You have viewed the property, made your offer and established the costs and financing you need. You have agreed the time frame for completion, so now what is the process?
I should like to offer grateful thanks to the participating lawyers and gestors, who must remain un-named, but who helped immensely in clarifying the terms and conditions explained below.
PRIVATE SALE & PURCHASE CONTRACT
The most appropriate contractual relationship begins once the property and the price have been determined and agreed by both vendors and buyers. Initially, the sales or real estate agent will ask the buyer to provide a holding deposit, a sum between 1,000 and 6,000 Euros. This sum is used to block the property for an agreed number of days, effectively taking it off-sale, until the private sale & purchase contract (Contrato Privado de Compraventa) has been prepared. Note that this holding deposit is also part payment of the initial 10% required at the signing of the private contract; and should be held in trust by the sales agent. You should receive either a receipt or similar document from the agency (Propuesta de Compra) as proof of the offer agreed and monies handed.
In Spain it is not an obligation that the private sale & purchase contract signatories be witnessed by a third party. However, it is important that all the parties fully comprehend the obligations, form of payment, property estate description, contents and rights arising from this contract, before signing it and make it legally executable. The signed private sale & purchase contract (signed always on all pages) despite being a private agreement, is nevertheless a legally binding and valid document according to Spanish Law. However, full ownership will not be deemed to be transferred to the purchaser until the property is actually transmitted before the notary and the signing of the Public Deed escritura.
The private sale and purchase contract should include certain specific information concerning all title holders to the property and their details, those too of the buyers; full description of the property or properties involved (ie often when a property is sold with a parking space or garage then their may be 2 distinct deeds to be included); the form of payment agreed; the maximum date agreed for transfer of ownership; and even additional appendices or specific clauses relating to items associated in the sale and purchase (ie inventory of fixtures and fittings, full registration of the property size if there have been changes to the property from the last deed inscription, etc.)
The requested holding deposit or down payment given to reserve the property; should always contribute to the financial sum agreed as the deposit – in Spanish often referred to as the arras or señal. The agreement should also include a clause that financially protects both parties – and usually takes the position that the buyer forfeits the deposit if they default on any term, however at the same time the amount is doubled if the vendor defaults: re-paying the buyer the deposit plus the same amount as compensation. However, the buyer may be able to defend the right to redress in certain circumstances and may even discuss the right of extension if required.
The above description pertains to re-sale properties, for new properties where there is agreement to purchase from a promoter or developer then by the Spanish Laws L 38/1999 and L 57/1968 statutory allowance should be in place to protect and guarantee all monies handed over prior to completion. In addition, the developer is obliged to guarantee the property against any building defects up to ten years after the construction date, ie 10 year builder's guarantee. Until recently this guarantee only applied to business based promoter-developers rather than individual owners; however in the last 2 years, the 10 year builder's guarantee has now been established as a pre-requisite for all mortgage applications on new buildings. Therefore, while it is not illegal to sell a property as an individual without the guarantee, it does make difficult the ability of the buyer to obtain a full mortgage; and also the notary is obliged to state in the deed that the buyer accepts responsibility for the absence of this guarantee.
PUBLIC DEED ESCRITURA
The Escritura de Compraventa is commonly known as the public transfer deed. It cannot be compared with the concept of title deed in say the English system of property exchange and ownership. In Spain the proof of ownership is granted and guaranteed by registration of the deed of transfer at the Land Registry (Registro de la Propiedad). The original deed of transfer is retained indefinitely by the Notary office and provides copies, copia simple, as requested.
Without the registration of the Escritura de Compraventa in the Land Registry the purchaser can not be legally recognised as the present owner by third parties, other than the vendor, as well as be allowed access to specific legal protection as provided within the Land Registry regulations. The Land Registry also is responsible for the issuing of a certified copy of the entries in the registry, nota simple or certificado registral, but this is not a deed of title; it is an extract of the deed held by notary and individual owner.
The only office with the authority to intervene between a private sale and its publication is the notary. They ensure that all parties accept their responsibility, and have paid in full the amounts agreed and are obliged to retain taxes or debts, and inform the buyers in their own language the exact terms, duties, fiscal responsibilities and conditions of their actions in the exchange of title prior to registration at the Land Registry. While the contract can remain private and be notarised, it can never be public until transmission taxes are paid and the escritura is actually registered at the Land Registry. It is still the case with many village and rural properties in Andalucia that title still only remains as private contract between family members or deemed ownership can only be established by payment and title of local tax contributions. Please be very careful with properties that have no published, registered title deed – first the banks will not lend on them and second it may take several months to guarantee and establish rights of ownership by the vendors.
A notary's role includes drafting and authenticating the contractual agreement between the parties – seller, buyer and lender (if applicable), to witness the signature and capacity of those parties, to insure that independent translators are available to understand the Spanish contract being agreed, and to advise the parties of their statutory, civil, administrative and tax provisions. It is the duty of the notary to inform the hacienda, the tax administration department, of the relevant tax information concerning the transaction. A notary can only bear witness that the property price is paid only when it takes place before them – the best guarantee being a registered banker's cheque to the vendor. In addition, when the property is being mortgaged, then it will be done at this stage with an assigned bank representative who will carry the agreement and the cheque. It is also at this stage that pre-existing mortgages or charges can be cancelled.
Registration of the deed at the Land registry, once taxes are paid, provides the greatest public level of protection and trust. It is in Spain, the only public record offered to convey the ownership of a property, and the property and land registry also maintain historic records of all charges related to each property. Important too is that this registration is an elemental protection for the purchaser in opposition to any third party claims against the vendor.
PURCHASE BY A COMPANY
When a property is going to be shared between various individual owners then they have the possibility to form and purchase the estate as a company. There are three basic company types-
Sociedad Limitada, SL; limited company
Sociedad Anonima, SA; public company
Sociedad de mera tenencia de bienes; a property investment company whose resident shareholders are subject to a special tax regime.
Also a company acquiring property in Spain can be registered in the UK or offshore; but it is important to establish the different tax consequences in Spain and the UK for the company and its shareholders. Offshore companies owning a property in Spain but registered in a country with no Double Tax Treaty with Spain, will be charged a 3% annual tax on a deemed income based on the rateable value. In such cases you should always obtain prudent independent financial advice and planning from an expert who is aware of the tax implications for you and your shareholders.
NOTE: the framework of the Trust as a legal concept is not recognised within Spanish legislation, and consequently they are unable to own property in Spain unless the acquisition is made by a corporate (company) structure that is owned by the Trust. Again before thinking to buy property on behalf of a Trust it is wise to discuss the details with independent advisors in both Spain and your host country.