Houses and real estate properties

Houses and real estate properties

Buying a home is the greatest investment that most people will make at least once in their life, and so our advice is that if you are thinking of buying a home you turn to a notary for assistance before concluding any procedure. Whichever notary office you choose, they will advise you about all the steps you need to take to purchase your home with the utmost guarantees.

The current Spanish system, based on close cooperation between notaries and the register, is able to offer you the highest level of legal certainty. You should request advice before signing any document or receipt, and even before handing over any money, even if only is a deposit.

Prior procedures: the private document

When buying, before drafting a notarial authentic instrument of sale, it is commonplace to sign a private contract between seller and buyer, called preliminary contract, commonly known as deposit agreement (See point 4. Price and deposit). This contract is not mandatory, although it is always carried out when the seller is a real estate developer, and among individuals is also widely used, especially in major cities, in order to ensure the operation.

The Law considers the private document as a perfectly valid way to formalise a business, which means that if an individual signs this type of document he will be legally bound to fulfil all its contents, provided that they are not contrary to the Law. Therefore, it will not be possible to refrain from compliance by stating that what was agreed is no longer adequate, or claiming ignorance of what was signed, without prejudice to the double-rate deposit cancellation penalty (see point 4. Price and deposit).

Hence the importance of being properly advised before signing a document of this nature. The notary does not intervene in the formalisation thereof, but may provide information about its content and resolve any doubts that might arise, and all of this free of charge.

The notary will always advise that nothing should be signed that is not adequately understood, or if the parties are not fully convinced.

Here are a few questions to keep in mind:

1.- Who signs for the selling party: When the selling party is a real estate developer, the company manager or his agent should sign the public document, and in their absence, the real estate developer. If the sale takes place between private persons, the document must be signed by all owners, either personally or represented by duly qualified persons.

In the case of jointly owned property, both spouses must sign the document; they will also be required to do so if the property is private of one of them (not matrimonial property), provided it is the effective marital home of the seller.

If the seller has granted a power of attorney to another person to sign the document, the legal representative must submit the authorised copy of the power of attorney not a mere photocopy, and the power of attorney must entitle him to sell. It is therefore advisable to check, reading the power of attorney, that the legal representative is authorised to formalise the sale.

If the heirs of the deceased owner are the ones who intend to sell the property, it is advisable to ensure that they have the documentation in question and that they are the only ones with rights thereon. It is important to visit the notary if you are not sure or have doubts, especially if the seller is not a heir apparent, since the registry certification is suspended for two years from the date of death of the deceased person, by virtue of art. 28 of the Mortgage Law.

2.- State of the charges borne by the property: 

It is very important to check whether the property is unencumbered, whether it is burdened by a mortgage or if a foreclosure has been issued on the property. To this end, the corresponding Land Registry must be requested an unofficial record extract.

There will often be a mortgage, in which the buyer will have to assess whether to subrogate or not. In other words, to accept it and to become a debtor of the remaining party to be paid, before the bank or savings institution that has granted the mortgage or to enter into its own mortgage loan. As the buyer assumes all the previous mortgage agreements, it is very advisable to obtain information about these, especially about theinterest rate, if there is a minimum and a maximum, the repayment period and the agreed commissions, and also, of course, about the remaining amount to be paid. The simplest way will be to ask the financial institution for advice. For more information, please consult the section on Mortgage and loans.

3.- Owners' association dues: If the property is integrated into a community of owners, the corresponding fees will have to be paid regularly. You must check that the property is up to date with payments or, if not, about missed payments, requesting this information from the community president or administrator, who may also inform you of the internal rules or statutes of the building. It is also advisable to know whether there are any payments approved by the community, the amount of the fees and how often to pay. If the buyer wants to change the destination of the property being purchased, such as turning commercial premises into a dwelling or vice versa or turning the dwelling into an accommodation establishment, or to carry out a certain activity, buyer must first inform the municipality to see if it is possible to obtain the appropriate licence, as well as the authorisation of the community of owners, if the statutes do not stipulate otherwise.

4.- Price and depositThe price of the property will be included in the preliminary contract. Also if there is any payment deferred and the way to satisfy it, either in successive payments once the notarial authentic instrument has been granted or subrogating the buyer in the mortgage. It is common that the preliminary contract a deposit is agreed, that is, establishing a certain amount that the buyer delivers to the seller as a token (that will be discounted from the price). The most common are the so-called double-rate deposit cancellation penalty: the buyer will lose the deposit if he cancels the agreement, and if it is because of the seller, he will have to return double the amount.

There are certain properties (social housing, mainly), which have an established maximum sales price. The administrative body responsible for the housing of each Autonomous Region will inform if the property is included in that case, its maximum price and the other purchase conditions.

5.- Sale's costs: There are five costs arising from the sale:

Municipal Urban Land Gains Tax (commonly called Municipal Capital Gains).

Notarial authentic instrument at the notary office.

Registration in the Land Registry.

Taxes (formerly called Real Rights). To know more about these amounts, see Subsequent Procedures.

Administrator, which is the invoice charged by the consultant to carry out the previous procedures.

If nothing is agreed in the private contract, or if it is stated that the expenses are “according to the Law”, the seller will pay the capital gain, and most of the public document expenses, the master copy or original, while the buyer will pay the other part of the notarial authentic instrument, copies, (although this rule varies depending on the Autonomous Region), the registration costs and taxes. The agreement changing the taxpayer of the Municipal Capital Gains Tax (the seller) or on the real rights tax (the buyer) does not affect the Administration, which will always claim these taxes to the taxpayer. Regarding the Immovable Property Tax (IBI) for the current year, in accordance with the Supreme Court Judgment of 15 June 2016, in the absence of an agreement to the contrary, the seller who pays the IBI may pass it on to the buyer in proportion to the period of time that each of the parties has had proprietary ownership and for as long as it lasts.

In the event the seller is a real estate developer, it is prohibited by the legislation that the buyer bears expenses that by law must be paid by the selling party, such as the municipal capital gains, the expenses of the declaration of completion of a newbuild property and horizontal division, or the cancellation of the mortgage existing on the property, (when it is to be acquired free of liens or is preferred to contract).

6.- Choice of Notary: Any notary is impartial, in that there are no “party” notaries, but it may be interesting to come to a specific one to formalise the notarial authentic instrument. Whoever sells, whether it is a real estate developer or a private person, the buyer is entitled to choose a notary (View Notarial Guide).

7.- Effects of the private document: Although the private document is fully valid, it is not sufficient to register the property, nor to apply for a mortgage to the bank. To this end it is essential to have a document the effects of which go far beyond, providing sufficient legal security required by the system. It is the notarial authentic instrument.

The authentic notarial instrument of sale and purchase

The notarial authentic instrument is a public document granted before a notary. In the Spanish legal system, the cases in which the authentic notarial instrument is mandatory are very scarce. It is a general principle of formal freedom, but although the public document is not mandatory to execute a sale, it is highly advisable, because it has very powerful effects, specifically governed by the laws, which far exceed what the private document can provide. In addition, the professional intervention of the notary provides additional information to the parties, offers certainty to the contracting parties and ensures effectiveness of the business contained in the authentic document by adjusting it to legality, which makes this the suitable vehicle for the registration of the property in the Land Registry.

Corroboration: The parties executing a sale declare before the notary, in the notarial authentic instrument, their willingness to sell and purchase and the conditions involved, and the notary collects those declarations under his attestation and thereby authorises the instrument. That is why it is said that the notarial authentic instrument is corroborated, that is, it bears witness in itself. The private document is not corroborated. Hence the importance that in common knowledge is given that declarations are made “before the notary”.

Legal certainty: The notary does not merely bear witness, but their professional function provides legal certainty in the sale and purchase, through various verifications:

Verification of the identity, capacity and legitimation of both the buyer and seller: The notary will verify the identity of the parties involved in the contract by means of their valid ID card or passport, of which a copy will be retained in the notary’s physical or telematic files. Likewise, It will be confirmed that the buyer and the seller have sufficient capacity to purchase and sell, respectively, and that they are sufficiently qualified to do so in the event that they act for and on behalf of others, whether under legal age, legally incapacitated, foreigners represented by powers of attorney or representatives of legal persons (companies, cooperatives, associations, foundations...). The notary will also check, with regard to the buyer and seller, if they are married and under which marital economic regime to determine whether the seller’s spouse is required to also intervene and, with respect to the buyer, on which basis the property is being bought.

Verification of the Seller's title of ownership: The notary will check the seller’s title of ownership, either a public document, a court decree or a public administration document, and will record the sale in that same title.

Verification of the seller’s habitual residence: The notary will require the seller to indicate in the public document whether the property being sold is their habitual family home, since in that case the sale must also be consented by the spouse or registered partner, as the case may be, even if the dwelling is the exclusive property of the seller.

Official Housing Event (VPO): The notary shall inform about the maximum sale price which may not be exceeded, of the authorisation required by the Administration in order for the buyer to acquire the property and the requirements, the obligations and limitations to be fulfilled by the buyer for this type of property while their regime is in force.

Rent situation: The notary will require the seller to indicate in the authorised instrument that the property is free from leases and occupants or, otherwise, what their occupation titles are.

Verification of the ownership and liens in the Registry and security in the purchase: By requesting the prior registry information and immediately presenting the authorised instrument in the land registry. The Notary, prior to the sale, requests from the Property Registry an informative note indicating who is the owner of the property, if it is free from liens, or if it is burdened by mortgages, foreclosures, or any other encumbrances (this will be so until the registrars allow online access to the registration books, as established by Law). Once the notarial authentic instrument has been signed, the notary presents it by telematic means, on the same day in the Land Registry. This is a dual mechanism intended to provide complete information, and to virtually reduce to zero the risks for the buyer, since once the purchase is made, the notary will enter the acquisition in the registry by telematic means.

Verification of the community fees: The buyer must request that the seller provide a certificate from the secretary of the community of owners, with the “approval” of the president, which accredits that the seller is up to date with payments of the community expenses. The notary will require the submission of that certificate, without prejudice to the purchaser having been duly informed of the status of the fees, releasing the seller from presenting the certificate. Likewise, the notary will advise the buyer to provide his/her data to the community administrator for payment of the following fees.

Land survey data: The notary will also request the property's land registry number, usually through the last receipt of the Property Tax, which must be presented by the seller, and will obtain a descriptive and graphic cadastral certification, to be incorporated into the authentic instrument to verify the consistency and warn the parties about any inconsistencies between the land survey data, those in the notarial authentic instrument and those resulting from the Land Registry. Once the public document of sale has been authorised, the notary will provide the buyer's data to the Land Survey so that the upcoming Property Tax receipts are issued in the name of the new owner. The notary will also check that there are no Tax Property pending payments of previous non-prescribed tax years. Land Survey Inquiries

Energy efficiency certificate: The notary will ask the seller for the energy efficiency certificate or a copy thereof, to be handed over to the buyer.

Occupancy certificate: There are Autonomous Regions that require the seller to provide the buyer with the current occupancy certificate, a circumstance which will be checked by the notary and that he or she will record in the notarial instrument.

Technical Inspection of the Building: Some Autonomous Regions require that, in buildings of a certain age, where the property or premises are purchased, the buyer is accredited or informed of whether or not the building has passed such an inspection since, if this is not the case, the Administration may impose sanctions on its owners, a circumstance that the notary shall warn of.

Verification of the means of payment: The notary will check and record in the notarial authentic instrument how and when the property has been paid for: in cash, through normal or bank cheques, registered or bearer, the accounts numbers from where the money proceeds, the account number where the money has been paid in the case of bank transfer, the dates of the payments, or if the money is paid in the same act of signing of the notarial authentic instrument and how it is paid in that act. In the event that the sale is subject to VAT, it will also be recorded in the notarial authentic instrument how and when the tax has been paid. If the seller is a foreigner, the withholding by the buyer of three per cent on the sale price shall be recorded and the notary will advise buyer and seller on the models to be filled for this purpose, and on the deadlines for compliance with their tax obligations. In any case, remember that it is better to pay by means of nominative bank cheques or bank transfers, so that there are no problems with the Law on the Prevention of Money Laundering and Terrorist Financing.

Warnings in the deferred price assumption: In the event that both parties assume that the buyer could defer a part of the price, the notary shall advise the seller of the risks and the guarantees to avoid these risks and about the cost of these guarantees, which should be assumed by the buyer who cannot buy the property in cash.

Warning of hidden faults: The notary will advise the seller that he/she responds to the faults that the property might have and which are not obvious at first sight, without prejudice that, for whatever reasons, the buyer releases the seller from this obligation.

Warning of tax obligations: The notary will inform the seller of his/her obligation to pay in good time the municipal capital gains (in the event of an urban property sale), and that he/she should keep a simple copy of the notarial authentic instrument in order to make his/her personal income tax return for possible capital gains purposes. The notary will advise the purchaser of his/her obligation to pay the Purchase Tax, either for Onerous Asset Transfers, or Stamp Duty (in this last case if VAT is paid), and that he/she must accredit the submission of a simple copy of the notarial authentic instrument in the Town Hall for the settlement of the Municipal Urban Land Gains Tax (commonly referred to as municipal capital gains, which Law establishes must be paid by the seller), so that the buyer can register in their name in the Land Registry the property being acquired. This procedure can be carried out by the notary if so requested by the buyer.

Identification of the Beneficial Owner: In the event that a trading company is involved, and in compliance with the Law on the Prevention of Money Laundering, the notary is obliged to identify who is or who are the natural persons who control over 25 per cent of the shares or stock of the company.

Advice: The notary is a legal professional, and among his/her functions is the advising and counselling in an impartial way and free of charge.

The notary is impartial and his/her mission is to inform all the parties involved equally, although particular assistance must be offered to the party most in need of it. There is no need to hesitate to consult any doubts that may arise, and not only on the day of signature, but before any proceedings are made. It is your right.

Buying a property: subsequent procedures

Once the property is acquired by means of the notarial instrument, it must be performed what is called "the management" of the document:

1.- Pay the taxes corresponding to the Autonomous Regionor which there is a maximum term of 30 business days or one month (depending on the Autonomous Region) from the date of the notarial authentic instrument, providing a copy thereof and the corresponding model. Once that term is elapsed, a penalty for late payment is applied. At the demand of the Authority, an economic penalty will also be imposed.

If VAT is accrued, for example because it is a first sale carried out by the real estate developer, it must be paid, in addition to VAT, which is handed over to the real estate developer for payment to the State Treasury, 1 % or 1.5 % (depending on the Autonomous Region) of the price recorded in the sale document, as Stamp Duty. If it is exempt from VAT, it is because this is a second sale and therefore the Capital Transfer Tax will be applied; then the percentage varies between 6 % and 10 % of the price (again depending on the Autonomous Region).

2.- Register the purchase in the Land Registry.  The notarial authentic instrument may be presented to the Land Registry by the notary through telematic means if so requested, which is highly advisable as this presentation guarantees the immediacy and blocking of the Land Registry to any other documents such as a preventive note of seizure or claim on the seller.

Also, the notarial authentic instrument may be submitted to the Land Registry through an authorised hard copy. There is a security deadline to present the authorised hard copy signed by the notary, following payment of the Onerous Capital Transfer Tax or, if applicable, of Stamp Duty. Once examined by the registrar, the property will be registered in the name of the purchaser, and the notary will deliver the copy of the public document, with the change to his/her name in the Registry. However, the general rule is that if the notary is in charge of the management of the document, will carry out all the formalities through telematic means, for security and speed purposes.

These procedures can be carried out personally, although on many occasions, when the sale is followed by a mortgage, the financial institution requires that the procedures are performed by a certain administrative agency. In this case, it should be asked how much they are going to charge for this service. The notary may likewise administer management. What does the notary do?

This is an act declaring the construction (or modification) of a building that has been or is being built on a plot of land. The act serves to record the construction that has been built on a plot of land, or the remodelling or refurbishment performed, in the Land Register.

What is a new build declaration?

It is the declaration in an authentic public instrument by the owner or all the joint owners of a property recording the fact that new actions, construction of buildings, improvements, or other analogous new works have been begun or concluded. This instrument may be registered in the Land Register, so as to achieve concordance between the register and the legal reality outside the register records. In the case of buildings, it will record the number of floors, the surface area of the land occupied; the total number of square metres constructed and, if specified in the approved plans, the number of elements open to independent exploitation.

Forms of new build declaration

It may be performed in two ways depending on the phase of construction:

Completed new buildWhen the construction is fully completed.

New build under construction: A new build under construction declaration is typically performed when the property developer needs finance from the bank to perform the construction, and establishes a mortgage over the property under construction.

When construction work is completed, the owner will need to declare that it has been concluded by means of a notarial act known as the works completion act.

Is the new build declaration mandatory?

In the case of a builder or property developer, in other words a business, the new build declaration is mandatory. In the case of a private individual building on his own land for his personal use, the new build declaration must be performed in order to arrange utilities contracts, and as a mandatory requirement if selling, leasing or requesting a mortgage loan from a bank.

How is the notary involved? Oversight of legality

In the new build declaration the notary oversees legality, ensuring that the construction has been performed with all licences, authorisations and requirements imposed by law, as summarised below:

 

1.- Requirement for the Local Council Licence authorising the construction on the basis of plans submitted by the owner and drawn up by an architect or other competent professional. With regard to older constructions all that will be required is accreditation of the age of the construction for the purposes of any possible urban planning violation having lapsed under the statute of limitations (typically 4 years, although for constructions after 6 May 2000 the waiting period is 10 years for the ten-year insurance), by means of the 4 methods cited in law:

Certification by the local Council.

Certification by a competent technician.

Notarial act describing the property.

Descriptive and graphical land survey certificate of the property.

 

2.- Competent technician requirement: A distinction must be made:

If the building is under construction: the technician must accredit that the description of the new build construction recorded in the public instrument complies with the plans for which the licence was issued at the time in question.

If the building has been completed, the technician must accredit that the works have been completed and comply with the plans for which the municipal construction licence was obtained.

Geographical referencing coordinates: In any case, it must be taken into account that in order to register any completed, new or old buildings, whose documentary declaration and application for registration is presented in the Land Registry, it will be required that the portion of occupied land is identified by its geographic reference coordinates.

 

3.- Ten-year insurance requirement: The law requires that damage and surety insurance be arranged to guarantee compensation for any material damages caused by faults or defects in the building for a period of 1, 3 and 10 years, although today only the ten-year insurance is required for faults or defects arising in or affecting the foundations, the supports, the joists, the top slabs, the load-bearing walls or other structural elements that would directly compromise the mechanical strength and stability of the building. The other two insurance policies (annual and triennial) have not yet taken effect. The characteristics of this ten-year insurance would be:

In public instruments recording new build properties under construction, the mandatory nature of confirmation with the register of conclusion of the work must be placed on record, at which point these guarantees will be demanded.

Demanded only for buildings the primary purpose of which is residential.

The ten-year insurance requirement does not apply to individual self-builders (whether natural or legal persons) for the construction of a detached home for own use (whether a first or second property, and even if it is merely a temporary residence). In the case of transfers inter vivos within 10 years, the self-builder, unless released by the acquiring party, following accreditation that the property has been used, will be obliged to arrange the ten-year guarantee for the remaining period of the 10 years.

 

4.-  Construction Book requirement: The Construction Book must be handed over to the end users of the building, and unless it is not required due to the age of the building, it must be submitted to the Land Registry for registration.

 

5.- Habitability certificate or Initial Occupancy Permit: The legislation of certain autonomous regions requires presentation of the habitability certificate or initial occupancy permit for a declaration of new build construction.

 

6.- Building energy efficiency certificate: This must be signed by a competent technician, providing information only on the energy efficiency of building. The maximum validity period is 10 years.

 

7.- Technical Inspection of the Building: The legislation of some autonomous regions requires that any building that touches the public thoroughfare (and some other assumption) and that has certain years of seniority (term fixed by the autonomous community itself) must pass a technical inspection to ensure the safety.

We would in any event advise anyone to contact a notary for consultancy as to the best form and procedure to comply with all the legal requirements.

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