Purchase of Real Estate in Spain

– What legal guarantees should I get from the developer of a property under construction?

Mainly two. On one hand, the developer is required to contract a liability insurance for structural damage that covers a period of ten years from completion of the works. In addition, the developer must guarantee the amounts paid in advance for the purchase of properties under construction by means of a bank guarantee in favour of the purchaser or an insurance policy. The insurance policy or the bank guarantee covers the eventuality that the house is not completed within the stipulated period.

– ¿Do I need to enter into a private contract before signing the purchase title deed?

There is no obligation, but it is very advisable to do so in order to fix in writing the conditions of the agreement (price, payment schedule, expenses, etc.) and ensure that they do not vary before the signing of the deed.

– Do I have to attend the signing of the private contract and the title deed?

No. In fact, it is common practice that clients grant power of attorney to their lawyers to entitle them to sign the documents in their name and right.

– How can I grant a Power of Attorney in favour of my lawyer?

You can sign a power of attorney before any Notary Public in Spain, at any Spanish Consulate abroad or before a Notary Public in your home country. In the latter case, it must be translated into Spanish by a sworn translator and legalized with the Apostille of the Hague Convention.

– What documentation do I need to provide my lawyer with to meet his obligations relating to the control of money laundering?

Such that gives evidence that you have the financial capacity to invest the amount you intend to invest and that certifies the legal origin of the funds, such as tax returns, official reports from your accountant or auditor, payrolls, inheritance documents or deeds of sale of properties.

– ¿Can the use of commercial premises be changed to convert them into residential property?

Yes, but only where the bylaws of the Community of Owners and the horizontal division deed do not forbid it expressly and such a change does not affect common elements. Furthermore, it is required that the relevant Town Council approves in advance the modification.

– Can I settle the acquisition of a property with another property and some cash?

Yes. That is known as “permuta” (exchange). However, for tax purposes this is considered a double sale and therefore both parties are obliged to pay Transfer Tax.

– Can I sell a storage or a garage that I do not use and keep in my name the apartment I bought with them in the same building?

Yes, but only if the storage or garage appears in the Land Registry as an independent property. They cannot be sold separately if these elements are attached to the apartment and thus integrated in the same registered property.

– What is a VPO (Vivienda de Protección Oficial)?

It is a home for which tax benefits are awarded both to developer and final purchaser in exchange for a number of limitations on usage, transmission, selling price, etc. VPO are usually priced below market and aimed to facilitate access to housing for people with a limited financial capacity. Therefore, the legal conditions imposed on the purchase do not make this kind of properties interesting if investment is the main purpose.

– The surface area of the property I want to purchase does not match the square metres stated in the Land Registry extracts. Is it something I should worry about?

It is important that the real surface matches the actual area recorded in the Property Register. Sometimes, alterations or additions made to the original property are not reported through a public deed and therefore are not accordingly incorporated into the Land Registry. In these cases, it is desirable that the property owner rectifies this situation prior to the sale by legalizing the actions that have led to changes in the property built area.

– Can I use my own money to buy a property to my children?

The problem is that the Spanish Inland Revenue may consider that there has been a gift, that is, you have given your children the necessary funds to purchase the property. Therefore you will be taxed separately for each transaction, first, for the donation and then, for the purchase, which will incur enormous expenses.

Due to the control policies on investment and the obligation to certify the payment methods and the source of funds, it is often difficult to pretend that the invested funds belong to the children, especially when by their age or personal circumstances they do not establish any income, or the one they prove is insufficient.

– ¿What is “renta vitalicia”?

It is a contract by which the owner of a property transfers its legal ownership, but retains the usufruct (right of use and enjoyment) in exchange for an initial payment and a monthly income while he/she lives. Upon the death of the usufructuary, the owner acquires the full ownership and the obligation to pay the rent ceases.

– Where the private purchase contract has been signed, is there any room for gazumping?

No. In Spain the contracts are binding to the parties. The seller cannot change the price after the private agreement has been signed.

– ¿What is a complementary tax assessment?

When the Administration believes that a self-assessment tax has been calculated taking as reference a value below the official value they will issue a receipt for the difference between the amount paid and the correct tax amount. That receipt is what is known as complementary tax assessment.

– Do I need to apply for a permit to carry out renovation or reform works in my home?

Yes. According to the characteristics of the project, permits will be for major works (enlargement of surface area, plant or housing height, modification of structural elements, comprehensive reforms, etc..) or minor works (partial reforms, changes in bathroom or kitchen, rearrangement of partitions or walls, etc.). The requirements for obtaining a building permit and the time it takes to be obtained vary in each case.

– If I buy a property from a person of my same nationality, could I pay the price directly in my country using my currency?

Yes. However please note that it is compulsory to justify in the title deed all payment means used to settle the price, and therefore you are bound to produce to the notary a copy of all drafts, transfer orders, cheques, etc, that have been exchanged matching exactly the price reflected in the deeds. On the other hand, it would hardly ever be possible to pay the full price abroad as in most cases you will have to withhold funds to the vendor in order to settle taxes, cancel existing mortgages or pay outstanding debts on the property.

– Could I save taxes if, instead of buying a property, I buy the shares of a company that owns it?

No. According to the new wording of Article 108 of the Securities Market Law, the transfer of shares of a company that owns property will be considered a transfer of the property, if it is estimated that the intention is to avoid paying VAT or Transfer Tax. It shall be considered that a real covert transmission has been made where you gain control of a company which at least 50% of their assets is made up of properties located in Spain and that are not assigned to business or professional activities.

– My house belongs to a community of owners. Does my insurance policy need to cover damage to the property or simply secure the contents?

Yes, it is necessary to ensure not only the contents but also the property itself. Community insurance covers damage to the building and common elements, but not accidents or damage inside homes that have their origin in them, nor the damage caused to third party owners.

– If I do not use communal facilities (pool, tennis courts, etc..), could I request to reduce my maintenance fee?

No. Community fees are calculated according to the share coefficient assigned to each property and related to the building and common elements and depends, in most cases, on the square metres of the property. Community fees are not related to the use of common elements.