05 Pre-Contract Enquiries
If you have found the property you want to buy, and have agreed the transaction with the agent or the vendor, the first step in Spain is usually (but not always) to draw up and sign a Sale & Purchase Pre-Contract (Pre-Contrato de Compraventa. It is usual to agree in this pre-contract that a deposit - normally 10% - is paid at this time to secure the chosen property at the agreed price.
This is dependent on the agreement between the parties, and it can be that no deposit is paid at all, the full amount of the purchase being paid when the official documents are signed in with the notary. When a pre-contract is signed, it is binding on both parties, so a big advantage is that gazumping cannot occur.
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. (More on this contrato below).
But equally do not sign anything without it being checked first by your solicitor – if it is the contrato de compraventa, you are committing yourself to the transaction! The contrato de compraventa is only valid if it is signed by both vendor and purchaser. Other parties, such as the vendor's estate agent, can only sign it if they have a notarised power of attorney (poder).
Also, before you sign the contract, you need to see the following:
01 Proof of Ownership
First be certain that the seller actually owns the land or property and check if there are any charges. The only certain proof is a certificate (certificación) from the Property Register (Registro de la Propiedad), which your lawyer will be able to obtain. Most people rely on an extract (Nota Simple), which is also issued by the Property Register and while much cheaper to obtain than the certificate, it does not carry the absolute guarantee of the certificate. The difference is that the Director of the Register, who thereby accepts responsibility for the information given, signs the certificate.
The Nota Simple shows the latest recorded details of any charges. There are many forms of charges – in Spain debts, charges or court orders are registered against the property rather than the person: these include hipotecas (mortgages), censos (ground rent or leasehold payments), usufructos (interests in the property), limitaciones (restrictions on use), multas (fines), cláusulas resolutorias (determinations, i.e. decisions about the future of the property), or embargos (court orders for distraint or seizure).
It may be that there are some unpaid taxes not yet recorded at the Registro, so your lawyer should also check with the relevant authorities, including Hacienda (Ministry of Finance), the Ayuntamiento (Town Hall), and the Recaudación Provincial (Provincial Rates Office), that these have been paid.
The notary must obtain a new nota simple on the day that the new sale documents are signed, when the contract is effected, in order to confirm that the ownership and charge details have not changed since the last enquiry.
Whilst you are waiting for this proof from the Register, many vendors will be able to show you an authorised copy of the Escritura Publica, from when they bought the property. This is the title deed of the property, which will give the exact details of the owner, an approximate description of the property (but not the definitive physical description, which is held by the Catastro (more on the Catastro below)), and will show as marginal notes whether any charges exist.
But remember - an escritura is only a historical record and so is not up to date. In addition, if the current owner chose to register the property, the official Registry stamp will show this.
It is not obligatory in Spain to register the property: before registering it is necessary to pay the transaction taxes which are stated on the last page of the escritura (6% transfer tax (Impuesto sobre Transmisiones Patrimoniales), or 7% VAT (IVA) and 0.5% stamp duty (Impuesto sobre Actos Juridicos)), so in a few isolated cases some people choose not to register. Not registering runs the risk that other charges can be registered which rank ahead of your ownership, so we strongly advise to ask the notary to register immediately by fax.
Both registration and payment of taxes has to be in the Comunidad Autónoma where the property is situated. Taxes have to be paid at the Oficina Liquidadora de Impuestos, and the receipts sent with the escritura to the Registro.
If the Notary also has a “gestor” (financial representative), he will be able to arrange this for you. If you are obtaining a mortgage from Spanish Banks, they will probably arrange the payment of taxes and registration for you, and we tell you how much you will need to pay these costs.
It is most important that the notary files the new inscription at the Property Register immediately by fax, as any unpaid debts for which a court has imposed an embargo (seizure order) can be registered against the property at any time. If the embargo is registered after your last check, and before your inscription is registered, the creditor will have a claim to your property which ranks ahead of yours and which will enable him to force the sale of your property to repay the debt.
There have been cases where a vendor has arrived at the notary’s office to sign, where the property is in joint names, but the spouse has died. They have presented the will, in which the property was left to them, claiming that this is enough. Not so! If one owner has died (and this unfortunately is often the case when a foreigner sells a property) and has willed his/her half to his/her spouse, this is a transfer of ownership, which must also be registered by the notary before it can be sold. So it is important to check that the exact ownership details recorded in the Registro are correct, and match up with the people who are selling.
02 The receipts for the local property tax
The Impuesto sobre Bienes Inmuebles (IBI) tax, if unpaid, is attached to the property so the new owner will become liable (as well as for fines for late payment!). You should ask to see the receipt for the last year, the period for which liability for unpaid taxes can be transferred to the new owner. If the current vendor cannot produce this, you must ensure that your lawyer obtains confirmation from the Recaudación Provincial (the Provincial Rates Office) that payment of IBI on the property is up to date.
The IBI receipt will also show the property’s Referencia Catastral (fiscal reference number) and also the valor catastral (value for tax purposes – similar to the old rateable value in the UK). Since 1997 all property transactions must quote the Referencia Catastral.
If you are buying a new property, it is your responsibility to ensure that the property is registered for tax. Make sure that your developer has made a declaración de obra nueva (declaration of new building), and that your escritura covers not only the land but the building as well.
03 The Certificación Catastral
This contains the only legally valid description of the property and is a register of assessed property values for tax purposes. It contains a description of the exact location and physical characteristics of the property and a plan or aerial photo. Whereas the Registro de la Propiedad is concerned with ownership, the Catastro is concerned with the property.
It is possible that a description in the Registro de la Propiedad can be inaccurate, and in the case of any dispute, it is the Catastro, which is normally correct. When you obtain the certificate it will give you an exact description of the property. You should always compare this with the description in the Property Register certificate and the escritura to ensure that there is no difference. If there is any problem you should take legal advice.
The Catastro records the valor catastral of the property. This is not the market value, but the assessed value for tax purposes (rather like the old rateable value in the UK). The two registers have never been linked, and as a first step to rectifying this situation all property transactions from 1997 have had to quote the referencia catastral.
The intention is that the values will gradually be updated to reflect market values. There are still many properties where the valor catastral is well below the market value, where the owner pays low taxes. But you should not rely on “inheriting” this advantage - if the valor catastral is updated, the taxes will increase.
04 The Plan Parcial
If you are buying in an urbanization, the Plan Parcial the plan of plots of land (parcelas) for each urbanization is registered with the local Urbanismo del Ayuntamiento (the town planning department of the town hall)). This assures you that the urbanization itself is registered and legal. Also, make sure your lawyer makes appropriate enquiries at the Urbanismo and does a search of local town planning maps to find out whether any major new developments are planned that could affect your property.
05 Ley de Costas
You and/or your solicitor should seek confirmation that the property was built in conformity with the Ley de Costas (Coastal Law) of 1988. This empowered the authorities to restrict building within 100 metres of the beach and establishes a zona de influencia (zone of influence) up to 1km inland. It is essential to ensure that any new properties built since 1988 comply with any restrictions issued under this Coastal Law.
06 Certificado de fin de Obra
If the property was built since 1988 on the coast, or in the last 10 years elsewhere, it is also sensible to see proof that a building licence was obtained and that certificates of the termination of the building (certificado de fin de obra) and a licence of first occupation (licencia de primer occupación) have been issued. If the vendor is unable to show you these, your lawyer can obtain them from the local Town Hall (Ayuntamiento).
If the building does not have the necessary approval and licences, you may run into problems when it comes to registering the sale, and, even worse, the authorities could enforce the ultimate sanction of having the property demolished.
07 Comunidad de Propietarios
Ask to see receipts for payment of the fees to the Comunidad de Propietarios, as well as the Statutes and the minutes of the last meeting. In Spain, wherever you buy almost any kind of property in a development which has communal areas, it is a legal requirement that you automatically belong to a Comunidad de Propietarios (Community of Property Owners), which is responsible for the “legal framework of ownership of the property, of its individual parts and common areas, and the reciprocal rights and obligations of the community members”.
Only if you buy a house in a town street (i.e. not on a development), or a cortijo (farmhouse), or a finca rural (land in the country) will you not have to join such a Community. This requirement is established by the Horizontal Property Law of 1960 as amended by the Law 8/1999 (although it is as much vertical as horizontal as it also applies to apartment blocks). The Community will be responsible for roads & lighting on the development, swimming pools, gardens, lifts, and general management and maintenance of common areas. In more remote areas it may also deal with water and power supplies and sewage.
The Statutes and the decisions taken at previous meetings will bind you automatically. So it may be important to find out if the Statutes prohibit pets for example, or if a decision has just been taken to install a swimming pool at a cost to be borne equally by the members.
You will also want to know how much membership of the Community costs – this can run into thousands of pounds for some urbanizations. You should ask the president of the Community for a certificate of its state of payments, because, as with the IBI, if the vendor has not paid his dues, the buyer becomes liable for these debts for the previous year, and for the current year up to the date of purchase.
08 Receipts for all other utilities
There are separate bills for utilities such as electricity, water, telephone and refuse collection. Unlike the IBI and the dues to the Community of Owners, in principle these remain personal debts of the vendor. However, non-payment of these could lead to practical difficulties, and could be a sign of other problems.
09 Offshore Ownership Tax
Receipts for the payment of the special 3% annual tax, if the vendor owns the property through an offshore company.