06 Contrato de Compraventa
If you and your lawyer are both happy with the pre-contract enquiries, you can proceed with the contrato de compraventa (the contract for purchase and sale). The contrato de compraventa is a legally binding private contract which sets out the parties to it, the description of the property and what is included and excluded, and the conditions of the transaction – price, deposit, balance and how this is to be paid, date of the sale, warranties, who pays the costs and taxes etc.
Make sure that the deposit is paid under a specific agreement called an arras. Under an arras agreement, either party may withdraw: the buyer will lose his deposit and the vendor will have to return double the amount deposited. If such an arras agreement is not entered into, then the only recourse if either party fails to complete is to sue the other for breach of contract. If a buyer does not enter into an arras agreement and then pulls out of the contract, he may be sued for the full contract value plus damages. It is also possible to include other clauses to deal with disputes.
The private contract is very useful as it largely eliminates the problem experienced in the UK of “gazumping”, especially if there is some time between the signing of this contract and the eventual completion date.
But if the buyer has the full purchase monies available, is sure there are no legal problems, and both parties wish to complete immediately, it is possible to go directly to a notary and ask him to make an escritura de compraventa, which is the public document that is registered at the property Register, to recognise the owner’s legal rights of ownership.
Remember never to pay the deposit directly to the vendor – make sure it goes into a blocked “Bonded Client Account” with either the estate agent or the lawyer.
This contract will almost certainly have been prepared in advance by the estate agent or the developer, and will probably contain clauses which are more favourable to the vendor than the buyer. So make sure you go through this carefully with your lawyer and that he negotiates any unacceptable or unfavourable points with the agent/developer.
If the vendor or his estate agent has drawn up the contract, it will nowadays probably provide that the buyer is responsible for paying all the costs and taxes, including those for which the vendor is legally responsible, such as the Impuesto sobre el Incremento del valor de los Terrenos (IVT), commonly known as plusvalía after its original name the arbitrio municipal de plusvalía (more on plusvalía in the “Costs” section below). Such a clause is perfectly legal – it is up to both parties to agree in the contract on who pays what, and Spanish law does not prescribe who must pay which tax. Traditionally it was the seller who paid the plusvalía and the notary’s fees, and the buyer who paid the transfer tax and the registry fee – but this is generally no longer the case.
But this situation may not be as bad as it at first seems: in the past, some non-resident vendors left the country without paying. In such cases the debt was attached to the property and a seizure order issued so the buyer ended up paying anyway, or risked losing the property. Also, in the knowledge that he will probably have to pay theses costs, the buyer can make allowance for them in the offer he makes for the property. This is certainly a point to be discussed with your lawyer.
The contrato de compraventa is a private contract effecting a valid sale of the property to the buyer, which is valid between the parties to it, and obliges them to fulfil the terms contained in it. However, as a private contract it cannot be inscribed in the Property Register and may not be accepted by third parties as proof of ownership of the property. As well as protecting the new owner against the registration of prior charges, an inscription in the Register is advisable to prove ownership and conformity with the rules (such as payment of the transaction taxes), and for example, without a Nota Simple (an extract of the Register entry) it is not possible to obtain a mortgage.
To register the property it is necessary to convert this private contract into a public deed: this is done by the Escritura Notarial (notarial act) usually called the escritura de compraventa (deed of conveyance) which, to be valid, must be signed by both the vendor and the buyer in the presence of the Spanish notary when it becomes an escritura publica (public deed).
The contrato de compraventa should contain the following clauses (amongst others):
01 The parties to the contract, date of sale, price, deposit and conditions of payment – such as currency, method (e.g. bankers draft) and country of delivery. The date will be the date when the escritura is to be signed at the Notary’s office, when the final balance is to be paid, and when the buyer will obtain vacant possession.
Note that all parties will have to attend the notary’s office to sign the escritura, so this should be borne in mind when agreeing the date. If a person cannot be present he must arrange a poder (power of attorney) to appoint someone else to represent him. You should already have checked at the “pre-contract stage” that all the parties who are the registered owners are available to attend the notary’s office.
02 The arras agreement: that if the vendor does not honour the contract on the date stated, the penalty is to be double the amount of the deposit paid by the buyer; and that if the balance outstanding is not paid by the buyer by that date, the buyer will lose his deposit. In this case, the buyer will have no charge against the property, and the vendor will be free to sell the property to another buyer.
So it is important to ensure that you have the funds available for the agreed date, and if you are obtaining a mortgage, that your lender is aware of and accepts this date. (If the penalty is not honoured, then the aggrieved party can sue for damages, and ultimately the court can order the sale of the property on the original terms.)
03 Disclosure of all the charges on the property, together with a provision that the vendor remains responsible for, and will pay, all charges up to the date of the sale. Not only should you have already seen receipts for all these charges during the “pre-contract” stage, but – especially if there is a big delay before the sale completes - you should insist that this clause also provides that the vendor will produce final receipts at the notary’s office to prove all payments are up-to-date, so the sale is free of all charges.
The law now requires that the vendor must present the receipt for payment of the IBI for the preceding year (for more information on the IBI see point 03 of section 05 above) to the notary, in order to allow the transaction to be notarised and registered. This is to enable the Registro de la Propiedad to be brought into line with the Catastro, and is not to prove that payment of this tax is up to date. It is still possible that earlier years remain unpaid.
As was mentioned earlier, you should have either seen receipts for the preceding year, or your lawyer should have obtained confirmation from the Recaudación Provincial (Local Rates Office) that the IBI is fully paid.
04 Disclosure of whether the vendor is resident in Spain or not, with his/her numero de identificación fiscal (NIF) (fiscal number) if resident, and numero de identificación extranjero (NIE) if non-resident.
If the vendor is non-resident and bought the property on or after 1st January 1987, or if the vendor is a company and it bought the property on or after 1st January 1977, Spanish law requires that the buyer must withhold and pay to the tax authorities 5% of the declared value in the escritura de compraventa.
This is to ensure that the non-resident or company pays all the appropriate taxes. If the vendor is non-resident or a company, and has not owned the property for the requisite period, this clause should therefore also contain an acknowledgement that the buyer will withhold 5% of the value and deposited with Hacienda (Ministry of Finance) in the vendor’s name. (Form 211 is used for this purpose).
05 A warranty that all necessary building, completion and occupation licences have been issued (for more on these licences, see point 06 of section 05 on “Pre-Contract Enquiries"). The newer the property, the more necessary this declaration.