Once your lawyer has carried out an appropriate due diligence and helped you negotiate a strong contract you can proceed to sign and make the first payment, often between 10% and 25% (plus VAT) of the price. This is the point of no return beyond which you cannot back out without heavy financial penalties, probably involving the loss of some or all of your payments (depending upon what has been agreed in the contract).
You do not need to be physically present in Spain to sign this contract. A contract signed by the developer can be faxed to your for counter signing and returning by fax. However signed originals also need to be exchanged by post. Both you and the developer should end up with original copies signed by both parties.
Stage payments and construction
Once you have signed the private sale contract with the developer and made the first payment there is not much for you to do until completion approaches. During this period, which could be anything up to 2 years, construction of your property will (hopefully) be underway and you may be required to make a series of stage payments as agreed in the contract. If you are required to make any further payments ensure that you receive an official receipt from the developer detailing these payments.
Developers are on the whole very bad at keeping buyers informed of construction progress. You should push the developer to send you regular progress reports and give you plenty of warning if there are any changes to the expected date of delivery.
Final legal checks and signing deeds
Once the property has been completed you can take possession by signing the public deeds before a Notary. Before doing this your lawyer will need to carry out a series of final checks:
- Confirm that the property has been certified as finished by a registered architect (Certificado de final de obras). Never make final payments or sign deeds without this.
- Confirm that the property has been, or will be given, a first occupancy licence by the local government (Licencia de primera ocupación). Once the property has been built an official from the planning department of the municipal authority will inspect the property to ensure that it complies with regulations for newly built residential properties. If it conforms to regulations it will be granted the appropriate licence. Without this, you cannot get a mortgage or have the utilities connected. Promoters have been known to sell properties without having made arrangements for this licence, which only stores up problems for buyers. Never make final payments or sign deeds without proof that the licence has been applied for or granted.
- Request a land registry filing for your specific property to check that there are no unexpected debts or embargoes on it. At some point during construction the promoter should have signed deeds before a Notary (escritura de obra nueva y división horizontal) that register the division of the original land into all the individual properties resulting from the construction, and the common areas. This means that the property you are buying is now inscribed in the land registry and you can check its status. You should not sign any deeds before your lawyer has checked the land registry filing (nota simple).
- Confirm with the town hall that the property has no outstanding debts (such as unpaid taxes), or other outstanding issues that might cause you problems.
- Check that the necessary insurance has been arranged by the developer or constructor to cover build defects, as required by the building regulations law (ley de ordenación de la edificación). Developers are obliged to insure minor defects for 1 year, more substantial defects related to fixtures and fittings for 3 years, and structural defects for 10 years. This insurance should form part of the property manual (libro del edificio) that the developer gives you.
- If possible, have a professional such as a chartered surveyor check the property before you complete. This helps to identify any problems that would be sufficient cause to delay completion.
Once all the appropriate checks have been carried out with positive results, and your lawyer has reviewed the draft deeds, you can go to completion and sign the deeds before Notary. The process of signing the deeds will be the same as described above for buying resale property from a private individual. However when buying from a developer there should be no need to have to pay any part in cash under the table (never deal with a developer who asks for this).
After signing the deeds
After signing the deeds for a newly built property from a developer you need to pay the appropriate taxes, inscribe your title in the property register, update the cadastre, set up utility contracts, and help set up the community of owners. You also need to carry out a snagging check on your new property, something that is normally not the case when buying a resale property.
Paying the taxes
When you buy a newly built property from a developer you pay VAT (IVA) instead of transfer tax (ITP), and you also pay stamp duty (IAJD) that varies by autonomous region. When buying in the Canaries you pay a special tax called the General Indirect Tax (Impuesto General Indirecto Canario – IGIC) instead of VAT. After the sale you only have to make arrangements to pay the stamp duty as VAT (or IGIC in the Canaries) is included in the price that you pay when signing the deeds. The developer then has to pass the VAT to the tax authorities. For the latest tax rates see The Cost of Buying and Owning Property in Spain
Inscribing your title in the land register
Once you have paid the stamp duty you can inscribe your title in the property register. This should be done as quickly as possible.
Informing the cadastre
Though the developer is obliged to inform the cadastre of the existence of a new property, you will need to inform the cadastre of your purchase and payment details for IBI. The procedure for doing this is the same as was described above for resale properties.
Setting up utility contracts
As the property is new and has never been occupied before you have to set up utility contracts, rather than take over the existing contracts of the previous owner. The procedure for setting up new utility contracts was described above in the section on buying resales.
Community of owners
If the community of owners has not yet been established you should participate in setting it up. This means defining the community rules, the budget, and selecting a president, secretary and administrator. If you do not participate then you will have little say in decisions that affect you. You should find out from the developer what the status of the community of owners is. If a community of owners has already been set up then you should get the contract details of the secretary, administrator or president from the developer so that you can make arrangements to pay your share of the community fees and participate in the community management in future.
Snagging is the process of ironing out the little faults that inevitably arise in a newly built property as it settles down onto its foundations. Cupboards, doors and windows that don’t shut perfectly, switches that don’t work, taps that don’t close fully, cracks in plastering – the list is endless and will vary from case to case. Snagging also needs to identify any faults such as failure to comply with plans and specifications. You need to identify these problems within days of taking possession, document them carefully and then have the developer put them right.
Snagging is normal and expected, though the better the build quality (materials plus workmanship) the less snagging that needs to be done.
It is very important to pay great attention to snagging when you take possession of a property that you originally bought off plan. The more thorough your snagging, the greater your ability to ensure that faults are put right by the developer, quickly and at no cost to you.
Don’t leave snagging to the estate agent you bought from, don’t leave it to the developer, and most of all don’t leave it out altogether. Snagging can be a problem for overseas buyers who don’t have the time and wherewithal to do it themselves. The best solution by far is to hire a professional, such as a chartered surveyor, to manage the snagging process for you. The benefits far outweigh the costs.
© Mark Stucklin (Spanish Property Insight)