Buying a property in Spain is not only a big decision, it’s a complex process too – and one that you might not be familiar or confident with.
To help with this process, we have put together a specialised guide to explain the legal matters in Spain.
Lawyer’s charges for a property purchase can vary substantially, but are usually between 1% – 1.5% of a property’s value (subject to certain minimums for lower-value properties). This will be money well spent, as the lawyer can help you to avoid some of the more common property transaction problems that could end up costing you significant sums in the long term.
Even if you’re fluent in Spanish, bear in mind that legalese is a whole other language. Some of the regulations in Spain are very different from the UK’s, so it’s essential that your lawyer is not only able to give you literal translations, but also able to explain things in terms that you understand.
It’s also a good idea to ask around the expat community for recommendations. Ideally, your lawyer should be familiar with the specific requirements of foreign buyers, including taking an international view of things because what’s a good solution for a Spanish national living in Spain may not be a good solution for a foreigner buying a holiday home.
Spain uses Notaries to sign the Title Deeds, so you may be told that “the Notary will do everything for you” and you don’t need a lawyer.
Although it’s true that Spain uses the Notarial system, it would be dangerous to put all your eggs in this basket. Not only does the seller have the right to choose the Notary, the Notary gets involved at the end of the transaction – after you’ve signed a contract and paid a deposit.
You still need a lawyer to carry out searches on the property, check the contract, and generally advise you as to whether it’s safe to go ahead with signing the contract and paying the deposit.
If you want a property in Spain, but you’re finding it difficult to spend the necessary time there, you could grant somebody a Power of Attorney to do certain things on your behalf. This Power (known as a “Poder”) enables the legal process to continue without you having to be in Spain yourself. You can nominate (for example) a trusted friend, lawyer, or relative based in Spain, who will represent you in specified transactions.
Granting a Poder isn’t a step to take lightly: Whoever you nominate will have the power to act on your behalf in official transactions, and take decisions that you’ll be legally bound to.
The Power of Attorney needs to be signed in front of a Notary Public (either in the UK or in Spain). If it’s signed in the UK, it will have to be sent to the Foreign & Commonwealth Office for “legalisation” before it can be given to the relevant person in Spain. This means that you don’t even need to be in Spain to grant the Power of Attorney.
In Spain, as in the UK, one of the first things your solicitor should do is a Land Registry search (a “Nota Simple”) on the property you want to buy. It will ensure the vendor is legally able to sell the property and that it’s free of charges and debts.
If there are charges or debts registered on the property your lawyer will advise you as to whether they can be cleared before completion or whether they are something more serious that would mean that you should not buy the property.
Your solicitor will also carry out a search at the Catastral Registry. The Catastral is a parallel registry to the Land Registry, and records a property’s size, boundaries and so on. In theory the details held by the Catastral should correspond with those held by the Land Registry, though in practice discrepancies in terms of the size of the plot and the building are not that uncommon.
If improvements have been made to the property, your solicitor must ensure that they were legal and have been registered with the relevant authorities. It is important that the Land Registry’s description matches up, not only with the contract being presented, but also with the actual property. Does it have a swimming pool that isn’t documented? Is there an extension that hasn’t been legally declared? To identify any illegal building work, your solicitor must check your description of the property against the registered description.
In some cases, unapproved builds and alterations have resulted in properties being demolished. Even if nothing that drastic comes to pass, at the very least you’ll find reselling difficult if your home has a lot of question marks hanging over it.
Since many people are unaware that even relatively minor changes could need planning permission, it’s no surprise that a great many homes have illegal modifications and extensions. Foreign buyers, for instance, are often subject to the intricacies of Spain’s communal property laws because they tend to own in apartment blocks or complexes that are governed by a Community of Owners (see Section 8). The community has to give its blessing to any alteration that an individual resident wants to make to their home.
As well as the Land Registry searches, your lawyer needs to make sure that the property is up to date with its bills, including water, electricity and rates. If the property is part of a Community of Owners then the Community will also have to confirm that the sellers are up to date with the bills for this.
There are often two different types of contract involved in property sales in Spain. Though many people confuse the two, each works separately to achieve distinct outcomes.
The first is a Reservation Contract (Contrato de Reserva). This should be a simple contract that takes the property off the market for a short period in return for a small deposit – typically €3,000. It shouldn’t commit either you or the seller to complete the transaction: Its purpose is only to give buyers and their lawyers enough time to carry out checks on the property and agree the Full Purchase Contract, without fear of the property being sold to somebody else in the meantime.
The second is the Full Purchase Contract or Private Contract (Contrato de Arras). This one does commit you and the seller to the transaction, and sets out the conditions of the purchase (price, what the price includes, completion date, who pays for what and so on). The Full Purchase Contract should include an agreement about who pays for the sale’s expenses. The buyer normally pays these, apart from the seller’s lawyer’s fees and the Plusvalia (a form of Capital Gains Tax levied by the local town hall on the increase in the value of the land). The Plusvalia must be paid by the seller.
When you sign the Full Purchase Contract, it’s likely you’ll be asked to pay a deposit of around 10% of the purchase price. A typical contract will state that you’ll lose the deposit if you pull out of the sale, but if the seller pulls out they will return double the deposit to you as compensation. This neat system is designed to avoid gazumping.
Before you sign a contract of any kind, it’s essential that your legal representative checks it first – never sign a Full Purchase Contract before your lawyer carries out all the relevant searches on the property and is satisfied everything’s in order.
Alarmingly, some people don’t bother with surveys and valuations even though they’re sensible (and cost-effective) things to undertake.
It can be difficult to make sure that you are not paying too much for the property – just because it looks like a bargain, sounds like a bargain, and has “bargain” written all over it doesn’t mean that it actually is a bargain – so at the very least a valuation will reassure you that you’ve agreed a fair price.
Because of Spain’s warm climate, some expats assume that a survey isn’t necessary because “surveys are only for dry rot, rising damp and mould”. But dry heat and humidity have their own detrimental effects, and (worse luck) shoddy building and plumbing work are no respecters of climate. It always makes sense to get a survey – why would you want expensive, nasty surprises when you’re still trying to decide where to put the sofa?
One of the most important decisions for property buyers in Spain is the Form of Ownership i.e. whose name goes on the ownership papers. In terms of inheritance and taxation, this can have a major impact both in Spain and in your home country.
A range of options is available. You can put the property in your own name, partly or totally in your children’s names, or even opt for some kind of corporate ownership. Each has advantages and disadvantages, and what’s right for you may not be right for the next person.
It’s a good idea to decide who should own the property before you sign the purchase contract, because changing your mind after the sale goes through could cost you a lot of money. If you’re really not sure who should own the property, it’s wise to add a clause to the contract allowing you as the buyer to change ownership at any time before the signing of the Title Deed.
Ownership is settled once and for all when your signature is on the Title Deed.
If you become part of a “Community of Owners” you’ll own a percentage of common areas (e.g. the gardens, parking spaces, swimming pool), and you’ll share the costs of running them. The percentage you have to pay is usually based on the size of your property relative to others in the community.
You can get off on the right foot with your new neighbours before you buy, by making sure that the seller isn’t leaving you to clean up their mess (literally or metaphorically). Your lawyer ought to ensure that the seller is up to date with all the community fees associated with your new home, and that any alterations they made to the property were approved by the community.
A good lawyer will also be able to establish (through discreet inquiries) whether the Community of Owners has any running disputes with the seller that you’re likely to inherit.
Keep sight of the fact that buying costs are higher in Spain than they are in the UK – factor them into your budget from the beginning, rather than allocating your total budget to the property price. This will avoid the disappointment of finding you need to cut corners to afford it. If you’re taking out a mortgage, your mortgage fees will be between 11 and 13% of the property’s value.
Costs in Spain vary from region-to-region (because of demand as well as taxes), and depend on whether you’re buying something new to the market or an existing home.
Everything’s gone well and now you – or the person who has your Power of Attorney – is off to the “Notario” to sign the Title Deed. The Notary’s main job is to certify that private agreements in Spain meet certain legal criteria.
As we’ve pointed out, the buyer has the the right to choose the Notary and you should never sign anything that you don’t understand or that you aren’t completely sure about. Once you’ve signed the Title Deed, it’s time to break out the celebratory beverage of your choice – you officially own a home in Spain.
If you have a mortgage on the property, the mortgage provider will keep the Title Deed with the mortgage details. You will, however, get a “Copia Simple” (a legally recognised copy of the Title Deed) and the original will be returned to you when you pay off your mortgage.
For purchases made mortgage free, you’ll get your Copia Simple at the Notary’s office when you sign the Title Deed, and the original Title Deed when you register the property at the Spanish Land Registry.
Despite being illegal, “under declaration” to avoid property taxes was common practice in Spain for many years. A price lower than what a property had changed hands for was recorded on the Title Deed, and the difference paid in cash to the seller “under the table”.
This mainly benefited the seller (though, naturally, buyers were told that this dodgy practice was for their benefit). These days, and no doubt mindful of dire straits Greece got itself into through its relaxed attitude to tax collection, Spanish authorities have clamped down on under declaration and it rarely happens. If you encounter a shady seller of the old school, don’t let them tell you otherwise.
Once you’ve bought your property, it’s a good idea to add another layer of certainty to your purchase by making a Will in Spain as well as in your country of origin. Your lawyer should understand the impact of your dealings in Spain on your situation back home – particularly when it comes to tax and inheritance issues. Ask your lawyer to think internationally, because what’s a good solution for a Spanish national living in Spain may not be a good solution for a foreigner buying a holiday home.
If you take care of all the tax and inheritance considerations, your Spanish home will be a place filled with happy memories that the people you love can enjoy for many years to come.