilled legal counsel for this action.
6. Builders Liability for Construction defects for second hand Property
If you have problems and construction defects with your newly bought property, remember that you may take the builder, developer and the arquitect to court within 10 years as of substantial completion of the home. If your home was built more than 10 years ago, you only have 6 months, after signature of the deed, to claim against the seller for the deffects arisen.
The terms of guarantee for construction deffects applicable to new houses, are also applicable to second hand properties where construction defects had arisen.
7. Other Points to check when buying the second hand Property
In order to avoid possible problems that may arise later, do not forget to check some points before buying your second-hand house. You could find out afterwards that your dream house is illegally built.
You will do well to have a Spanish lawyer handle the following licences and approvals, as they know the ins and outs of the paperwork:
- Check the Zoning Partial Plan, in case the property is located within an urbanization.
- If your house is near the beach, you should check if it is built in conformity with the Spanish Coastal Law.
- Check that the building licence, the certificate of completion of the building and the certificate of occupancy have been issued.
8. Buying a Property which do not have Registered Title
What if the property you are willing to buy does not have registered title?. If you think this might not happen, you are away off base, it actually happens in Spain.
These cases often occur in country houses either because the formers owners avoided in this way to pay transfer taxes and fees, because the owners of the property are various brothers whose family never had registered title, or because the original owner had died without registering the property;
Other things may happen: the property of your dreams can be already registered in the name of a person who no longer claims it because he sold it to someone on a private contract, and this one has never registered the sale;
If you are willing to buy a property which do not have a public title deed (escritura pública de compra-venta), you may establish the title through a process called Expediente de Dominio.
This is a long and complex process which requires court action, and involves publication of your claim in the National Official Gazette. You shall also file a certification at the Spanish Property Registry (Registro de la Propiedad) and the Catastro office (Oficina del Catastro), describing the state of the property and that it is not legally registered.
The Cadastral Office is the Spanish official office which keeps in its files the Spanish plots description and its assessed value for tax purposes.
The court’s decision shall determine the title of your property.
9. Buying a property in Spain from a Non-Resident
If you are willing to buy a property located in Spain from a non-resident property owner, be aware that you should deposit 5 % of the purchase price against any tax due from the seller, previous file of the corresponding form available from Spanish Tax offices (Oficinas de Hacienda)..
Should you fail to do this, your new property will be subject to a lien in order that the Taxman recovers the due amount.
Here we must remind you that if the purchase price declared is much lower than the approximate market value the Tax inspectors could feel that the purchase price is too low and you may be applied heavy penalties. Your Spanish Lawyer may inform you about the market value of the property that you are willing to buy.