An up-to-date legal guide to buying resale property in Spain by Raymundo Larraín Nesbitt, a Spanish qualified lawyer (abogado).
Lawyer – Abogado
21st of February 2013
The following eleven useful tips will help would-be buyers avoid the majority of buying resale property associated pitfalls. I won’t mention the so-called Valencian Land Grab Law as this is a localised problem affecting only Valencia that bears no impact whatsoever on the remainder of Spain’s seventeen Autonomous Communities.
The following article is my second part on a five-part series focused on How to Buy Property in Spain Safely. You may also be interested in reading Buying Distressed Property in Spain, Buying Off-Plan Property in Spain, How to Buy Commercial Property in Spain or How to Buy Rural Property in Spain.
1. Hire a Qualified Registered Lawyer
This is the single most important advice you can be given. If you only happen to follow this first tip the rest of the points mentioned in this article become redundant.
Hiring a lawyer is by no means mandatory on conveyance procedures. But I cannot stress enough the importance of retaining a Spanish lawyer, if you are a foreigner, to act on your behalf in a conveyance procedure, both on buying and selling property.
It is often that I hear that those with vested interests in their being no lawyers involved – I wonder why – are often the most outspoken on advocating that retaining a lawyer is an unnecessary expense and always put as an example that Spaniards don’t hire them on buying property.
Whilst it may be true that Spaniards, in most cases, do not retain a lawyer to act on their behalf in a conveyance this can be explained for a number of reasons. Almost every Spaniard has a relative or a friend who happens to be a lawyer and advises them free of charge. Besides they are fluent in their own language (!) and have ready access to a myriad of legal articles which are regularly published in the press. Despite this Spaniards still end up having all sorts of problems on buying or selling property because they did not want to incur in additional expenses hiring a lawyer. Quite often their blunder far exceeds what a lawyer would have charged for his service (typically 1% of the property’s value plus VAT).
To identify oneself as an ‘abogado/lawyer’ one must be both qualified and registered in Spain:
i) Qualified: having passed and attained a Spanish Law degree or else by having homologated it
ii) Registered: being admitted to practice Law at one of Spain’s regional Bar Associations
The second point is already inclusive of the first one, as on applying to practice Law before a Bar Association one must submit both his Law degree and his full academic record. Additionally, someone with a criminal record may not join the Law Society. One should exercise extreme caution on those claiming to be an ‘abogado’ and yet are unregistered to practice. Ask yourself why? Quite a few of the notorious mishaps featured in the press relate to non-qualified intruders dealing in conveyance matters.
Someone who is not registered in a Bar Association cannot entertain to address themselves as a ‘lawyer’ nor legally perform the duties and roles of one.
Registered lawyers need to abide by the Code of Ethics of the regional Law Society to which they belong. In serious cases a lawyer can be struck off the Bar and barred to practice law.
I write the above because I have been alarmed over the last years, since Spain’s economic depression began in 2007, by the increasing number of bogus law firms which have been set up by unscrupulous people who are neither registered to practice as lawyers nor qualified (no legal background whatsoever or even holding a completely unrelated professional background i.e. Advertising Executive!).
Only registered lawyers have Professional Indemnity Insurance which may protect you in the event of malpractice or negligence. You can claim against said insurance in such a case. All registered lawyers are assigned a practising number by their Law Society i.e. number 6072 of Malaga’s Law Society. You can easily check if your lawyer is registered to practice law on this Registered Lawyer’s Database.
Bottom line; make sure your lawyer is registered to practice, for your own sake. Be wary of cold-calling from legal advisors, senior legal advisors, legal executives, legal assistants, paralegals and in general anyone who does not clearly identify himself/herself as a lawyer/abogado (and is therefore registered). Unlike other countries such as the United Kingdom these fancy titles don’t mean anything in Spain – we have no paralegals. Or you are either a registered Spanish lawyer or you are not – period. It’s that simple. Someone who is not a trained registered lawyer is not qualified to give legal advice in any shape or form, cannot entertain to address himself/herself as a ‘lawyer’, cannot solicit clients for legal services – even if outsourced – nor practice law in Spain.
If the property you wish to buy is of a high value you may want to seek advice beforehand so as to mitigate tax exposure, namely to Spanish Inheritance Tax. Often the best tax planning results are achieved prior to acquiring a property as they may require the incorporation of a string of holding companies to lock up the asset.
Bottom line it is advisable to retain an independent lawyer in Spain.
You can check this list of recommended English-speaking lawyers or request one from your home country’s local consulate in Spain.
2.Has the Property Been Registered Properly?
It is commonplace that extensions on properties are unregistered at the Land Registry. You will only find out on requesting a mortgage loan when a lender either turns you down or else offers significantly less money than what you anticipated because the extensions remain unregistered i.e. a four bedroom villa is registered only as a two bedroom property. Following this example, a lender will only value the property as a two-bedroom as the remaining two bedrooms do not exist from a legal point of view and therefore cannot be mortgaged thus reducing the overall value of the property.
This problem can be easily overcome by signing a new build deed at a Notary and paying the associated local tax levied by the town hall for the extension. This deed is then registered and the property description is amended accordingly adapting it to reality. This ought to be done by the vendor prior to the sale, unless specifically agreed otherwise. Such a case is rife in rural properties.
Other cases, such as illegal rural properties, may be fraught with legal problems i.e. a rural property was given a licence to build a small tool hut (‘casa de aperos’) of 3*3 m² to store the tools to plough the fields. Yet using this legal ‘loophole’ planning rules are easily circumvented and a villa may be built instead – which may be lead local authorities to threat with demolition at the owner’s expense besides imposing fines and even criminal action being taken in the most serious cases. Rural properties can be a legal quagmire and it is essential you retain a lawyer to act on your behalf and best advice you on the matter, from the very beginning.
In other cases, for perfectly legitimate reasons, properties remain unregistered or they lack a title deed (‘escritura’) i.e. property inherited from one generation to another in rural areas. There are several legal ways to overcome this minor setback: ‘Acta de Notoriedad’ or else following an ‘Expediente de Dominio’.
3. Is the Property Registered under the Vendor’s Name?
This may sound as a fairly obvious point but quite often than not I’ve found out the person who had the property listed at the estate agency was not the registered owner. This can be explained for a number of legitimate reasons i.e. the registered owner has passed away recently and the inheritance tax liability has not been sorted out yet. Until the Spanish IHT is not settled, the property cannot be registered, mortgaged or sold by his beneficiaries.
This will be one of the first checks your appointed lawyer will carry out. You can actually do it yourself requesting what is known as a nota simple at the Land Registry where the property is located either physically or online (you have to be a registered user for the latter).
Only the owner or someone else appointed by him acting as proxy (empowered with a Power of Attorney) can sell a property.
4. Ensure the Property Complies with Spain’s Coastal Law
If you are buying a resale, make sure it is not within the protected area of Public Domain or else you may risk your house being pulled down, at your expense, by the local Authorities. Spain’s Coastal Law was passed in 1988 but it hasn’t been until recently that the Government decided to enforce it harshly.
The Government has however recently proposed introducing an amendment to the costal law which in practice will amount – to all intents and purposes – to a generalised amnesty. Thousands of properties which were assailed over looming demolition will now be safe to buy and sell as a result. A very smart move by the Government that has successfully averted what would otherwise have been a death knell for Spain’s real estate sector.
5. Are There Charges, Encumbrances or Debts Against the Property?
Additionally the above land registry information will describe the property (size, bedrooms, boundaries etc.) and reveal if there are any charges or liens against it i.e. a mortgage, a right-of-way or even an embargo.
However you should know that not all debts against a property are lodged at the Land Registry. This is yet another angle which your conveyance lawyer will cover. For example, on buying a resale in a Community of Owners in Spain outstanding debts go against the property itself not against the former owner. On buying a resale you are liable for all the debts of the previous owner in the current year in which you are buying as well as the previous two years; in other words, dating back three years. Your lawyer should request a certificate from the Community of Owners stating the property is up-to-date with the community payments and will include it in the Notary’s deed at completion. This certificate will act as your safeguard against any community claim on bad debts from the previous homeowner.
The new owner will also be held liable for unpaid utility services and local taxes. This is because these debts go against the property itself, not against the previous owner. So whoever owns the property will be held liable. Your lawyer will likewise also ensure prior to buying a resale there are none outstanding.
Other local taxes levied by the town hall where the property is located may be left outstanding by the previous owner (i.e. IBI tax and Garbage collection). These will not be lodged either at the Land Registry.
It may be a good idea to hire Title Insurance just to play it safe. There are companies offering a twenty year legal protection at very competitive prices. It’s well worth looking into.
6. Are There Tenants Living in The Property?
You should be keenly aware that in Spain laws are biased towards tenants for historical reasons. If you happen to buy a resale which, unbeknownst to you, is being let by means of a Tenancy agreement signed after the 1st of January 1995, you will be forced to respect their tenancy until it elapses to take possession of the property. In Spain long- terms are for five years although this has been slightly amended by the ‘Express Eviction Law’ which was passed recently. You can however reach an agreement with the tenant to leave the property beforehand in exchange of a suitable settlement. Additionally recent laws have introduced a limited number of scenarios where this mandatory five-year rule may be overridden by the landlord if required. But you cannot force them on this point.
On buying bank repossessions in Spain you may find a tenant living inside with a long-term contract. Even lenders on repossessing properties have to respect long-term tenants, unless they reach a settlement with them.
Moreover, these long-term tenants may be legally entitled to exercise their pre-emption and buyout rights (‘derecho de tanteo y retracto’) in a resale as enshrined in section 25 of Spain’s Tenancy Act. Landlords must notify their long term tenants, prior to the sale of the property, their intention in doing so as well as the sale conditions so that tenants may exercise their right of first refusal within the next 30 days. Failure to communicate it or doing it in a flawed manner (i.e. the mentioned sales price is in fact higher) will trigger their buyout right. It will then be up to the tenant on whether to exercise it or not.
One of the main problems on buying in Spain is that unfortunately there is no tenant’s public registry that you can check previously; so on buying a resale you are really taking a gamble as you just don’t know for sure if there are long-term tenants living in the property. Seldom are long-term tenancies registered at the Land Registry.
A lawyer can of course draft specific clauses both in a Private Purchase Contract (PPC), as well as in the title deed, to protect you against the above as well as other unforeseen events i.e. squatters in Spain.
7. Know Your Owner’s Rights
If you are buying in a Spanish Community of Owners (‘Comunidad de Propietarios’) it is advisable you request beforehand both the Community Statutes and the Internal Community Rules (the latter being optional, do not always exist) to avoid future problems with your neighbours i.e. an internal rule which bans tenants from using communal installations such as a swimming pool or a gymnasium (both are real life examples). Such limitations can be particularly troublesome for landlords who bought property on a Spanish buy-to-let premise not to mention that it can be challenged. Assembly resolutions may be challenged (both AGMs and EGMs) if necessary.
Additionally, depending on which of Spain’s 17 regions the property you are buying is located in, besides being protected by the Consumer Protection Act which rules nationwide, you are also protected by specific regional consumer laws. An example of the latter would be Decree 218/2005 which rules on consumer rights on buying and renting property exclusively for the autonomous region of Andalucía. These regional laws compliment and bolster national laws adding security and rights to consumers at large.
8. You do have a NIE number, right?
A Spanish NIE number is a Tax Identification Number for foreigners enabling you to file and pay taxes into the Spanish Tax office. It will be required, for example, on buying and selling property, on inheriting assets in Spain, on opening a bank account, on buying a car, etc.
You cannot complete on a property in Spain without one, either on buying or selling, as the Notary will disallow it.
9. Post-Completion: Make Sure the Property is now Registered Under Your Name
Once you’ve completed (or closed) on the property you should ensure it has been registered properly under your name. This process takes on average 30-60 days after completion. If you applied for a Spanish mortgage loan and your lender is the one dealing with registering the property, expect at least a delay of six months – if not more – until you are returned the original title deed. Banks always withhold the original Mortgage deed for their records and will give you only an authorised copy. Once the property has been duly registered you can request the original title deed for your safekeeping. Losing the original title deed or escritura is only a minor setback as you can easily request copies from the Notary where it was signed.
10. Post-Completion: Dealing with Property Taxes, Utilities and Community Fees
Once you have acquired your new property, you will now have to face all the associated running expenses. Make sure you have budgeted this carefully so as to avoid unpleasant surprises! Some of the luxury gated communities with lush tropical gardens and beautiful infinity pools that dot the Spanish coastlines may have pretty steep maintenance expenses. Any unpaid community bills will result in the Community of Owners placing a charge against your property which may lead to auctioning it off publicly to recoup the debt! This legal procedure in Spain works fairly efficiently (as in twelve months on average).
Post-boom many new build developments remain largely unsold. Developers or ailing owners have been forced to hand over their properties to lenders on slipping into arrears. These lenders in turn are some of the worst offenders on community payments which translate into an increase of the fees borne by the remaining community members to offset this loss. Only Spain’s most prominent lenders are actually paying the community fees on their properties. Spanish savings banks are particularly notorious for not being up-to-date with their community fees. This is creating a vicious spiral putting the properties at stake of those financially weaker community members as they themselves struggle to remain afloat because the supposedly financially ‘stronger’ EU-bailed-out lenders are not contributing to their fair share of community payments. Bringing a legal case against them will mean community members will have to hire a lawyer which entails additional expenses.
You should open a Spanish bank account if you haven’t done so already. Utility companies do not accept overseas payments and like setting invoices as standing orders against your Spanish account. You should set at least as standing orders all the following:
- IBI tax. Paid once a year (akin to the UK’s Council tax).
- Rubbish collection tax. Paid twice or once a year depending on the town hall.
- Utility bills (invoiced quarterly in the case of water and monthly with electricity).
- Community fees (only if you’ve purchased in a Commonhold). Usually quarterly but can vary.
More on these taxes in my article Non-Resident Property Taxes in Spain.
You may also be liable to file Non-Resident Income tax on owning property in Spain every year for which you may need to appoint Fiscal Representation in Spain.
Finally I cannot stress enough how advisable it is that you make a Spanish will to dispose of your Spanish estate. This will not preclude any other made in your home country and is limited exclusively to your Spanish assets. It will save your beneficiaries time, money and hassle at a time of bereavement.
11. Careful with the Tax Office on Buying or Selling at a Discounted Price
And now that I’ve established it is a great time to buy property in Spain – the bad news. Due to Spain’s ongoing real estate depreciation many buyers are securing properties at such knockdown prices they are unwittingly drawing the attention of the Tax Office. So much so that over the last years many will have received a letter from Spain’s Inland Revenue some six months after completion demanding complementary tax is paid on the property. This is known as “la complementaria” in Spanish legal jargon and affects resale property. You can read further in my article La Complementaria or Bargain-Hunter Tax on how to pre-empt it and how to appeal one.
In the case of Andalusia, with which I’m more familiar, on buying distressed Spanish property you should pre-empt this by requesting beforehand an assessed property valuation specifically for tax purposes. This will be a legally binding report which your lawyer may use at a later date. Regional Tax Offices in charge of tax transfers will have a value on properties, from which they will not budge, and if you happen to buy below said value they will request tax on the difference as they will suspect you may have under-declared at completion – which I can assure in most cases is simply not the case; it is merely one more consequence of today’s depressed market.
If you have already received this letter you can either pay the requested tax or else appeal it. Providing the difference is not ‘significant’, your chances of appealing it may be fairly high. Obviously if it is a low amount it may not warrant the expense of hiring a lawyer to appeal it. But for high-end property it may be worth every penny.
Buying Resale Property in Spain – Conclusion
Despite the negative press the Spanish property market has endured abroad over the last years, specifically off-plan, the fact is that the vast majority of dozens of thousands of buyers who purchase property in Spain every year experience no problems and enjoy a straightforward transaction. In any case, if unsure, you can always sign a rent-to-buy contract to test the waters.
That is not to say there are no problems, far from it. There’s a lot of room left for improvements enforcing existing laws (i.e. Law 57/68 regarding bank guarantees in Spain comes strongly to mind). Moreover, both the Spanish Government and the Regional Authorities are continuously working hard to pass on new laws that will address the system’s flaws (i.e. Law 13/2009) and better protect Consumer’s Rights enabling smoother conveyance procedures in a safe buying environment.
After my shameless optimistic plug, one last word of caution specific to Spain’s troubled times. While it’s true there are exceptional opportunities to be made in today’s property market, would-be buyers should carefully ponder in their decision-making serious ongoing risks (caveat emptor):
- Currency fluctuation (i.e. plummeting sterling against euro) which may bring losses in the long run when sterling recovers against the euro if you buy now.
- Creeping interest rates in the Eurozone which may affect your loan repayment ability (particularly if you earn in sterling but your Spanish mortgage payments are in euros).
- Generalized real estate asset depreciation.
- Mounting political, institutional and social unrest.
- Severe credit shortage (the lowest on record on a fifty-year period) aggravated by rising interest rates and Spain’s uncertain financial health.
- And last but not least, is Spain’s noteworthy ongoing mounting sovereign debt problem which consequences still remain to be seen…bailout or no bailout – take your pick.
But ironically, it is precisely because of all the aforementioned market uncertainties that unique bargains are to be found in today’s market, a buyers’ market, not apt for the faint of heart.
“Todo necio confunde valor y precio” – Antonio Machado (Only fools confuse value and price). Proverbios y Cantares, LXVIII.
Brilliant Spanish poet and one of the leading figures of the Spanish literary movement known as the Generation of ’98.
Advice on buying property in Spain from the U.K.’s Foreign & Commonwealth Department
Advice on buying property in Spain from the R.O.I.’s Foreign Affair’s Department
How to Buy a Home in Spain – Spain’s Land Registry Organisation (pdf in English)
Buying Distressed Property in Spain – 8th August 2011
Community of Owners in Spain: Challenging Assembly Resolutions – 10th October 2011
Off-Plan Construction Guarantees – 8th November 2011
Rent-to-Buy in Spain: The Smart Choice – 8th April 2012
Making a Spanish Will – 8th August 2012
Community of Owners, or Comunidad de Propietarios – 8th July 2012
Title Deed Explained – 8th April 2013
Nota Simple Explained – 8th April 2013
Licence of First Occupation – 8th April 2013
Bank Guarantees in Spain – 8th April 2013
Buying Off-Plan Property in Spain – 8th of June 2013
Investor Guide to Spain’s Golden Visa Law – 8th November 2013
Bank Repossessions in Spain – 21st February 2014
Buying and Owning Spanish Property through Companies: Pros and Cons (Dispelling Spanish Inheritance Tax Myths) – 7th March 2014
How to Buy Commercial Property in Spain – 4th July 2014
How to Buy Rural Property in Spain – 8th August 2014
How to Buy Property in Spain Safely – 10th October 2014
Taxes on Selling Spanish Property – 8th December 2014
Spanish Wills and Probate Law In Light Of European Regulation – 8th January 2015
Changes to Spain’s Inheritance and Gift Tax Law – 21st February 2015
Spain’s Holiday Rental Laws – Explaining the Latest Changes – 8th March 2015
Supreme Court Rulings on Bank Guarantees – 8th April 2015
La Complementaria or Bargain Hunter Tax – 8th May 2015
House Hunting in Spain – 17th June 2015. The New York Times
Taxes on Buying Spanish Property – 8th July 2015
Non-Resident Taxes in Spain – 8th December 2015
Please note the information provided in this article is of general interest only and is not to be construed or intended as substitute for professional legal advice. This article may be posted freely in websites or other social media so long as the author is duly credited. Plagiarizing, whether in whole or in part, this article without crediting the author may result in criminal prosecution. VOV.
2010 and 2013 © Raymundo Larraín Nesbitt, All rights reserved.