The negotiation process when buying property in Spain

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The negotiations process will vary from case to case but will usually be done via the estate agent, rather than directly with the vendor, and may take anything from a few days to several months. There is often an exasperating amount of to and fro with offer followed by counter offer and back again. And just when you think you have reached an agreement some unforeseen problem is liable to crop up and throw everything into doubt. After all there is nothing quite like a property transaction to bring out the hysterical side of absolutely everyone involved. Prepare yourself for a long and gruelling process and then just be happy if it turns out to easier than expected. Be patient and keep your cool as it is usually possible to reach a satisfactory agreement if you are determined to buy the property and have the funds to do so.

It may help to start with a written offer to show how serious you are. However this does require that the offer is written in a language that the vendor will understand, and must contain the necessary legal caveats. In most cases the negotiations are done verbally, and unless you have a very good grasp of the detail, and are sure about what you are doing, you are better off starting with verbal negotiations.

Your starting offer is always a key question as this sets the floor for the subsequent negotiations over price (the ceiling has already been set by the vendor’s asking price). Unless you are sure that the property is a gem on offer at a bargain price you should never offer the asking price as most vendors work on the assumption that they will be negotiated down when setting the asking price. However you should also avoid making a joke offer that will be dismissed out of hand or offend the vendor, as this might terminate the negotiations. Your starting offer will depend upon many factors such as the state of the market, what you know of the vendor, and the price and characteristics of the property in question. An offer of 20% below the asking price is a very different thing when the asking price is 200,000 Euros to when it is 1 million Euros. Taking into account all these considerations you need to come up with what you think will be the very lowest figure that will engage the vendor. This is when you find out how important it is to have researched the market.

You are negotiating to reach an agreement in principle on the key issues such as price, contents, and dates of completion. However you should not make any binding commitments until you have carried out an adequate due diligence. Once you reach a verbal agreement it is a good idea to have your lawyer summarise the key points in writing and get this over to the vendor so as to reduce the chance of any misunderstanding that might scupper the transaction further down the line. If you choose to do this it must be made very clear in the wording of the document that this is just a clarification of what you have agreed in principle and not a binding commitment.

Due diligence

Buying property in Spain is always a case of caveat emptor (buyer beware) so never make any payments or sign any contracts until you have had a qualified, independent lawyer run the necessary legal checks. This may seem blindingly obvious but a surprising number of British buyers fail to do this. Nearly all of the cases where buyers have run into serious problems can be explained by a failure to carry out an appropriate due diligence.

For the due diligence to be effective it must be carried out by an appropriate lawyer. This means using a lawyer with no conflicts of interest, so never ask anyone involved in selling you the property to recommend you a lawyer. The lawyer you use should also be specialised in Spanish real estate law.

Due diligence is essential a series of legal checks. However in some cases you may also need an architect or surveyor to check the property before you proceed. You may decide this is necessary if you have any doubts as to the structural or physical condition of the property, or have plans to extend the property. Basically due diligence is your chance to check anything you feel needs to be checked before you commit.

You may find that due diligence raises issues that need to be negotiated with the vendor. And example of this might be if the vendor has extended the property or built a pool without permission from the town hall. In this case you will need to have the vendor legalise the extension (by presenting a project to the town hall) before you proceed. This has a cost and delays the process so the vendor may be reluctant to agree. However it is usually possible to negotiate an agreement.

Generally speaking, if you take out a mortgage from a Spanish bank when buying a property in Spain you will also benefit from the due diligence that the bank carries out. After all the bank will have a significant stake in the property and therefore is just as interested as you that the property is free of legal problems.

Due diligence checks

Here we describe the most common checks carried out during due diligence. You will have to be guided by your lawyer as to the checks that appropriate in your case. The more checks you carry out the more expensive the process is likely to be.

Check the vendor’s title

Confirm that the vendor (or vendors, if the property is jointly owned) has full title to the property and can legally sell it. Your lawyer may choose to request a full report (Certificado Literal de Dominio y Cargas) from the property register (registro de la propiedad) or, as is more common, request a basic report (nota simple informativa). The basic report is enough for the vast majority of purchases.

If the property register lists a title that is no longer accurate, as can happen when a previous owner has died and willed the property to another party who has not yet notarised and registered the new title, then the register will need to be updated before you can proceed. This will have to be done by the present owner(s).

Note that some properties in Spain are not inscribed in the land register and do not have any notarised title deeds. This situation is quite common in rural areas, especially in Galicia. Whilst the vendor’s title may well be genuine, and whilst it is possible to officially register the title, British buyers would be biting off more than they could chew. You would be well advised to walk away from any property that doesn’t have notarised title deeds.

Check for any pre-emption rights & tenants

Whilst looking into title issues your lawyer will also need to find out if anyone has a pre-emption right over the property. A pre-emption right gives its holder a preferential right to buy the property at the price agreed between you and the vendor. This would be the case if there are sitting tenants with indefinite contracts.

If you buy a property with sitting tenants then they will have the right to stay in the property for the remainder of their rental contract. Unless you are specifically looking to buy a property with sitting tenants you should always avoid doing so. If you do buy a property with sitting tenants you must never agree to pay any of the price under the table as there is a chance that the tenants could then force you to sell them the property at the price declared in the deeds. British buyers are would be well advised to avoid all properties with sitting tenants.

Check that the property is free of debts, charges, liens and embargoes

Though the contract you will sign should state that the property is sold free of any encumbrances, it is always necessary to double check as the debts become yours once you own the property. The land register will reveal any debts that are associated with the property, for instance a mortgage, loan, or certain unpaid taxes or penalties. The existence of any debts is not in itself a problem so long as they are identified in advance, and the vendor’s have them cleared before or at the time of signing the deeds before Notary. If the vendor has a mortgage on the property it is likely that the mortgage will be cancelled at the signing of the deeds (out of the money you pay to the vendor). This may require that you pay a cheque directly to the mortgage lender.

Check that payments of local taxes (IBI) are up to date

You also need to see the latest receipts of payment of local rates (IBI), and in some cases check with the town hall (ayuntamiento) that there are no problems with unpaid rates from previous years. The town hall can issue a certificate to this end. Any unpaid rates become the new owner’s liability.

Check the deeds

Your lawyer will need to check the existing deeds, so the vendor or estate agent will have to make a copy available to you.

For a start your lawyer needs to confirm that the property is correctly described in the deeds before you proceed to buy, so you will need to obtain a copy of the deeds from the vendor. The deeds contain descriptions of the amount of land (if any), boundaries, built areas, internal divisions, exterior recreational areas and other salient features of the property.

Properties are quite often inaccurately described in the deeds for a number of reasons. The vendor or a previous owner may have carried out building work such as an extension or a new pool, and not have registered these changes in the deeds. This may be because the changes were illegally carried out – without permission from the town hall – or because the owner forgot or could not be bothered with the time and expense of having the changes registered in front of a Notary. In the latter case the town hall will have a copy of the building work authorisation (licencia de obras or licencia de reformas), as should the owner. If authorisation from the town hall can be produced to justify the discrepancy between the physical reality of the property and the deeds, then this can be used to update the deeds when you complete and sign before Notary. However if the changes were carried out illegally – without authorisation from the town hall – then the process becomes somewhat more complicated to resolve. In this case you would need to consult with your lawyer on the best way to have the changes legalised – if at all possible – before proceeding. You should never buy a property with illegal features that are impossible to legalise.

Another reason why the property might appear to be incorrectly described in the deeds is because you have been mislead as to what you are buying. When this happens it normally involves property with land, however it could also conceivably happen when buying on an urbanisation, or any detached property. The point is that you have to take great care to study the deeds and relate them to what you have been physically shown during the visit. This demonstrates why it is so important to take detailed notes and photos of a target property when you visit. You then need to have the deeds clearly explained to you by your lawyer, who should translate the relevant section for you so that you clearly understand how the property is described. In an ideal world your lawyer will be able to visit the property to confirm that it is as described in the deeds, so try and arrange this if possible.

If you are buying a property that includes a private parking space then pay attention to how this is presented in the deeds. The parking space might be in the same deed as the property, or in a separate deed. If it is in a separate deed then it needs to be checked in the same way as the main property. A separate deed is slightly more complicated and means you will have to pay separate rates and slightly higher transaction charges (Notary fees, land register fees and stamp duty).

You must not buy a property until it is accurately described in notarised title deeds, or until some other mechanism has been arranged by which you can be sure that accurate deeds can be notarised and inscribed in the property register. If there are any illegal features that are not described in the existing deeds then you will have to negotiate an acceptable legalisation process with the vendors. If necessary you might consider agreeing to pay part of the costs of the legalisation process. However some discrepancies are too big or too illegal to sort out, even with the best will in the world on both sides. If this is the case, and you lawyer will have to advise you here, then just walk away from the deal. If you sign deeds before any discrepancies have been resolved, then the problem becomes yours and yours alone.

Some illegal features may become legal by virtue of the amount of time that they have existed – normally after 4 years without any complaints from neighbours or orders from the town hall to remove them (Expediente de infración urbanistica). However in this case you must always have a registered architect certify that the feature is more than 4 years old (certificado de antigüedad de un arquitecto certificado), and get the all clear from the town hall before proceeding to commit.

When checking the deeds your lawyer will also have to pay attention to how many times the property has changed hands in the last 4 years, and who the previous vendors were. If the property has changed hands at all in the last 4 years, and if any of the previous vendors in this period were non-resident, then your lawyer will need to check that a 5% retention was paid to the tax authorities buy whoever bought the property from a non-resident vendor. If the property has not changed hands in the last 4 years (4 years and 1 months, to be precise) then there is nothing to check.

Check the cadastral record

Whilst the principle function of the property register is to record title, the cadastre (catastro) records the location, physical dimensions and classification of all properties in Spain. The cadastre provides a generally accurate physical description of all properties, and also includes plans, maps, and aerial photographs. The cadastre is a very useful source of information when buying rural property as it helps to identify discrepancies between the deeds and what you have been shown. Various types of reports can be requested from the cadastre that help clarify the physical dimensions and features of a property. Your lawyer will have to decide if this check is necessary and which report to request.

Along with keeping a record of the precise location and physical attributes of every property in Spain, the cadastre also serves to calculate the municipal rates (IBI) for each and every property in Spain. Indeed its primary function is to serve as an inventory of property for tax and assessment purposes. Therefore if you have any problems getting IBI receipts from the vendors you can get the property’s cadastral reference number (referencia catastral) from the cadastre and then use this to get an IBI report from the town hall. If you know the address of the property you can find out the referencia catastral in an instant by checking online at the cadastre’s website (see Solutions for Spanish property buyers, owners and vendors for link to the Cadastre online services). There is no charge for this check and you will also be able to see a plan of the property online.

Check with the urban planning department of the town hall

It may be necessary to check various issues with the planning department (urbanismo) of the town hall.

If the property does not match the description in the deeds then your lawyer may need to visit the planning department of the town hall to clarify what is and is not legal, and what can be legalised if necessary. The planning department has plans for all the land within the municipality, along with the regulations that govern what can and can’t be built on this land. In some cases it may be more appropriate for an architect to carry out this check and report back to your lawyer, as not all lawyers understand the intricacies of planning regulations.

In some parts of Spain, especially in the south, Notaries have given their consent to deeds that contain illegal building. Of course this should never happen but it does, albeit rarely. If you are buying in an area such as Marbella, where a few Notaries have turned a blind eye to irregularities, then it may be necessary to check the property with the planning office, regardless of whether the deeds are correct or not. The truth is there is never any harm in requesting a report (informe urbanístico) from the planning department of the town hall, just to be sure of the situation. It is of course an extra expense.

If you are buying a property on the assumption that you can extend or refurbish it then you will need to have your lawyer, or preferably an architect, check what you will be allowed to do. This can only be checked at the planning department of the town hall. Ideally you should present your building plans (projecto) to the town hall for approval before you reach the point of no return. That way you can be sure that you will be allowed to extend the property the way you wish to before you buy.

Over the last few decades there has been a problem with illegal developments in Spain. When buying a recently built property, and especially when buying newly built property from an investor, you may need to check that planning permission (licencia de construcción) was granted, that a certificate of completion (certificado de final de obras)was signed by an architect, and that an occupancy licence (cédula de habitabilidad or licencia de primera ocupación) was issued by the town hall. Generally speaking, if a property has mains connections to water and electricity then it has necessary licences, as the utility companies will only supply properties with an occupancy licence. Note that some British buyers on developments in the Costa del Sol are having to survive with water and electricity taken from the developers ‘works’ connection rather than directly from the utility companies. This is because these developments have not been granted occupancy licences. At some point these owners will be cut off unless the licence is granted.

In some cases entire urbanisations have planning problems or issues that have not been resolved with the municipal authorities. The developer may have cut corners with the infrastructure or proceeded without the necessary permits, and owners may have to correct these problems at their expense, sometimes years later. Owners on these developments may also experience problems receiving municipal services such as rubbish collection and road maintenance, which adds to the cost and inconvenience of living there. Someone trying to sell a property on one of these urbanisations has no incentive to broadcast these problems, so it may be worthwhile checking these issues with the town hall before you buy a property on an urbanisation. The town hall can confirm if an urbanisation suffers from any outstanding issues, and whether the urbanisation has been fully approved.

If you are looking at a property in an urbanised area you may also wish to find out what is going to be built around the property. Many British people have been sold property with pleasant views on the promise that nothing will ever be built to obstruct the view. This often turns out not to be the case and a fair number of people have lost their sea views to an apartment block. In Spain you have to assume that if a 5-storey apartment block can be built on the plot in front of the property then that is exactly what will be built. A look at the urban plan(plan parcial) in the town hall will reveal exactly what can and can’t be built on the land around the property you are considering.

Lastly you also need to check with the town hall if you want to know about the overall development plans for the region. This information is contained in the general plan (plan general) and includes plans for major projects such as motorways, airports and railway lines. If you are buying in a consolidated urbanised environment it is very unlikely that you will be adversely affected by anything in the general plan. Outside of consolidated areas, however, there is a very small chance that plans to build a motorway, or reclassify rural land as development land, could affect the property you are considering.

Check the community of owners

If the property is part of a community of owners (comunidad de propietarios), as is nearly always the case for apartments and urbanisations, then you should check that the vendor is up to date with community fees (gastos de comunidad or cuota de la comunidad de propietarios).

You also need to find out what the community fees are so you can budget for them, and check whether there are any plans afoot to upgrade the communal areas that might mean a large and unexpected cost shortly after you have purchased. Finally you should always check the community bylaws for any that might affect you (such as restrictions on renting out properties). You can obtain all this information from the secretary or administrator of the community of owners (administrador de la comunidad de propietarios) who can also provide you with a copy of the community bylaws (Los Estatutos de la Comunidad de Propietarios).

Other issues

  • Check the amount of plusvalía if the vendor is non-resident, or if there is any chance that you might have to pay it. This can be checked with the town hall.
  • If the vendor is an off-shore company, confirm that that the special 3% tax levied on this form of ownership has been paid to date.
  • If the property is within 500 metres of the coast then your lawyer may need to confirm that the property does not fall foul of the coastal planning law (ley de costas).
  • If the property is being sold with furniture of any value then make sure you are provided with a signed inventory of the furniture.
  • Check that all utility bills are up to date (water, gas, electricity, telephone) by obtaining copies of the latest receipts from the vendor.
  • Confirm that you are not expected to pay the estate agent’s commission.
  • Obtain the exact postal address of the property.
  • Find out if the vendor has any technical plans and specifications for the property, and ask to see them if they do. If the property is less than 10 years old then enquire into the builder’s guarantee.
  • If buying a rural property have your lawyer check if any 3rd parties have rights of way over the property (servidumbres de paso), or whether the property you are considering needs rights of way over someone else’s property. The same applies to water rights and hunting rights.