Pro indiviso is a concept in property law that describes common or undivided property ownership.
There are basically three different pro indiviso situations:
- Common purchase of a dwelling by more than one person
- Inheritance of a property (the heirs become the co-owners)
- Common acquisition of a property between the shareholders of a company
Pro indiviso also occurs where properties are difficult to divide or where properties could lose much of their value if divided, for example an apartment or an individual house. The impossibility to physically divide the property brings about the part ownership of the separate proprietors. The property becomes legally a pro indiviso. The ownership division does not have to be in equal parts, each owner will have a specific percentage of the total ownership.
Under Spanish law the co-owners have rights and duties.
- Each owner has the right to receive a share of the profits made from the property according to their ownership percentage.
- Each owner has the duty to contribute to the cost of owning the property (property taxes, mortgages) according to the specific pro-rata share.
Extinction, dissolution or closure of the Pro indiviso
When there is agreement between the co-owners for the usage, the rights and duties pertaining to the property, the management of the property will run smoothly, however if there is a disagreement then this is where problems can arise. The most common example of a disagreement is when a couple breaks up, and one of the co-owners moves out of the property.
If an agreement cannot be reached the simplest solution is the extinction or the dissolution of the pro indiviso. This is done by way of a Deed of Dissolution of Joint Ownership. In this case one or more co-owner buys the shares of the other co-owner/s. It can be difficult to agree on a fair property price as the buyer/s and the seller/s may disagree on the real market price of the property, but an independent lawyer can help by working as an arbitrator to reach a satisfactory deal.
A possible alternative is to sell to a third party with each owner receiving a pro-rata share of the sale income.
However if one of the co-owners opposes the lawyer’s recommendations the only way out is court action to solve the situation. If this route is chosen the sale price will be set during a judicial ‘open descending price auction’ (Dutch auction, where the price of the property is lowered until a buyer confirms his intention to buy). After the sale price is set, if one of the co-owners matches this price he can acquire the whole property. If none of the co-owners wants to but the property the sale is awarded to the auction buyer.
Fiscal and practical considerations
From taxation point of view the dissolution of the pro indiviso by a Deed of Dissolution of Joint Ownership, is exempt of the full transfer tax (7%-8% depending of the value of the property and the local government regulations), and instead the buyer will only have to pay 1% of the whole property value. In most cases the dissolution of the pro indiviso is a better alternative, but in cases where the buyer has a small share of the property the standard sale might be a better option.
The judicial sale should be avoided wherever possible, as in general the sale price reached is often lower than the real market price.
As always, ask your Spanish lawyer if you have any questions.