In my first article in The Property Gazette I have been asked to write about the process of buying a property in Spain. I am aware that there have been many other articles about this subject, so I will try to highlight the differences between the process in Spain and England. I will explain the historical differences, the process of becoming a Lawyer and by using an example of a fictitious couple, try to illustrate the buying process in more ‘user friendly’ fashion.
Historically, the property market in Spain was not buoyant. We did not have the tradition of often moving house and trading up to a bigger property, also property inflation was very low. Our inheritance laws meant that property would always be left to the children and it was common for several generations to be born and to die in the same house.
When we did want to sell we would probably sell the property ourselves and with the purchaser, go to the Notary and to register the documents. Because everyone probably knew each other or were related, this process worked. In the case of an Estate Agent (inmobiliaria) being used, they would perform the conveyance duties and ensure the transfer or the deeds. A Lawyer was not usually needed. Today it is totally different. Property inflation is high; I have seen prices doubling in this area. The buyer and seller do not know each other and very often as the buyer is from another country, he cannot speak Spanish. As in any boom situation there are people who will take advantage of the current situation, so it is essential that Legal advice is sought.
To become a lawyer in Spain you first have to complete a 5 year course at a Law University, after which you are able to join a Law College and are given a number. In this area the two largest colleges are in Granada and Malaga. Every lawyer has a number which represents the year of joining the college. A low number indicates a lawyer of experience and senior to a lawyer with a higher number. With over 300 lawyers passing exams in Granada every year the client should be aware of the seniority and experience of their lawyer. On the ‘Costas’ there are many people with no qualifications acting as “lawyers” or “conveyers”, you are free to use one, but if you have a problem it will be really difficult to seek redress as they do not have professional indemnity insurance, nor do they have to answer to the College.
Case nº 1. Mr. and Mrs. White.- They were looking for a plot of land in the South of Spain with a ‘cortijo’ or a little farm house on it. After some weeks of searching estate agent’s web sites, they decided to fly over for few days to look at some of them. They saw one they liked but before making an offer, sought the advice of a lawyer. In the search the Lawyer found that the property was not registered at the land registry office. They could not believe that it could be possible, as in England all property is registered at The Land Registry. It was quite usual in the past that for tax implications and to avoid legal fees, the properties were transfered without using a public notary and subsequently there being no record of the owners, dimensions and the exact location of the property at the local land registry.
Mrs. White was in love with the property so even when told that the procedure could be lengthy, she still wanted to continue with the purchase and a contract was prepared. The next day the Whites signed a Power of Attorney at the notary office and opened a bank account in the area. The lawyer recommended that they ask an architect to measure the house, the land and to draw up plans, to be sure that what they were buying was the same size in metres that had been offered to them.
The vendor’s lawyer provided a council tax receipt for the local annual taxes together with a cadastral certificate. (the Oficina Catastral is a public and official office which keeps the description of plots).
The White’s lawyer then checked that the property was not rented out, that the local taxes were paid, and that the vendors had the receipts for electricity and water.
Having all the documents, the lawyer decided that it could be possible to use the procedure established in the article 205 Reglamento Hipotecario, which did not require court action following the process called “Expediente de dominio”.
A private contract (contrato de arras) was then prepared. The document was in Spanish and English but in case of any disputes between the parties the valid version is always the Spanish one. In the document (Arras agreement) it states that the buyer will lose the deposit if they do not complete the sale on the date specified. It also contains the rest of the conditions of the purchase as well as stating that if the seller defaults they shall return the double amount of the deposit. Normally the amount of the deposit is 10% of the property price. A completion date was agreed on and a break down of the costs involved was prepared.
The taxes that the Whites had to pay were:
The transfer tax (Impuesto de Transmisiones Patrimoniales – ITP). The ITP is different in Spain depending on the autonomous community. In Andalusia it is a progressive tax that is 8% of the purchasing price for the first 400,000.00€, 9% in the following bracket (between 400,000.01€ and 700,000.00€) and 10% for the part above 700,000.00€ (see Spain fiscal reform 2010 article). In Catalonia the ITP is 10% flat rate. If the purchase price is below the “fiscal value” of the property this amount will be used instead as a base to calculate all taxes. The “fiscal value” is calculated by multiplying the cadastral value by a coefficient depending of the town hall where the property is located. Using the power of attorney the lawyer asked the Police Station in the area for a NIE number, which is required to pay the taxes.
Both parties agreed that the capital gains tax (plusvalia) were paid by the seller. Notary and land registry fees were paid by the buyers. The amount was a percentage of the selling price and the land registry fee was around 60% of the notary fees. On the completion day the White’s were unable to fly to Spain so the lawyer was able to go to the notary office with the vendor and sign the title on their behalf.
The lawyer obtained the keys of the property at the notary and after a few days were able to arrange the utilities and the council tax payments, they also paid the transfer taxes at the Treasury office (Delegación de Hacienda) within the prescribed 30 days and left all the documentation at the land register.
When the Whites arrived in Spain to collect the keys of their new property, they signed their Wills, which was again prepared in both Spanish and English, in order to protect their asset as Spanish inheritance laws differ from those in other countries.
Every year Mr. and Mrs. White instructed their lawyer to prepare the non resident tax form and to be their fiscal representative in Spain.
Case nº 2. – Ms Black. She wanted to buy a property in a new development to the west of Malaga as an investment.
She came to Spain one weekend and did not have the time to arrange the power of attorney or to open a bank account. She previously had contacted a lawyer and e-mailed the details that the developer had given her. The lawyer had sent her a client questionnaire and asked for a copy of her passport.
Days later she went to a notary public in her country to sign the power of attorney in Spanish and English that was sent to her. The document was sent to the Foreign and Commonwealth Office to be stamped in accordance with The Hague Convention and it was then sent by courier to the lawyer’s office in Spain. The lawyer asked the developer for all the sale particulars and a copy of the standard contact that they used, and translated the contract for the client.
Ms. Black decided to take out a mortgage in Spain, so the lawyer looked for the best deal by contacting several banks in the area. In Spain there are good mortgage rates and some banks have special products designed for non-resident borrowers. A bank account was opened by the lawyer at the bank that Ms. Black decided to have the mortgage with. The bank asked her for the following information and documentation: A photocopy of her passport, her address, marital status, a copy of her last P60, the last three salary receipts, a copy of the contract with the builder…
She was informed of the cost of the valuation of the property. (The bank has surveyors who value the property and they will lend a percentage of that, normally around 70%.
Because it was a new property the costs involved were:
- Bank opening mortgage fee.
- VAT 10%. (Impuesto sobre el valor añadido IVA).
- Stamp duty (Impuesto de Actos Jurídicos Documentados) 1.5% . depending on the guaranteed capital of the mortgage.
- Notary and Registry on the mortgage: These fees vary depending on the guaranteed capital of the mortgage.
- Notary and Land Register fees on the purchase.
- Agency ‘Gestoria’ fees. The bank use an agent to make sure the property and the mortgage are inscribed at the land register.
- Insurance: The banks normally require the borrower to take out insurance to protect its interest until the loan is repaid.
The day on which the purchase contract (Escrituras) was signed at the notary office, was the same as the signing of the mortgage, because the document has to be formalized on a deed.
The builder gave a copy of the first occupation license, and some forms for the gas, electricity and water companies. The lawyer arranged for the utilities to be paid by direct debit through Ms. Black’s bank account.
Ms Black then drew up a Spanish Will.
I hope that these two examples go some way in illustrating the purchase of property in Spain.