They have their own way of conducting property transactions in Spain -and it all hinges on the notary. Understand how the system works to keep out of trouble, says MARK STUCKLIN.
Sunday Times Home Section, 7th August 2005
Manila envelopes stuffed with cash, under-the-table payments and high-and mighty notaries charging hefty fees for a perfunctory reading of the deeds -there’s no denying that buying a home in Spain can have its moments of exotic drama.
The overall objectives of the completion process in Spain are exactly the same as in the UK: ensuring that the vendor gets paid, that the buyer gets their title deeds and that the government gets its taxes.
As a buyer, your objective is to get your title inscribed in the Registro de la Propiedad, Spain’s equivalent of the Land Register. This is the only truly secure form of property ownership in Spain.
You can’t inscribe your title until the deeds of sale have been signed by all parties in the presence of a public notary (notario). Though they earn their fees from private individuals and companies, notaries are essentially public officials who play a neutral role in witnessing and drafting many types of contract.
The notary’s signature is required to “elevate” the private contract between buyer and seller into a public contract, the escritura, which can then be inscribed in the register. No notary’s signature means no title deeds.
British buyers do not always realise how important it is to withhold full payment until the deeds are signed in front of the notary. They might think that once they’ve signed private contracts and paid in full, they own the property outright.
However, vendors who have received full payment have no incentive to sign the deeds of sale before a notary. Consequently, there are hundreds, if not thousands, of Brits who have bought, paid in full and even occupied the property, who have no title deeds to show for it.
The notary and the lawyer
If the completion process in the UK works without notaries, you could be forgiven for asking what value they add in Spain. The short answer is “not much”. It’s true they run some basic checks on the vendor’s title before the deeds are signed. But you must use a qualified, independent lawyer both to ensure due diligence and to accompany you to the signing of the deeds.
Notaries are paid (in fees set by the government but normally paid by the buyer) not to take sides -and so, in theory, they should be beyond reproach. In the vast majority of cases, notaries are squeaky clean, though there are rumours that some may have turned a blind eye to infractions by developers. In Operation White Whale, the recent money-laundering bust on the Costa del Sol, three notaries were detained.
Cash in hand
Many property transactions in Spain involve under-the-table cash payments that aren’t declared in the deeds. Albeit in gradual decline, the practice is still widespread, and 10%-20% of the value of the transaction is common. This enables vendors to dodge capital-gains tax.
The cash is usually handed over in the notary’s office, so in a delicious irony, one of Spain’s most common fiscal misdemeanours takes place under the very nose of a quasi-government official responsible for ensuring that taxes are paid.
This is a fraud that could land you with liability for the vendor’s capital gains tax (or worse), so you are strongly advised to try to persuade the seller to do without it. However, in many areas of the country, vendors will insist.
Spanish notaries know what is going on, but they don’t like to witness the grubby side of a property deal. If you want the property so badly that you agree to it, keep the manila envelope in your pocket until the deeds have been signed and the official has left you alone with the vendor in his office. At that point, pass the money to the vendor, who will no doubt count it out in front of you.
Notaries’ fees are set by the Spanish government according to the number of clauses in the deeds and the declared value of the property. As a rough guide, they range from 0.1% of the selling price for properties valued at E400,000 (Pounds 277,000) or more to about 0.4% for properties under E100,000 (Pounds 69,000). If you take out a mortgage, then you will have to pay notary fees on those deeds as well. Property Registry fees are calculated on a sliding scale reflecting the declared price of the property, but you can estimate them at about 0.1% of the price for expensive properties, and up to to 0.3% for cheaper ones.
© Mark Stucklin (Spanish Property Insight)