Legal Conditions and Procedures
Two facts to get straight:
a) The process of buying a property in Spain is quite different to that in other countries. However a competent solicitor will handle most aspects on your behalf (although there could be problems if there is a language barrier between you and him – or her).
b) If you act sensibly you can forget (most of) the horror stories that you may have heard regarding property purchase in Spain . In particular the developer of a new property is now required to take out some form of insurance, or alternatively, bank guarantee, to secure all payments that you make prior to completion – put simply, if he goes bust then your money is still safe.
If you are going to buy a property in Spain do, however, follow formal procedures. Don’t be misled by the character who you might meet in a bar who not only knows of a property locally going for a knock-down price, but who also has a brother-in-law who can handle all the legal details for you, for the price of a drink, rather than troubling a nasty old solicitor. We ourselves have purchased in Spain, experiencing no real difficulties (although mañana does still apply here, as in most other transactions in Spain ), and feel confident that we now fully understand the system.
One word of caution on resale (second-hand) properties. There is a long-standing tradition of under-declaring the price agreed. This is because the stamp duty on sales is a swingeing 7%, and by under-declaring the value of a £200,000 property by 25% there is a saving of £3500 to be made. If you’re wondering how the balance making up the true purchase is made, then the answer is that it’s made in cash. Authorities differ on how to treat this phenomenon.
Some will insist that you shouldn’t go along with the practice (after all, if you don’t manage to do the same when you eventually come to sell, then you will be seen to have made a capital gain that is that much greater than the true one – and will be taxed on this accordingly). However the reality may well be that the seller won’t deal unless you do go along with this, and for several years now it has been a sellers market: if you want the property then you have to agree. The key is to let your solicitor know exactly what you are doing – and let him handle it for you.
The typical process of buying a (resale) property goes as follows. Once you have agreed a price then you will quite shortly (days rather than months) enter into a binding contract to complete on a future date to be agreed (much as in the UK , but much sooner). You will have to pay a deposit which you lose if you subsequently back out.
However if the seller backs out then you receive your deposit back – and as much again by way of compensation. Your solicitor will carry out a fairly simple search as to title, and that’s about it. It’s rare to have a structural survey carried out, although you can if you wish. On completion you will receive your Escritura de Compraventa, or just ‘Escritura’ which is signed by both parties (or an appointed Power of Attorney) before a Spanish Notary.
There is a complex system of land registry fees, a local Authority tax (the Plusvalia), which may be paid by the seller, together with VAT, at 7% (on new properties). In total you can expect to have to find about 10% on top of the actual purchase price to cover the above, together with lawyer’s fees.
Other factors to consider are whether to buy the property in your own name or that of a company (there are pros and cons to both), how to finance its purchase if borrowing is required, how to register your existence with the Spanish authorities (you may wish to appoint a fiscal representative to act on your behalf, and to deal with the plethora of Spanish taxes – even the Spanish don’t fully understand these. There are further considerations if you decide to actually take up residence in Spain .
Rather than rehash further, more detailed, information that is already readily available and well-presented elsewhere, we would direct you to the website of John Howell & Co, who are a London-based firm of solicitors who specialise in acting on behalf of people buying abroad, principally in Spain, Portugal and France.
Having said this, we actually believe that it is preferable in practice to use a locally based (Spanish) solicitor who will be familiar with the local nuances pertaining to the area in question, and who will also be better equipped to deal with the local Notary etc. In Spain, successful business is all about relationships – which is why we ourselves spend so much time there developing contacts and so on (well, that’s our excuse anyway). We are very happy to recommend a local solicitor who we know personally in most areas of the Costa del Sol .