Spanish property buying process: Legal checks
To analyse the process for safely buying property in Spain it is useful to divide the subject as follows:
- Legal Checks to be made on the Property.
- Preliminary Agreement.
- Final Agreement (Escritura).
- New Properties.
Legal Checks to be made on the Property
In any property transaction a number of legal checks need to be made to ensure that there are no impediments to the property being transferred. In effect the legal checks can be summarised as follows:
- Make sure the property is owned by the seller.
Sounds basic but needs to be done. You wouldn’t be the first foreigner to be hoodwinked in this manner.
The details of the owner of any property appear on the ‘nota simple’ a short hand document that can be obtained from the Land Registry in the local Town Hall.
- Make sure there are no debts or other ‘encumbrances’ on the property.
Unlike the UK and Ireland any mortgage or other charge on the property is deemed to be the responsibility of the owner of the property under Spanish Law.
So if you were sufficiently poorly advised to buy a magnificent property at a bargain basement price you may find out why later when the creditors turn up on your doorstep.
Any current charge on the property must be stipulated in the deeds relating to the property and so as long as you check the deeds in the local registry the existence of any charge should become apparent. It should also be a standard clause on the contract for purchase that such charges be extinguished upon the passing of the title.
- Ensure there are no tenants living in the property at the time of purchase.
Under Spanish law a sitting tenant not only may remain in the property for a maximum of five years from the granting of the lease but also has first right to any purchase so it is important to make sure that this is not an issue.
The presence or otherwise of sitting tenants is perfectly obvious but should be noticeable from the free and unfettered use by the owner of the property i.e. entering as and when desired without problems.
Every situation is unique and there are a number of other important checks that should be made depending on the type of property i.e. , land as opposed to property, commercial etc., the nature of the sellers i.e. resident or non-resident, buyers i.e. as private individuals or as a legal company etc and indeed more checks are discussed under other headings in this section.
However, in general, upon determining the facts of each situation it is the responsibility of the professional advising the purchaser to employ the searches that are necessary in each given situation.
Assuming that all the checks determine that the property is as stated and can be purchased safely, the purchaser may well need some time to get together the funds necessary to complete the purchase.
The Spanish property buying process provides for this by use of a preliminary or deposit contract. Effectively this is a ‘contract to contract’ and stipulated that by termination of a stated future date, the property will have passed from the seller to the purchaser. All details regarding the property, the buyer, seller, date by which completion of the sale must be carried out should be contained in the contract.
Should either side fail to complete, there are penalties. The buyer will forfeit the deposit (typically 10% of the sale value) and the seller twice that amount.
Final Contract (Escritura)
The final contract or Escritura as it is known in Spanish is when title of the property passes and the buyer’s new title may be registered in the local Spanish registry. The signing takes place in the office of the ‘public notary’. There is no direct equivalent of a notary in English law but it is effectively a type of official registrar who must witness the contract signing in order for it to be legally binding.
On the day of the signing all interested parties meet in the office of the notary. This would include a representative of the bank if a mortgage is required.
The deed is read aloud by the notary and the parties then present their identification after which the deeds are signed by the vendor, the purchaser and the notary. At this point the monies for the purchase are handed over in the form of a bank-guaranteed cheque.
If, rather than being a second hand property, the property is completely new and built as part of a complex of apartments or houses, the process changes slightly and is therefore dealt with separately.
Legal Checks to be made on new Property
One of the major differences with a new property built as a part of a complex of residences is a direct result of the scandals involving illegal zoning of lands for building by corrupt officials and developers.
Typically the purchaser is on safe ground where the land on which the complex is built has been classified for residential use and the developer has planning permission for building the development, as stated in the ‘approved technical project’.
So in making checks before purchasing a property in a new development the prudent purchaser will check on both these matters.
Contracts and Payment
If the complex is only at the starting phase and is not yet built it is normal to sign a preliminary contract and pay a deposit then, as the development proceeds pay up to 30% (or more) in stages. Checks should be made that such payments are guaranteed by a bank in case the development is not completed.
Regarding the preliminary contract, it is here where all of the obligations on the part of the builder are laid out and where it is important to make sure that you are protected from issues such as lack of planning permission, land use, bank guarantees.
Upon completion, as with second-hand property it is necessary to sign the deeds of sale and pass ownership. At this point the purchaser should be careful to ensure that the local council has granted the complex First Occupation Licence and that the development has been certified as completed. Without both of these, the property is not legally built and could be subject to a demolition order at some point in the future.