Buying property in Spain, especially on the coast, is an attractive investment for many foreigners due to the good climate, quality of life, and tranquility, among other aspects. However, it is essential to know that the buying and selling process has different legal particularities compared to countries such as Germany and the Netherlands, and in order to buy with legal certainty, you need to be aware of them. In this article, we will analyze these particularities in detail.
1.The reservation agreement and its role in the sale
The reservation agreement is a document signed before the purchase and sale between the buyer and the seller, whereby the buyer gives the vendor a sum of money as proof of their willingness to sign the sale.
In Spain, it is usual to give the buyer time to take certain steps before the purchase and sale, such as:
- Applying for financing.
- Requesting a legal study about the property.
This contract contains important obligations for the buyer, so it is essential that it is reviewed by a lawyer who is familiar with Spanish regulations and who drafts the clauses to protect the buyer’s rights.
2. Due diligence: legal and urban planning investigation of the property
To ensure legal certainty in the purchase and sale, it is essential to carry out a preliminary study. The most common practice is to request information such as the following:
- Simple Note from the Land Registry. This is a document that can be requested online or in person and provides information on who owns the property, what encumbrances it has, and its surface area.
- Urban planning certificate. This is a document that allows us to know the uses of the property or if there are any limitations affecting the construction.
- First occupancy licenses. This is a document issued by local Town Halls once the construction of a building or house has been completed, verifying that it has been carried out in accordance with the approved project.
- Certificate of no debt with the owner community. This is a document issued by the owner community where the property is located, certifying that there are no outstanding amounts payable for community expenses.
- Mortgage certificate. If the property has a mortgage, several things can happen:
- It may be fully paid off. In this case, it needs to be canceled in the Land Registry, and to do so, the seller must request a zero debt certificate from the bank, grant a mortgage cancellation deed, and register it in the Land Registry.
- Part of it remains to be paid. In this case, the mortgage can be canceled by the seller before the sale or, with the bank’s authorization, the buyer could take over the mortgage.
It is essential to carry out this analysis and to have it done by a real estate lawyer who understands the scope of all these documents and who can inform the buyer of any potential risks that may arise.
3. The private purchase agreement and the notarial deed
Another step that is usually taken in the process of buying a propery in Spain is to sign a private purchase agreement before the notary deed is signed. This intermediate step is usually taken when signing a purchase agreement for a property that is still under construction.
In these cases, the steps are as follows:
– Signing of the reservation or deposit contract.
– Signing of the private purchase and sales contract
– Signing of the public deed of purchase and sale before a notary.
All these documents must contain the agreements reached between the buyer and the seller and be consistent so that no errors are made that could pose a risk. A lawyer can draft, review, and modify them to provide legal certainty.
4. Property registration and tax obligations for foreign buyers
In Spain, the deed of purchase and sale is registered in the Land Registry for the information to become public and accessible. This step is essential, as the information in the registry is public and can be consulted by any interested party.
In order to register the purchase and sale in the Land Registry, it is necessary to present the deed and provide proof of payment of the taxes. Once the Registrar has verified that everything is in order, they will proceed to register the purchase and sale so that the property will appear in the buyer’s name.
As a foreign buyer, you will also have to fullfill e a number of tax obligations, including the following:
- Obtaining a Tax Identification Number for Foreigners (NIE), which will be your tax identification number for purchasing property.
- Non-Resident Income Tax (IRNR). This will affect you if you purchase property in Spain.
- Value Added Tax (VAT) or Property Transfer Tax (ITP). Which one you pay will depend on whether you are buying a new or second-hand property.
- Stamp Duty (AJD). This applies if you are buying a new property.
- Once you have purchased the property, you will be responsible for paying Property Tax (IBI) and other local taxes, such as the urban waste tax.
- You may also have to pay Wealth Tax, if applicable.
Knowing and understanding all these steps, as well as having legal expert advice on the sale and purchase of property in Spain, will help you reduce or eliminate risks and optimize your time and money, but above all, it will give you peace of mind.
Contact our team of real estate lawyers if you would like us to accompany and advise you throughout the purchase process.
