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Buying Property In Spain Tips Part I. Buying Resale: Avoiding the Pitfalls
Raymundo Larraín Nesbitt - Lawbird Legal Services
31st of January 2010
Introduction
I reckon one of the best times to buy property in Spain will probably be the next couple of years. Many bargains are cropping up continuously post credit crunch as landlords struggle to remain afloat. House prices may still have further to fall as a whole but that doesn’t rule out the fact there are already interesting opportunities available in the market. Some highly qualified sources are of the opinion that property prices still remain overvalued in Spain by an average ranging between 24-55% and yet other sources hint at a silver lining claiming there´s strong empirical evidence suggesting that prices may be already bottoming out (providing you trust official statistics). As American novelist Mark Twain used to note with an acute sense of humour: "There are three kinds of lies: lies, damned lies, and statistics."
The truth probably lies somewhere in between. What people seldom remember is just how fast property prices appreciate if there is the faintest expectation of a market recovery and yet how slowly prices fall because landlords are understandably reluctant to take a hit lowering them. This asymmetry of expectations is what we are now witnessing in slow motion with property prices decreasing ever so slightly. Whatever the case may be, it is undeniable the next couple of years are going to provide plenty of one-time buying opportunities.
Having this in mind, I’ve written two brief articles on the most common blunders that ought to be avoided by foreigners on buying property in Spain.
This first article will focus on resale property and the second one on off plan (also known as new build property or new construction).
In this first article I will barely mention rural property or commercial property as I consider they merit each their own articles.
I’ve already covered the topic of rent-to-buy contracts in my prior article as an opportunity to take advantage of the current market turmoil for those who are committed on buying a BMV property.
Tips for Buying Resale Poperty In Spain
The following useful tips will help you avoid the majority of resale associated hazards:
- Hire a Qualified Registered Lawyer
This is the single most important advice you can be given. If you only happen to follow this first tip the rest of the points mentioned in this article become redundant.
I cannot stress enough the importance of retaining a Spanish lawyer, if you are a foreigner, to act on your behalf in a conveyance procedure, both on buying and selling property. It is often that I hear that those with vested interests in their being no lawyers involved, (I wonder why) are often the most outspoken on advocating that retaining a lawyer is an unnecessary expense and always put as an example Spaniards themselves.
It’s true that Spaniards, in most cases, do not retain a lawyer to act on their behalf in a conveyance albeit this can be explained for a number of reasons. Almost every Spaniard has a relative or a friend who may advise them free of charge. Besides they are fluent in their own language (!) and have ready access to legal articles and other material related to conveyance procedures which are regularly published in the press. Even so, some Spaniards still end up having problems on buying or selling because they did not want to hire a lawyer. Quite often their blunder far exceeds what a lawyer would have charged for his services (typically 1% of the property value plus 16% VAT).
I want to clarify that one can only label himself as a “Lawyer” on being both qualified and registered:
- Having passed and attained a Spanish Law degree or else by having homologated it (qualified)
- and on being admitted to practice Law at one of Spain’s Bar Associations (registered)
The second point is already inclusive of the first one, as on applying to practice Law before a Bar Association one must submit both his Law degree and his full academic record. Additionally, someone with a criminal record cannot join the Law Society. One should be very wary of those claiming to be “lawyers” and yet are not registered to practice. Quite a few of the notorious mishaps featured in the press relate to non-qualified intruders dealing in conveyance matters.
Someone who is not registered in a Bar Association cannot entertain to address themselves as “Lawyer” nor legally perform the duties and roles of one i.e. you cannot run a law firm in Spain if you are not a lawyer yourself.
Registered lawyers need to abide by the Code of Ethics of the regional Law Society to which they belong. In serious cases a lawyer can be struck off the Bar and barred to practice law.
I write the above because we have been alarmed over the last year by the increasing number of bogus “law firms” which have been set up by unscrupulous people who are neither qualified (no legal background or even holding a completely unrelated professional background i.e. Advertising Executive!) nor registered to practice as lawyers; yet they are writing and publishing legal articles on websites and weekly free newspapers posing as if they were indeed self-appointed qualified legal experts or else soliciting unlawfully clients over internet in popular ex-pat forums giving flawed legal advice and making continued far-fetched claims. As a final word of caution, do not be fooled by a company that is trading which has the word "Abogados" (lawyers, in Spanish) in its name, i.e. “Perez and Perez Abogados SL”. This means nothing. We have compiled a list of bogus law firms which is regularly updated.
Only registered lawyers have Professional Indemnity Insurance which may protect you in the event of malpractice or negligence. You can claim against said insurance in such a case. All registered lawyers are assigned a practising number by their Law Society i.e. number 6072 of Malaga’s Law Society. This number is not unique, so there can be many lawyers sharing the same number throughout Spain as they happen to belong to different regional Law Associations. The number will be unique nonetheless within the same regional Law Association. You can easily check if your lawyer is registered to practice law on this Registered Lawyer’s Database.
Bottom line; make sure your lawyer is registered to practice, for your own sake. Be wary of cold calls from legal advisors, senior legal advisors, legal executives, paralegals and in general anyone who does not clearly identify himself/herself as a lawyer (and is therefore registered). These fancy titles don't mean anything in Spain. Or you are either a registered Spanish lawyer or you are not, period. It's that simple. Someone who is not a trained registered lawyer is not qualified to give legal advice, cannot identify himself as “lawyer”, cannot solicit clients for legal services even if outsourced, nor practice law in Spain.
If the property you wish to buy is of a high value you should previously seek specific advice so as to mitigate tax exposure, namely to Spanish Inheritance Tax. Often the best tax planning results are achieved prior to purchasing the property as they often require to incorporate holding companies locking up the asset.
It is advisable to retain an independent lawyer.
You can request a list of recommended lawyers, who correspond in English, from your home country’s consulate.
- Has the Property Been Registered Properly?
It is commonplace that extensions on properties are unregistered at the land registry. You will only find out on requesting a mortgage loan when the bank either turns you down or else offers significantly less money than what you were expecting because the extensions remain unregistered i.e. a 4 bedroom villa which has only 2 bedrooms registered at the Land Registry.
This problem can be easily overcome by signing a New Build Deed at the Notary and paying the associated local tax levied by the Town Hall for the extension. This deed is then registered and the property description is amended accordingly adapting it to reality. This ought to be done by the vendor prior to the sale, unless agreed otherwise. This case is especially true of rural properties.
Other cases, such as illegal rural properties, may be fraught with legal problems i.e. the property had only been given a licence to build a small tool hut of 3x3 m2 to plough the fields and yet a villa has been built instead. Rural properties can be a legal quagmire and it is essential you retain a lawyer to act on your behalf and best advice you on the matter, from the very beginning.
In other cases, for perfectly legitimate reasons, properties remain unregistered or they lack the Title Deed (escritura). i.e. property inherited from one generation to another. There are different legal ways to overcome this minor problem: Acta de Notoriedad or else following an Expediente de Dominio.
- Is the Property Registered Under the Vendor’s Name?
This may sound as a fairly obvious point but quite often than not I’ve found out the person who had the property listed at the Estate Agency was not the registered owner. This can be explained for a number of legitimate reasons. i.e. the registered owner has passed away recently and the inheritance tax liability has not been sorted out yet. Until the Spanish IHT is not settled, the property cannot be registered, mortgaged or sold by his beneficiaries.
This will be one of the first checks that your lawyer will do. You can do it yourself requesting a nota simple at the land registry where the property is located either physically or online (you have to be registered user for the latter). Or you can just simply hire a Land Registry Search Service for a small fee.
Only the owner or someone else appointed by him acting as proxy (empowered with a Power of Attorney) can sell the property.
- Are There Charges, Encumbrances or Debts Against the Property?
Additionally the above land registry information will describe the property (size, bedrooms, boundaries etc) and reveal if there are any charges or liens against it i.e. a mortgage, a right of way or even an embargo.
However not all debts against a property are lodged at the land registry. This is an angle which your lawyer will cover as well. For example on buying a resale in a Community of Owners in Spain you will be held liable for all the debts of the previous owner in the current year in which you are buying it and also for the previous year, in other words, dating back two years. The new owner will also be held liable for unpaid utility services and local taxes. This is because these debts go against the property itself, not against the previous owner. So whoever owns the property will be held liable.
Other local taxes levied by the Town Hall where the property is located may be left outstanding by the previous owner (i.e. IBI tax and Garbage collection). These may not be lodged either at the property register.
It may be a good idea to hire Title Insurance just to play safe. There are companies offering you 20 years legal protection at very competitive prices. It’s well worth looking into.
- Are There Tenants Living in The Property?
You should be aware that in Spain laws are biased towards tenants for historical reasons. If you happen to buy a resale which, unbeknownst to you, is being let by means of a Tenancy agreement signed after the 1st of January 1995, you will be forced to respect their tenancy until it elapses to take possession of the property. In Spain long- terms are for five years although this has been slightly amended by the “Express Eviction Law” which has been passed recently. You can however reach an agreement with the tenant to leave the property beforehand in exchange of a suitable settlement. But you cannot force them on this point.
On buying a bank repossessed property you may find a tenant living inside with a long-term contract. Even lenders on repossessing properties have to respect these long-term tenants, unless they reach a settlement with them.
Moreover, these long-term tenants may be legally entitled to exercise their pre-emption and buyout rights (derecho de tanteo y retracto) in a resale as enshrined in section 25 of Spain’s Tenancy Act. Landlords must communicate to their long term tenants, prior to the sale of the property, their intention in doing so as well as the sale conditions so that tenants may exercise their right of first refusal within the next 30 days. Failure to communicate it or doing it in a flawed manner (i.e. the mentioned sales price is in fact higher) will trigger their buyout right. It will then be up to the tenant on whether to exercise it or not.
The main problem is that regrettably in Spain there is no Tenant’s Public Registry that you can check on, so you are always taking a gamble on buying a resale. Seldom are long term tenancies registered at the Land Registry. There is however a private website that offers this service: FIM. Your lawyer can of course draft specific clauses both in the Private Purchase Contract (PPC) as well as in the Title Deed to protect you against this and other unforeseen events i.e. squatters. This may be yet another good reason to hire Title Insurance.
- Knowing Your Owner’s Rights
If you are buying in a Spanish Community of Owners, Comunidad de Propietarios, it is advisable you request beforehand both the Community Statutes and the Internal Community Rules (the latter being optional, do not always exist) to avoid future problems with your neighbours. i.e. Internal Community Rules that ban tenants from using the community pool. This internal rule can be particularly troublesome for those landlords who bought with a view to let not to mention that it can be challenged.
Additionally, depending on which of Spain’s 17 regions the property you are buying is located in, besides being protected by the General Legal Consumer Embodiment which rules nationwide, you are also protected by specific Regional Consumer Laws. An example of the latter would be Decree 218/2005 which rules on Consumer’s Rights on buying and letting property exclusively for the region of Andalucía. These regional laws compliment national laws adding security and rights to consumers at large.
- You Do Have a NIE Number, Right?
A NIE number is a Tax Identification Number for foreigners enabling you to file and pay taxes into the Spanish Tax office. It will be required, for example, on buying and selling property, on inheriting assets in Spain, on opening a bank account, on buying a car, etc.
You cannot complete on a property in Spain without one, either on buying or selling, as the Notary will disallow it. You can easily arrange a NIE Number through us in less than 2 weeks removing all the associated hassle and stress of applying for it yourself. This can be arranged without you needing to book a flight and fly over to Spain twice, saving you hundreds of pounds in the process. Not to mention making those awful queues at 7 am before a Police Station!
- Post-Completion: Make Sure the Property Is Now Registered Under Your Name
Once you’ve completed (or closed) on the property ensure it has been registered properly under your name. This process takes on average 30-60 days after completion. If you applied for a mortgage loan and your lender is the one dealing with registering the property, expect at least a delay of six months -if not more- until you are returned the original Title Deed. Banks always withhold the original Mortgage Deed for their records and will give you only an authorised copy. Once the property has been duly registered you can request the original Title Deed for your safekeeping.
- Post-Completion: Dealing with Property Taxes, Utilities and Community Fees.
Once you have acquired your new property, you will now have to face all the associated running expenses. Make sure you have budgeted this carefully so as to avoid unpleasant surprises! Some of the luxury gated communities with lush tropical gardens and beautiful infinity pools that dot the Spanish coastlines may have pretty steep maintenance expenses. Any unpaid community bills will result in the Community of Owners placing a charge against your property which may lead to auctioning it off publicly to recoup the debt! This legal procedure in Spain works fairly efficiently.
You should open a Spanish bank account if you haven’t done so already. Utility companies do not accept overseas payments and like setting invoices as standing orders against your Spanish account. You should set at least as standing orders all the following:
- IBI tax. Paid once a year (akin to UK’s Council tax).
- Garbage collection. Paid twice or once a year depending on the Town Hall.
- Utility bills (invoiced quarterly in the case of water and monthly with electricity)
- Community Fees (only if you’ve purchased in a Commonhold). Usually quarterly but can vary.
You are also liable to file Income tax on holding property in Spain every year for which you may need to appoint Fiscal Representation.
I cannot stress enough how advisable it is that you make a Spanish will to dispose of your Spanish estate. This will not preclude any other made in your home country. It will save your beneficiaries time, money and hassle.
In Conclusion
Despite the negative press the Spanish Property Market has endured abroad over the last years, specifically off-plan, the fact is that the vast majority of dozens of thousands of buyers who purchase property in Spain every year experience no problems and enjoy a straightforward transaction. In any case, if unsure, you can always sign a rent-to-buy contract to test the waters.
That is not to say there are no problems, far from it. There’s a lot of room left for improvement enforcing existing laws (i.e. Law 57/68 regarding bank guarantees comes to mind). Moreover, both the Spanish Government and the Regional Authorities are continuously working hard to pass on new laws that will address the system’s flaws (i.e. Law 13/2009) and better protect Consumer’s Rights enabling smoother conveyance procedures in a Safe Buying Environment.
Please note the information provided in this article is of general interest only and is not to be construed or intended as substitute for professional legal advice.
Related articles:
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Lawbird Legal Services is a law firm with broad experience in Litigation, Corporate and Spanish Property Law.
Discuss this Article
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Nicholas Says:
Thu, Apr 8th 2010, 21:39
I am a property owner in spain , since january 2008, I was paying 756 euros every months, Now is not easy with me i call my bank asking them that i am give the house for rent for 400euros the bank has me to go ahead, yet they still ask me to come to court, can i have an advise from you sir?
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Lawbird Lawyer Says:
Fri, Apr 9th 2010, 08:13
Dear Sir,
Can you please expand more on your query.
Are you asking us advice on being repossessed in Spain?
Yours faithfully,
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Lawrence Coppen Says:
Mon, Jul 12th 2010, 15:21
My bank has repossessed my spanish property for non payment of mortgages without notifing me can they do this.
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Lawbird Lawyer Says:
Mon, Jul 26th 2010, 10:08
Dear Mr Coppen
No they cannot.
A Spanish lender will have notified you legally by recorded delivery only to the Spanish address which has the mortgage against it. Failing that through the law courts.
Even if they have your UK address and they mail you regularly overseas at no time will they notify you legally of the start of repossession proceedings other than the Spanish address.
Yours sincerely
Raymundo Larraín Nesbitt
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daniel robinson Says:
Sun, Mar 13th 2011, 14:11
we entered into a sale purchase contract on the 4th Sept with paying a 10% deposit totalling 9500 euros for a property in torrevieja. It clearly states the sale will take place before the 30th Nov 2010.
It is now nearly mid marcmajorityh 2011 and we are no further on, we keep getting fobbed off and would like to pull out. what are our rights?
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