Buyer’s Guide

Manos entregando una casaIn general, there are two possible scenarios when you are buying a property in Spain. Either you will be buying a property that is not yet finished (off-plan) from a developer or you will be buying a property from a private individual or company (resale). The process is slightly different for each, in terms of the searches that are undertaken, but the basic structure is similar.

Reservation Deposit and Contract

The first step in the purchasing process in Spain is to secure your chosen property by depositing a sum of money, the reservation deposit, with the vendor. This ensures the property is removed from the market and the price fixed for a certain period of time, usually up to 30 days. It is essential that when traveling to Spain to view properties you have funds available to pay the reservation deposit. If you are unable to pay the reservation deposit, it is most unlikely that the seller will reserve the property for you or take it off the market. This delay could, of course, cost you your property. Typically, the amount required by way of the reservation deposit is between €3.000 and €12.000.

At the time of handing over the reservation deposit, a reservation contract should be signed by you (or your representative) and the seller into which the basic terms of agreement are incorporated. These terms can include, for example; the property address, if a garage or storeroom is included, payment terms, estimated date for exchange of contracts and estimated completion date.

It is important to realise the reservation deposit is usually non-refundable, unless it is specifically agreed to be conditional upon certain factors happening e.g. raising finance or even actually viewing the property, if reserved unseen.
Private Purchase Contract (Exchange of Contracts). Once the reservation contract has been signed, there will be an agreed period of time during which your appointed Spanish lawyer will undertake all the necessary searches on your behalf to ensure the vendor is the legal owner of the property and it is free from any debts, charges or encumbrances.

Spain operates a Land Registry system enabling your Spanish lawyer to conduct thorough searches of title, giving you added security and peace of mind. During this period, the detailed terms of agreement will also be negotiated by your Spanish lawyer and incorporated into a Private Purchase Contract, ready for exchange of contracts. On exchange of contracts you should expect to pay between 12% and 50% of the purchase price when buying off-plan and 10% when purchasing a resale property. Your solicitor will also ensure (if buying off-plan) that the developer is providing a bank guarantee or insurance bond for all payments, as well as a 10-year structural guarantee on completion. A bank guarantee, or insurance bond, protects your payments and provides for your money to be returned in the unlikely event that the developer does not finish the property, goes into liquidation, or even where they fail to complete on time and you do not wish to wait.

Exchange of Contracts has a similar effect to that in England, in that it fully commits both buyer and seller to the purchase at an agreed price (subject only to fluctuations in taxes). Neither party is able to pull out of a purchase after exchange of contracts without penalty.

Completion78395102-Exchanging-House-Contracts

Formal completion takes place when the title deeds (escritura pública) are signed by the parties before a Notary Public in Spain and the balance of the purchase price is paid over. The Notary is a public official whose role is to act as a witness to the signing of the deeds and to ensure that the parties have complied with the relevant legal requirements in the transaction, such as payment of appropriate taxes. It is not necessary for you to be physically present at the Notary appointment and you can, instead, grant a formal power of attorney or informal verbal mandate to your representative to sign the deeds on your behalf. If you choose to give a verbal mandate to your representative, you will have to attend before a Notary in the UK or Spain as soon as possible after completion in order to ratify the deeds, as while ownership will have been transferred, the deeds cannot be registered at the Land Registry without ratification. Ratification is simply a process whereby you, as owner, confirm the purchase and give an original signature for filing at the Land Registry.

Final registration of the title deeds is likely to take approximately 3 months from the time ALL paperwork is given to the Land Registry.

Post Completion

Your lawyer will arrange for the relevant taxes to be paid and ensure the title deeds are registered with the Land Registry. They will also arrange for you to be registered with the Local Authority for payment of local taxes such as rates (IBI)and rubbish collection (Basura). These can be paid by direct debit from your Spanish Bank account. On completion of the purchase of an off-plan property it is unlikely the essential services, such as electricity and water, will be connected. Connection of such services can take up to 4 weeks following completion and it is important, therefore, that you do not make any plans to use the property during that period. Your lawyer can also can arrange for the utility services to be transferred into your name following completion.

Complementary Transfer Tax Bills

Transfer tax (“ITP”) is dealt with by the regional tax authority, the “Junta de Andalucia”, and until recently was calculated by reference to the price for which the property is being purchased in other words the value declared in the title deeds.

The Junta appears now to be applying Article 57.1 of Ley 58/2003 whereby it has the power to revise or adjust the declared purchase price with reference to the tax payable on it. There is in fact a number of different ways in which the Junta can revise the “value” of the property and we have set out below six of the most important ways in which the Junta can affect the revision. The Junta can calculate the value of the property by:

1. Applying a coefficient to the Catastral Value (rateable) of the property. The coefficient depends upon the year of the purchase and in particular how long after the Catastral Value was last revised.
2. Reference to the average market prices for the property in the area in which the property is located.
3. Reference to any policies of insurance relating to the property.
4. Reference to the value given for mortgage purposes.
5. Reference to values given in other transfers of the same property i.e. past transfers plus reasonable inflation etc.
6. Any other way that the law for the particular tax would allow.

According to Article 34.1k of the same law the tax payer has the right to expect the Junta to apply the lowest value ascertained in accordance with one of the ways outlined above. Despite this, it would appear that the Junta has started to apply what would generate the most tax for itself by adopting point 1) above in most cases and is starting to send out complementary tax bills for the additional transfer tax payable after completion has taken place.
Bearing in mind that all Tax Authorities appear to have substantially increased their Catastral Value of properties within their area over the last few months, the resultant value using option 1) above is almost always the most onerous for a purchaser, thereby against the spirit of the law. The law does, however, provide the opportunity to purchasers who receive a complementary tax bill to challenge the value placed upon their property by the Junta by seeking a formal valuation of the property. The cost of the valuation would, however, be borne by the purchasers.

Source: Greenfields Conveyancing Consultants. www.greenfiedls.cc