BUYING AN OFF-PLAN PROPERTY
DOCUMENTATION REQUIRED FROM THE DEVELOPER
1. For the property
1.1. Before the signature of the private purchase agreement:
• Copy of Title Deed (Escritura).
This document shows the legal and registered owner of the land where your property is going to be built.
• Copy of the plan to the property.
In off-plan properties this is absolutely necessary.
• Copy of the planning permission and building permit
• Copy of the line of bank guarantees provided by a Finance institution to cover the reimbursement of the payments made by the purchasers.
1.2 Before completion:
• Copy of the habitation license (Licencia de primera ocupación/ cédula de habitabilidad).
• Copy of the Final certificate from the Architect
• Copy of the Insurance Cover (Seguro de Responsabilidad Decenal).
2. From the Developer
When all property documents are in order and the parties are in agreement about the price, payment terms, etc, some documents about the parties will be needed in order to proceed. Commonly, these are the following although occasionally others may be requested.
a. Copies of the Company’s documentation and proof that the representative is duly authorised to represent the Company.
b. Personal document for the representative of the company
If the Vendor intends to be represented by an attorney, then a Power of Attorney (Poder) will be necessary.
3. From the Purchaser
If the Purchaser is one or more individuals, then for each one of them:
a. Passport card
b. Information about residence, profession, marital status and if married, indication of the matrimonial regime.
If the purchaser is a company
a. Company number (CIF)
b. Copies of the Company’s documentation and proof that the representative is duly authorised to represent the Company.
c. Personal documents for the representative of the company
If the purchaser intends to be represented by an attorney then a power of attorney will be necessary. A power of attorney can be signed in Spain before a Notary public or in the UK before a Notary Public and then legalised with the apostille of the Hague Convention. The purchaser’s lawyer should be able to draft the power of attorney and arrange for its signature.
STEPS INVOLVED IN THE TRANSACTION
Although not used in all transactions, parties sometimes start their legal relationship by signing a reservation form or “reserva”. This procedure is usually followed when the parties cannot enter immediately into a Purchase Agreement for any reason, such as:
a. Legal documents such as those set out above have not been provided or examined.
b. The buyer cannot immediately pay a deposit
c. The buyer does not want to pay a deposit until has been duly advised by a lawyer.
The main purpose of such reservation is for the purchaser to be assured that the property has been taken off the market (usually for a limited period of time) and for the Developer to ensure that the purchaser is really interested in proceeding.
The reservation implies that the “purchase agreement” (contrato de compraventa) will be signed within a pre-determined period and if that does not happen, the property will be again placed on the market.
The reservation form should include identification of the parties and the property and define the amount to be paid upon its signature, the total price, payment conditions and the period in which the Purchase agreement will be signed. The amount paid on reservation is deducted from the total price to be paid by the purchaser. The form should also establish the consequences of (i) not signing the Purchase Agreement (ii) any of the parties withdrawing from the transaction.
The reservation form must be dated and signed by both parties. However, in most of the cases the reservation it is usually signed by the estate agent on behalf of the vendor. In that case, the agent will be responsible for the reimbursement of the amount paid should something be wrong with the property.
Although not mandatory, normally both parties enter into a purchase agreement identifying the property to be sold and detailing conditions of the transaction: this is the Purchase agreement (Contrato de compraventa). This type of contract is used in almost 100% of transactions in Spain. The “contrato de compraventa” is usually a private agreement and is legally binding on both sides.
Before the purchaser signs the “contrato de compraventa”, his lawyer must make sure of the following:
a. That a proper search has been carried out in the Land Registry Office and a “Nota simple” has been obtained confirming the description, ownership and charges (if any) of the property.
b. The purchaser’s lawyer must make sure that all necessary permits have been
obtained. i.e. building permits, no construction limitations, no rental prohibitions, etc.
When the above requirements have been completed, the formal act of sale takes place before a Notary in Spain. This act known as the signature of the “Escritura pública de compra venta” takes place in front of the selected Notary.
The “Escritura” is then taken to the Inland Revenue office to pay the taxes and then registered with the Title Registry Office.
TAXES AND COSTS
1. Legal fees
Usually lawyer’s fees average between 1%-2% of the purchase price depending on the value of the transaction. These fees usually include the following services: examining the reservation form; requesting and examining all relevant documents regarding the property and the parties; preparing or examining the purchase agreement; signing the purchase agreement; assisting the purchasers on completion; dealing with the post completion formalities.
Purchasers must check with their lawyers what service is provided with their fees.
2. Transfer taxes
Taxes must be paid before registering the purchase at The Title Registry.
The transfer tax when buying an off-plan is approximately 7% of the declared Purchase Price. Please note that in Spain there are still some vendors who do not want to declare the full purchase price on completion. Do not accept it as it is illegal and risky.
3. Stamp duty tax
A stamp duty tax of approximately 1% of the purchase price is payable when buying an off-plan property.
4. Notary fees and Land Registry fees
These may vary depending on the area and the value of the property.
However, a good way to estimate the approximate costs involved in buying a re-sale property is to apply 11-12% over the purchase price. This amount should cover transfer taxes, Notary fees and Land Registry fees.
5. Plusvalía Tax
The Plusvalía Tax is the tax on the increase of the value of the land. It should be paid by the Vendor but in many occasions vendors try to impose this tax into the purchaser. The tax is fixed by the Council taking in consideration the year when the property was acquired and the year when the property was sold.
If you would like legal help buying a property in Spain you can contact the The International Law Center