PROPERTY LAW: BUYING A PROPERTY IN SPAIN

1. First contact: Estate Agents (Always register with an API estate agent in Spain. API agents are accredited by the Official College).

The majority of property buyers in Spain do so through an Estate Agent. A buyer ought to be extremely cautious when appointing one. Regardless of whether they have a large or small portfolio, it is extremely important that they are serious when handling monies. A small estate agent may have a few excellent properties available for sale and follow the few legalities imposed, directly or indirectly, by the laws and regulations of the trade. A large estate agent can claim to have thousands of properties in their books and be totally unaware of the minimum requirements for the protection of a prospective purchaser.

Estate agents are not lawyers, nor do they intend to be. For this reason they should refrain from giving legal advice inasmuch as lawyers do not sell properties.

However, registered estate agents are obliged by the regulations of the trade to check the situation of the properties they sell. But does this really happen? Buying property is serious enough to merit the intervention of a qualified professional other than an estate agent with basic knowledge of the laws. There are excellent estate agents, licensed and not licensed, in Spain, who do what they know best: sell properties with professionalism. But an estate agent undertaking the burden of the conveyancing procedure can result in disaster. Buyers are strongly recommended to employ the services of a lawyer.

A lawyer will provide the legal guarantees for the purchase of the property ensuring that Spanish legal requirements are met and that the property is bought free of encumbrances, charges, liens or debts and up to date in all of its payments of local contributions and community charges.

2. Formalizing an offer

It is recommended that a lawyer is engaged before an offer is made. The fact that an offer accepted by the seller is binding as any other contract makes the intervention of a lawyer appropriate at that time in order that the terms and conditions of the offer are correct and favorable to the buyer. The lawyer will also help the buyer find out what the ongoing taxes are on the property if the estate agent fails to do so.

Once the terms of the purchase-sale have been discussed, and offer is submitted to the estate agent who in turn will inform the seller of the details of the offer. If the seller accepts the offer, a binding agreement is born. It is normal practice in Spain to include with the offer a sum of money to reserve the property prior to the exchange of contracts, in order to show the seller that there is real intention to purchase.

3. Exchange of private purchase contracts

If the legal representations of both parties deem necessary the exchange of private of private purchase contracts, this is verified against payment of normally a 10% of the purchase price. This document sets out the agreed terms and conditions of the transaction and sets out the date for the final completion before the Notary Public.

After the reservation deposit has been lodged with the estate agent and prior to the signing of the private purchase contract, the appointed lawyer will have completed the legal searches and investigations of the property.

Any debt or charge attached to the property will be reflected in the private purchase document. These will have to be cancelled prior to completion. If not, the buyer will be entitled to either withdraw from the proposed deal and claim damages or deduct the amount of the debt together with the cancellation costs, if any.

4. Completion

The purchase is formally completed when the public title deeds of the purchase-sale are signed before a Notary Public, the agreed payment of the price paid and the possession given to the buyer. Unless agreed otherwise, the public deed always stipulates that the property is sold free from charges and encumbrances, up to date in all the different payments and free from tenants and occupants.

Four or five days after completion, the deed is collected from the Notary's office. With the original deed, all the relevant transfer taxes are paid in the different tax offices and eventually the deed is taken to the land registry in order to procure formal registration of the title to the property. Registration is not mandatory, although highly recommendable.

Similarly, the lawyer will arrange for the transfer of accounts with the local suppliers of utility services and organize a direct debit on a current account of a local bank.

Depending on the Land Registry of the area, registration may take place from 15 days to 13 months. The land Registry will then give notice to the lawyer that the registration has been completed and the deeds are available for collection. Land Registry fees are paid then.

During the interval the purchaser can have a copy of the records by requesting from the Notary Public a 'copia simple'. The lawyer will need a couple of copies in order to complete all the legal formalities.

Purchase costs

· Taxes

Before a title deed can be registered into a new owner's name, or a deed issued for a newly completed building, transfer tax has to be paid by the buyer. It can come in two variants: Transfer Tax (ITP) at 7%, or Value Added Tax (IVA) at 8% plus Stamp Duty (AJD) at 0.5% when buying from a developer or promoter. These two taxes are calculated on the declared purchase price of the title deeds.

Also, the local municipalities charge a tax on the increase of the value of the land since the previous sale. It is not based on the seller's capital gains tax but on a number of calculations and values set by the Town Halls. This tax is called 'Plusvalia', and according to the law it is the seller's responsibility, although it is commonly stipulated in the contract that the buyer pays it. It is a point which will be negotiated between buyer and seller.

· Fees

Notary Fees: The scale is fixed by the law and is lower for lower priced properties and higher for higher priced properties.

Land Registry Fees: The scale is also fixed by law and are between 30% lower than the Notary fees.

Legal fees: Normally charged at 1% of the purchase value increased by VAT currently charged for legal services at 18%.