Keys to succeed when conveyancing in Spain

B uying a property overseas is no easy business; language barriers, different market practices, regulation unawareness and many more to be taken into account.

For those interested we have created a guide for conveyancing in Spain in which we walk you through the process, paying special attention to the pitfalls and answering some of the most frequently asked questions by those who have already been down that road.

This guide has been written following the arrangements of a standard conveyancing operation, although these are not universal. Conveyancing has many forms and shapes, but what you will read in the following lines is what, in our long experience, you can expect when buying a property in Spain.

Let’s begin with some basic questions about conveyancing:

1. Property selection (new/off-plan vs. second hand)

2. Visits to the property

3. Reservation document

4. Presale agreement (Contrato de Arras) signing and down payment

5. Due diligence

6. Taxes and Costs

7. Closing

Both types of properties offer advantages and disadvantages which can be seen in the following charts:

NEW/OFF-PLAN

SECOND-HAND

∧ Back to steps ∧

Before deciding on a property it is essential to carry out an in-depth analysis of all its elements.

It is important to check the walls for cracks, dampness in the ceilings, water tightness of windows and doors to outside spaces, condition of bathrooms and kitchens, floors, etc.

Also make sure, in the case that we are interested in a property located in a building, that the common elements are in good condition (stairs, entrance, exterior facade, lift, etc.) since when becoming new owners we will assume the ownership of a quota of the common elements of the building and therefore the cost of a possible repair will be divided in a pro-rata.

NOTE : In case the property offers us doubts we can hire the services of an architect to accompany in the visit and inspection informing in the case that there is any damage of special relevance that we had not observed.

When buying a second-hand property, the seller will be liable before the buyer for 6 months for any flaws undetected. In the case that the flaws could have been witnessed by the buyer, claiming them would become more difficult, that is why it is advisable to do an in-depth inspection of the elements in the property during the first visits.

In new or off-plan purchases the warranty to the buyer is greater than for second-hand properties, plus the building will be delivered as agreed between the parts with a construction specs detail.

∧ Back to steps ∧

In most of the cases, except where negotiating directly with the seller, there will be a real estate agent dealing in the transaction.

Common practice, whenever we pick a property in which we are interested, is delivering a small sum of money to the estate agent as a reservation. This in Spanish is called Reserva and is used to confirm the buyer’s interest in the property and also to take the property out of the market, at least for some time while the parties negotiate the next steps.

A few considerations to bear in mind when giving a reservation:

• The reservation is a symbolic amount of money given to the agent to show our interest in the property, to take the property out of the selling market and stop the visits;
• The reservation is usually no more than 3,000.-€ on account of the final price in all cases. It is unadvised to deliver more money than that;
• At this point it is essential to make sure that whoever is receiving the money is a registered estate agent authorised by the seller to deal in the transaction to avoid scams;
• Upon delivery of the money, the estate agent will provide a signed reservation document confirming the reception of the amounts delivered. This document is signed by the estate agent, never by the potential buyer;
• If for any reason we decide to step back from the negotiation, the estate agent should reimburse the amounts delivered;
• The reservation document binds the estate agent but not the buyer.

∧ Back to steps ∧

Once the visits have been made, checked the property condition, agreed on the price and terms of the sale it is time for the crucial moment of signing the presales agreement aka contrato de arras and deliver the down payment.

This deserves some explanatory lines:

• The contrato de arras is called like this because it implies delivering an amount of money as a down payment. This down payment is what the article 1.454 of the Spanish Civil Code call arras.
• The Spanish Civil Code allows the parties to step back from the contract once the contrato de arras has been signed and the amounts delivered.

Should the buyer choose to retreat from the purchase it will lose the amounts delivered.

Should the seller choose not to sell it will be forced to return to the buyer the amount of the arras doubled.

This is called arras penitenciales by the doctrine of the Spanish Supreme Court.

• The Spanish Supreme Court admits the existence of another type of down payment, also called arras, in which neither of the parties is allowed to step back from the agreement.

This is called arras confirmatorias and forces the parties to sell and buy with no options of retreating unilaterally.

The wording of the agreement is therefore extremely sensitive.

• Signing a contrato de arras is not mandatory in all cases. If the parties have agreed on the price and the conditions of the sale they can go directly to the closing stage.
• The contrato de arras must be closely related to the due diligence carried out by the buyer and it should contain provisions in case that the information reveals information against the interests of the purchaser.
• A maximum term to close the transaction will be agreed in the contract during which the parties will get ready to complete it by obtaining the NIE number, opening a bank account in Spain, bring the money from overseas, etc.
• Part of the contrato de arras is regulating who is paying what in the operating expenses payout.
• The agreement is signed between the buyer and the seller, the estate agent does not intervene in this act.
• It is advisable that whoever is drafting the contrato de arras is the purchaser’s solicitor.
• If a mortgage is needed to finance the purchase we must make sure that it will be accepted by the bank before entering the agreement.

Following the above mentioned, the contrato de arras is a key element in the transaction and must be drafted with sight focusing on the due diligence and potential pitfalls. The conditions agreed by the parties in this act will govern the relationship until the end.

Concerning the down payment, common market practice is that the purchaser will deliver 10% of the total value of the property upon signature of the contrato de arras. This payment is made on account of the final price and never before the signature of the agreement.

 NOTE: In the case of a new or off-plan purchase, there is no contrato de arras to be signed but a purchase agreement that, once the property is finished, will be signed before a notary public jumping directly onto the closing.

∧ Back to steps ∧

The due diligence is the process where the solicitors audit the property from all possible perspectives to disclose any information that can be potentially harmful to the purchaser’s interests. This process will provide the guarantees that the property is up to the buyer’s expectations and free of contingencies.

Ideally, the due diligence would be completed before signing the contrato de arras, however, in most cases, this is not possible due to a shortage of time. In those circumstances, the presale agreement will contemplate that the purchase is linked to the information shed by the due diligence, which would entitle the buyer to step down from the purchase or to opt for a reduction in the price if unforeseen contingencies arise.

Every due diligence should at least review the following matters:

• Who are the property owners and whether they are entitled to transfer the property;
• The public information contained in the land registry and whether it coincides with the physical situation of the property;
• The existence of encumbrances (mortgages, easements, reservations, seizures, etc.);
• The physical condition of the property;
• Existence of leases and third parties pre-emption rights;
• Good standing certificates of real estate taxes and contributions due;
• By-laws and minutes of the building owner’s meetings;
• Water, electricity and other utility contracts.

∧ Back to steps ∧

Real estate purchases are generally subject to transfer tax Impuesto de Transmisiones Patrimoniales (ITP) when the property is a second-hand or VAT tax Impuesto del Valor Añadido (IVA) and stamp duty tax Actos Jurídicos Documentados (AJD) in the case of a new constructed/off-plan property.

Note that this tax guide applies for individuals purchasing a property for residential purposes. Companies and corporate entities buying properties for non-residential/commercial purposes are subject to different tax regimes. Contact us for further information.

Other expenses one must take into account when buying a property in Spain are notary and land registry fees and expenses:

Notary fees are fixed by the government and are calculated based on the purchase price amongst other factors. Notary costs tend to be around 600-800 euros.

Land registry fees are likewise fixed by the government and calculated according to the purchase price. Land registry costs tend to be approximately 500.-€.

∧ Back to steps ∧

The closing is the ending stage of the process in which the purchase is completed. Property purchases must be signed before a Spanish notary public otherwise we will not be able to register the ownership change in the land registry.

Market practice says that the buyer is entitled to choose a notary of its interest. Therefore when the agreed term in the contrato de arras is about to reach the buyer shall notify the vendor in written form with the date and name of the notary where the signing shall take place.

At this stage, the signing before the notary should be a mere formality due to all the work and the due diligence process carried out previously.

There are still some factors that must be considered:

• Failing to show up on the agreed date before the notary public will be considered a breach in the contract and can make the buyer lost the amounts delivered.
• The remaining balance must be delivered to the vendor in this act; this is normally done either via bank check or bank of Spain wire transfer. In both cases, the buyer must have a bank account opened in Spain and the remaining balance sitting in the account with some advance to either draft the checks or do the transfers.
• Banking money laundering policies might freeze wire transfers from overseas for a few hours/days until the origin of the funds is certified. It is crucial bearing this in mind when planning on sending the money to Spain to avoid last-minute surprises.

On a final note, it is worth mentioning that the taxes, as well as the expenses and fees (notary and land registry), can be paid at a later stage.

∧ Back to top∧