Semi Detached Houses Las Gaviotas, Luxury Villa in Marbella

Sale and purchase of Residential Properties

For the purchase of a property in Spain we recommend you to receive advice from a professional, as a Solicitor, or a Tax Consultant, who will be able to propose the best solution to your case. We can gladly recommend to you some law firms of renowned prestige.
Nevertheless, here we have included a summary of the most important points to have in mind on having decided to carry out the purchase of a property in Spain. This information has been taken out of an article published in the magazine " International Balms Group Law Magazine N. 1"

I. CONTRACTS

A “contract” is a bilateral transaction, a voluntary legal act, entered into by the parties which gives rise to certain obligations. Although the Spanish Civil Code (CC) states the principle of Freedom of Form (articles 1255 and 1278 of Spanish CC), there are some restrictions imposed by law, ethics and public requirements.

1.1. Letter of intent:
The first phase of a binding legal relationship starts with a Letter of Intent, whose form maybe as follows:
a) Promise of Sale: This is different from a bilateral contract in which both parties are liable and entitled to enforce the contract, the contract of promise to sell (art. 1254 of Spanish CC); and the unilateral Letter of Intent known as the Option Contract to Purchase.

b) Contract with Option to Purchase: This is the most common Letter of Intent. The seller empowers the potential buyer, against payment of a premium, to decide whether or not to enter into the main contract i.e. to sign the deed of sale contract, to be made on a fixed date and under certain circumstances. The most important requirements are:
- The object of the option: the property description.
- The price.
- The amount of the Option premium: usually the payment of 10% of the fixed value payable when signing the option.
- The date of completion (art. 14 of the Mortgage Rules). Thus requirement allows the registration of the contract with option to purchase in the Land Registry.

c) a)Good-faith deposit. An amount of money given on account of the final price so that both parties confirm their intent; one party of buying, and the other party, of selling. If the document states that it is a good-faith deposit, the money is included in the final price. From this moment on, both parties can demand completion of the contract. Actually, the good-faith deposit becomes a real Contract of Sale from the moment in which both parties sign up.

d) a)Earnest money (arras). Earnest money, also known as a deposit, is an amount of money given to the seller by the buyer. If the buyer defaults, the seller keeps it and if the seller defaults, he has to refund double the amount to the buyer (art. 1454 CC). It is necessary to specify in the agreement that it is being regarded as earnest money, as otherwise, it is considered to be a good-faith deposit (paga y señal).

1.2. Contract of Sale:
The Contract of Sale belongs to the group of contracts for the transfer of ownership, but the sale does not cause the transmission of the sold property rather the obligation to transmit it: a contract of transfer to ownership, of obligatory type.
The primary requirements of the sale contract are (art. 1261 CC):
a) The contracting parties (buyer and seller) commit themselves to sell and acquire the property and the price.
b) The property (that is, the object of the contract) must be defined or definable.
c) The price is a fixed or determinable amount of money: that is “a specific price”
d) The principle of Freedom of Form is applied provided that both parties will be able to grant the public deed of sale.
The contract of sale may be a private contract between the parties, which is binding and valid for them. It is most important to note that the contract “must be converted into a public deed”,that is, a notarised document so that the Contract of Sale may be registered in the Land Registry.

1.3. Public Deed of Sale:
The essential and basic obligation of the seller is to delivery of the object of the contract of sale (art. 1462 CC).
This may be a material or physical delivery the property or by means of a fictional delivery brought about when signing the public Deed of Sale: “… the public deed, is the transmisión of the legal title to the buyer…” (STS 12.6.2003, A.C.621/2003).
The public Deed of Sale consists of the following:
a) Introduction:
- protocol number
- date and place
- details of the Notary
- details of the contracting parties
- details of the representatives, if appropriate
b) Statement:
- description of the sold property and record details
- state of the encumbrances and burdens
- registered information
c) Terms and conditions:
- the price
- the method of payment
- the payment status of the community charges
 payment of charges and taxes
d) Proof of knowledge and delivery by the parties
e) Attestation by a Notary Public
Upon signing of the public Deed of Sale, the following documents must be presented:
a) A certified copy of the passport/identification number card of the parties and/or their representatives and the relevant deed of empowerment
b) In case of a new construction building: first occupancy permit and the certificate of connection of electricity and water
c) Proof of payment of the property and refuse taxes
d) Certificate of the owners’ association confirming that there are no debts outstanding
e) a)Proof of payment of the various supplies. Upon request of the parties involved and once the public deed is signed, the Notary Public makes an entry in the Day Book at the Land Registry as a proof of the transfer of ownership.

II. PRELIMINARY INVESTIGATIONS

Whether it is a town plot, a house or a commercial site, for each there exist a separate registration of land in the Land Registry, where each public deed of sale is registered and relevant title information is recorded (art. 1 LH). The registration of the owner of a property in the Land Registry protects the third party acquiring under the principle of “Bona fide” from possible claims made by any other buyers who are not registered in the Land Registry.

2.1 Documentary review of the legal status of the building.
The most important document is the certificate of ownership and encumbrances of the Land Registry. This certificate comes from the construction of the finished property, without any charges or restrictions and it must state that the seller is the real owner of the property. Should the certificate have been requested several days prior to the signing of the contract, it is advisable to apply for a certificate of registration of a“constant informative” nature. In this case, the Registrar will submit, within 30 days, to the address given, information about any alteration affecting the property (new charges or changes of ownership, if that is the case). The purpose of that, is to obtain information immediately before the purchase date.It is also appropriate to make a written enquiry by means of a receipt, stating, that the previous yearly payment of Real Estate Tax has been made, commonly known as “tax on urban property.”The position of the community charges must also be declared, these need to be approved by the president, certifying that the seller is up-to-date with these payments. If not, the seller is required to bring such payments up to date before signing the contract or to deduct the amount from the sale price. In both cases, the debts are charged on the property and, therefore, the buyer might be liable for payment.

2.2.The Notary Public and the Land Registry:
The Notary dealing with the Deed of the Sale contract, unless waivered by the buyer, will ask the Registrar to fax details on the property such as a description, ownership or encumbrances.This information is required three (3) days prior to the signing date and is valid for nine days.
Within the Decreto Real Nº 2537/94 and the Instrucción 2.12.1996 (Official Gazette of the Spanish State of 18 December 1996, no. 304) Notaries and Registrars’ duties are included in order to overcome the risks of a double sale or dispositions by the registered seller to the buyer’s detriment. The most important duties are:
a) The Notary is required to confirm the situation of the property before the sale takes place; the Land Registry has to inform the Notary within 3 days, by telefax, about the situation of the plot and receipt (pending registration) of the documents.
b) On the same day the Notary has to inform the Land Registry by telefax about the sale, the protocol number, the date, the parties and the exact description of the property.
c) Should the Notary apply for the ‘asiento de presentación’, the Land Registry has to confirm this the same or the following day.
d) a)The Land Registry must inform the Notary within the following 9 days about the receipt of any documents that might affect the legal position of the property

2.3. Documents required for a first transmission sale
The Real Decree 515/89, of 21st April, BOE117, of 17th May, sets forth what is required for a sale. (Information provided by the promoters to individuals).
a) Contract draft
b) Building permit
c) Urban development
d) Building specifications relating to materials quality
e) Building plans
f) Building location plans
Also required are details of:
g) Seller, builder and architect.
h) Building details (net usable area) included in the contract
i) Description of the common areas
j) Articles of the Owners’ Association (if established)
k) Copy of the document certifying, according to Law 57/68, the sums paid by the buyers (GUARANTEE)

III. CHARGES AND TAXES OF SALE

In the case of a new building, that is a first delivery of the property made by the developer or promoter to the buyer, the following taxes must be paid:

3.1. Taxes on a first transmission sale:
The most important thing to know about this type of sales is that 7% VAT must be paid as well as the stamp duty, currently 1%.
a) a)Added Value Tax (VAT). The buyer as the final consumer must pay the VAT to the seller who, in turn, transfers it to the tax office. For second and further transmissions, this transaction is exempt from VAT and the transfer tax is ap-plied.
- 7% to houses
- 16% to premises and garages.
- In the Canarian Islands VAT does not exist but IGIC (5%)
When a house is purchased, sometimes, the price includes the acquisition of a garage or a junk room as an inseparable annex. As a general rule, this is due to tax reasons because, for instance, for a new house 7% VAT over the taxable base, also including the value of the garage and the junk room. Should the letter be executed by separate deed from the house, a 16% of their value should be paid whilst a 7% for the house. There-fore, there may a great saving. If the buyer only purchases a garage, 16% VAT is paid. Garages are always charged with a 16% VAT unless it is bought by means of the same deed than the house (even when they are inseparable annexes, if bought by means of the same deed only a 7% VAT is charged).

Separable and inseparable annexes. An inseparable annex is a property sold together with a house and both of them constitute a unique registered building. They are considered to be the same property and, therefore, they have the same register data. The practical consequences of registering the garage and junk room as an inseparable annex are that they cannot be sold individually, unless a previous segregation deed exists which provides individual register data and obviously involves registration, notary’s fee. Should there be a separate register data, then they can be sold and purchased separately.

b) a)Stamp duty (1%) is applied to contracts which are executed by notarized deed, entered into the Registry and involve a financial amount: in the case of a sale, for the total price; and in the case of a mortgage, for the mortgage liability. Before the 31st of December 2002 the tax rate was 0.5%. Likewise, no other taxes can be levied on the unit to be valued. This means that the Stamp Duty is incompatible with the transfer tax (which is actually called the transfer tax and stamp duty). The Stamp Duty is applied whenever a developer sells a new construction building. In this case, let’s say that the property costs 210,000 euros, the buyer must pay 7% of the value for VAT,that is, 14,700 euros plus 1% for Stamp Duty,that is 2,100 euros.

c) a)Capital Gain Local tax on the added value of town properties. It is levied on town properties for the time that the seller owes them. It must be paid every time that a property is transmitted (whether it is a sale, gift or inheritance). It is calculated over the current land value and the more time passes between the date of the purchase by the seller and the sale date, the higher will be the amount to be paid; also depending on the municipality and region where the property is located. The rate is fixed by the Town Hall.The documents required for the calculation of this tax are the previous Title and the Real Estate Tax (IBI).The Seller is liable for paying the Capital Gaintax, unless both parties specifically agree that it will, be paid by the buyer.

3.2. Taxes on second transmission sales:
a) Transfer tax (ITP). Applied to second and further transmission sales. This tax is managed by the Autonomous Regions and, the buyer must pay it, which, varies from 6% to 7% depending on the Region.
b) As from the 1st January 2002 in Andalusia, it is 7% Capital Gain. A local tax on the added value of town properties.
c) a)Income tax (IRPF). When a second transmission sale, the seller also makes a profit, which is the difference between the sale price included in the public deed and the purchase price by public deed. Such a difference, in the case of a particular, is paid as income in the IRPF. When the seller is a “non-resident”, according to law, a 5% of the price must be with held in order to make sure that the 35% of the sale profit is paid.

3.3. Fees:
a) Notary. Fees for executing the deed of sale, and depend on the sale price included in the deed and the extent of such deed.
b) Registry. The Registrar’s fees involved for entering the property into the Land Property. Just like the Notary’s fees, the amount depends on the sale price.
c) Arrangement and negotiation fees. Involving the procedures carried out after signing the deed of sale (payment of taxes, presentation in the Land Registry for registration, capital gain arrangements, alteration of the property ownership in the Land Registry.)
d) Supplies hiring. Fees relating to supplies hiring and the banker’s order of the bills
e) Mortgage fees. Opening commission, assessment, execution, Stamp Duty.

All fees are usually paid by the buyer, except for the capital gains which according to law must be paid by the seller, unless otherwise agreed by the parties. When a sale contract reads that the fees will be “according to law”, this means that the buyer will pay the fees except for the capital gain, which will be paid by the seller, with the condition that the Notary’s fees will be on the seller’s account except for the amount of the first authorised copy of the deed, which will be paid by the buyer (art.1455 of the CC)

3.4. Taxes on the property:
a) Real Estate Tax (IBI). Every owner of a property must pay a local yearly tax, which is calculated over the assessed value and is called “Impuesto de Bienes Inmuebles” (IBI), most commonly known as “contribución urbana” (tax on town property). It is calculated according to the property value (construction and land values). Assessed values are periodically revised.
b) Other taxes or charges. Refuse collection,electricity, water and Owners’ association

IV. CLAIMS FOR CONSTRUCTION DEFECTS:
One of the main problems when buying a property directly from a developer is that certain defects and problems may appear in the property and the repair may be very costly for the buyer. These problems usually consist of some defects in finishing the decoration, small cracks, dampness, defects in windows, doors and wood-work defects.
For example, a buyer acquires a terraced house in a housing development and two years after the purchase and following the winter, the house has a lot of dampness because the insulation of doors and windows is defective. In this case and according to a new building construction Law (Ley de Ordenación de la Edificación) applicable to those buildings whose building license was applied for after the 6 th of May 2000, the agents involved in the construction (developer and builder) are liable and the buyer may claim the cost of the repair within a period of three (3) years following completion of the construction of the building (art. 17 a) LOE.
According to this law, those involved in the construction are required to insure against these liabilities so as to ensure that a reasonable compensation will be available. To claim for compensation, firstly you should try to reach an amicable agreement with the developer and if it is not possible, it is advisable to ask an expert surveyor, firstly, for an expert testimony to ascertain the cause of the problem, (the cost is reasonable). Once the cause and the responsible person are identified, any action can be brought against the responsible person (developer or builder) and the insurance company in order to ensure that loss will be covered. A judgment against the defendant will mean that the costs of the proceedings, (solicitors, surveyors, etc) will also be paid by the person responsible. Another example would be where a buyer who, after acquiring the property, finds small defects in the paint finishes and/or the woodworks. In these cases, the builder is responsible for just one year following construction of the building. (art.17 b) LOE)
Conclusions:
a) Defects in the property finishes, the builder may be liable but only within the first year following construction of the building. After this date, the damage would not be covered.
b) Defects in the building elements and services relating to sound proofing insulation, dampness, and all those defects affecting the suitability of the house for habitation may be the subject of a claim to the developer/builder during the period of three years. After this period, there is no guarantee.
c) Defects relating to foundations, supports, beams,framework, load-bearing walls and other structural elements: any claim can be brought against the developer/builder within ten (10) years.

After-sales Service

We solve all the doubts that you may have before the delivery of your house. After occupying your new home we solve any problem that may arise with the daily use, related to the facilities, as with the construction. With a simply call we will put again to your service.
Every delivered house has the construction insurance demanded by law. (See chapter IV " Claims for construction defects " inside " Legal and fiscal aspects ")