Who doesn't dream of a great holiday home or see an opportunity to invest their money wisely? Whatever your motivation for buying or selling a property, buyers are often unaware of the legal differences to other EU countries. Lawyer Lotta Hilgers, who specialises in real estate and inheritance law, has some important information and tips for a legally compliant purchase and sale. It is particularly important for foreign buyers to understand the legal framework and avoid typical pitfalls. Hilgers offers valuable advice on how to avoid potential problems before and after the purchase.
What are the main legal differences in Spanish property law compared to other EU countries, and how can buyers prepare for these differences to avoid potential complications?
A significant difference to other EU countries is that the purchase of property is not subject to any specific formal requirements. It therefore does not have to be notarised, which is why a private contract would be sufficient for the transfer of ownership. However, the transfer in the land register takes place exclusively on the basis of a notarised deed, so that in practice property purchases are always notarised. You are also only protected against bona fide acquisition by third parties if you are registered as the owner in the land register. Unlike in Germany, for example, the transfer of ownership is not tied to the entry in the land register.
In addition to the notarised deed, proof of the declaration of land transfer tax must be submitted to the land registry for registration.
When the parties agree on the sale and purchase of a property, it is customary in Spain to sign a private preliminary contract. In this context, the buyer pays 10% of the agreed purchase price and this amount represents the penalty payment in the event of non-fulfilment of the contractual obligations. So if the buyer does not buy, he loses this deposit and if the seller does not fulfil his obligations, he must return the deposit to the buyer in double the amount.
An exception to this penalty is usually made if the obligation cannot be fulfilled for reasons of force majeure, whereby further exceptions can be contractually agreed.
How should buyers proceed if they realise that the
purchased property contains illegal buildings or extensions? What legal steps are required to prevent such cases and to clarify possible risks to minimise?
Firstly, it is essential to check whether there is protection of the existing property. In the state of Valencia, this comes into effect after 15 years. Aerial photographs can be viewed at the Cartographic Institute of Valencia, from which it is usually easy to recognise when a building was erected. You should also apply to the building authority for a certificate of no infractions (certificado de no infracciones). If proceedings have been initiated against a building, the limitation period is interrupted.
In addition, the buyer should definitely check which changes he is authorised to make. If the land is arable land for agricultural use, the owner may generally only carry out measures to maintain the land. This means that no additional buildings may be erected and the existing buildings may not be extended or altered in terms of area.
It should also be clarified in advance with an insurance company what happens in the event of a fire, for example. I had a case where clients wanted to purchase a property with a living space of 600m² and several outbuildings for a corresponding price. However, it turned out that in the event of a fire or other destruction of the buildings, the owners were allowed to erect a new building with a maximum of 80m².
It should also be noted that these properties are in all probability not connected to the municipal sewage system and often have a simple septic tank that in no way complies with current EU regulations.
However, many municipalities now require an EU-compliant wastewater treatment plant to be installed in order to obtain a certificate of habitability. The certificate of habitability is required, for example, when applying for a tourist rental licence or concluding a new contract with an electricity provider. In Catalonia, it is now a requirement that sellers present a valid certificate of habitability. This is not yet the case in the province of Valencia, but sooner or later this obligation will probably be introduced, so that a current buyer may encounter considerable problems in the event of a subsequent sale.
In particular, you should not rely on the seller's statement that illegal constructions are common in Spain and that nothing will happen to you. Some municipalities are now taking rigorous action against illegal buildings with the help of aerial photographs.
How can buyers ensure that the property they wish to purchase is free of encumbrances or hidden charges. defects, and what role does comprehensive due diligence play in this?
In order for any encumbrances to be transferred to the buyer, they must be entered in the land register. A current extract from the land register should therefore be submitted. The certifying notary is also obliged to obtain a current extract from the land register so that the absence of encumbrances can be checked again immediately before notarisation and the associated transfer of ownership.
With regard to hidden defects, I recommend that my clients consult an architect. Their fees are significantly lower in Spain than in Germany, for example. An exclusion of liability for hidden defects is excluded in Spain in the case of a purchase by a private individual. However, it should be noted that hidden defects must be claimed within 6 months of the notarisation of the purchase, regardless of knowledge of them. The deadline is only interrupted when a legal action is filed; an out-of-court letter is not sufficient. Therefore, if you suspect the existence of hidden defects, I always advise you to consult an architect immediately.
A due diligence review primarily relates to the economic, tax, legal and financial circumstances of the seller. It is therefore primarily relevant if the property is owned by a company and the buyer is considering taking over the company. In the past, it was quite common in Spain for private individuals to hold property through companies. However, as the tax advantages for transfers in the event of inheritance have been largely abolished, companies are no longer generally set up solely for the purpose of acquiring a property.
What legal steps should sellers take to ensure that they are not liable for any damages after the property sale? be held liable for future claims or legal problems?
Before the purchase is notarised, it should be checked that all costs, which in case of doubt will be transferred to the buyer, have been paid. If the check reveals that not all costs have been paid, the parties can agree that the buyer retains an amount from the purchase price and the obligation to pay the costs is transferred to the buyer.
What measures should property buyers,
to ensure that the purchasing process is legally compliant and transparent, especially in the processing via a notary?
Are there any additional precautions you would recommend?
When buying a property in Spain, there are several steps that property buyers should take to ensure that the process is legally secure and transparent. Whilst working with a notary is mandatory, additional precautions are advisable. Here are the most important steps:
6. notarial processing
- The purchase contract (Escritura Pública de Compraventa) is signed in the presence of a notary. The notary checks the authenticity of the documents, whether the property is free of encumbrances and whether all taxes have been paid correctly.
- Buyer and seller must both be present in person or by authorised representatives.
- The notary is responsible for reporting the transaction to the land registry.
7. taxes and duties
- Buyers in Spain have to pay certain taxes, including property transfer tax (Impuesto de Transmisiones Patrimoniales, ITP) or value added tax (IVA).
- There are also notary fees, land registry fees and legal fees. The buyer should find out in advance about all costs incurred.
8. verification of payment
and financing
- The payment modalities should be clearly defined in advance. In Spain, it is still customary to pay the purchase price by bank-certified cheque. However, this can pose enormous difficulties for non-tax resident buyers without a Spanish bank account.
- If a mortgage is to be taken out, the conditions should be clarified and documented before the preliminary contract is signed.
9. registration in the land register
- Once the notarised purchase agreement has been signed, the property must be entered in the land register in the name of the new owner. The notary transmits the deed to the land register by telematics immediately after it has been signed, so that an extract from the land register will then indicate for the next 60 days that documents are pending for registration. During this time, acquisition in good faith by third parties is not possible. However, the actual transfer of ownership to the buyer must be proactively applied for by the buyer by submitting a certified copy of the deed of sale.
10th additional tip:
Check for illicit payments
- In some regions of Spain, there is a practice of paying part of the purchase price „in the black“, which is illegal and harbours both tax and legal risks.
- In the event of a later sale, the current buyer may also suffer tax disadvantages, as the profit from the sale is currently taxable at 21%. The profit is the difference between the purchase price and the subsequent sale price, whereby any costs such as land transfer tax, notary fees, legal fees, etc. can be deducted. If the buyer pays an amount in „black“ at the time of purchase, he saves the land transfer tax of currently 10%, but in the event of a later sale he must ultimately pay tax on this amount at 21%, as it was not included in the purchase deed.
1. examination of the legal situation of the property
- Property Register (Registro de la Propiedad: The buyer should ensure that the property is properly registered in the Land Registry and that the seller is indeed the legal owner. This will also reveal any possible encumbrances or mortgages.
- Unencumbered property: It should be ensured that the property is free of debts or third-party rights.
2. engagement of an independent Lawyer
- It is advisable to hire an independent lawyer who specialises in property purchases. They can check the purchase contract, clarify the ownership rights and legal documents and ensure that the seller has no debts to third parties that could be transferred to the property.
- A lawyer protects the interests of his client and is more independent than a notary, whose role is more neutral.
3. preliminary contract and reservation
- Preliminary contract (Contrato de Arras): A preliminary contract is often concluded before the final purchase contract is signed. This should be checked thoroughly as it contains obligations and usually requires a deposit.
- It must be ensured that the preliminary contract contains conditions that allow the buyer to cancel the contract without losing the deposit in the event of a problem with the property.
4. review of building permits and rights of use
- Building permits: Particularly in the case of new builds or renovated properties, it should be checked that all the necessary licences have been granted by the local authority.
- Use of the property: The seller should make sure that the property may be used for the intended purpose, be it for private, commercial or tourist purposes.
5. audit of Community costs and statutes
- For properties that are part of a community of homeowners, the community costs, any outstanding payments and the community statutes should be checked. This will ensure that the buyer is not faced with unexpected financial obligations.
Expert tip from lawyer Lotta Hilgers - LH Valencia
With the right measures, buyers and sellers can safely navigate the Costa Blanca property market - legally sound and without any nasty surprises.