1. Verifying its situation in the Registry.
Once you have selected the property you would like to purchase, the first step is verifying its situation at the Property Registry, that is, checking if its free of any liens (foreclosure, mortgage, etc.). Some of these liens may be cleared with the purchase.
2. Earnest money contract.
Once the state of the possible liens has been checked, you may go forward with signing the earnest money contract in order to “reserve” the property. This contract involves making a small payment, which is why it is important to:
- Check you are purchasing the right property, free of liens.
- Guarantee the return of the amount paid or its application on the selling price.
3. Contract with the real estate agent.
It is common to come up against an owner who lets a real estate agent handle the selling of the property, getting a commission in return. This usually runs from 4 to 5% of the selling price of the property, which is why it is the real estate agent’s responsibility to provide the future buyer with the necessary documentation in order to be able to verify the property’s situation in the Registry, including:
- Property deed.
- Property Registry filing up to date, where you shall check the liens it may or not have.
4. Off-plan properties.
If you are planning to buy an off-plan property, one which hasn’t been built yet, then the contract has to be signed with the building developer. In this case, you should bear in mind to:
- Check the developer’s background: corporate name, economic situation, solvency and, most important, for it to be registered in the Corporate Registry. If the developer consists of a housing cooperative, check that it is registered in the Cooperative Registry of the corresponding autonomous community.
- Check the urban license situation at the local city hall: you may as well ask and verify with the seller directly. If not, check with the city hall if the developer is in possession of all the necessary licenses to begin with the construction. Moreover, you might as well gather all the information involving the property: planning situation, description of the common areas and services, and so on. It is also important to keep the advertising brochures as these have a contractual obligation which can serve as proof of what you purchased and what has been built.
- Request for the quality report: this will inform you of the exact materials which are going to be used, as well as the finishes and fittings of the apartments and the common areas. This report will also help you verify that the constructed building adjusts to the planned building.
5. Contract of sale and taxes.
The contract of sale is a completely valid document to formalise the purchase, where both parties will be obliged to comply with the agreements reached in the contract, given that such clauses are not opposite to what the law states.
It is important to highlight that in Spain, the contract of sale does not determine on its own the transfer of ownership. Therefore, it is necessary to hand over the keys or to create a public instrument, which implies this handover of the keys.
6. Creating a public instrument.
Following the previous line, creating a public instrument before a Notary for the contract of sale will imply a series of advantages, such as the registration of the property in the Property Registry. In turn, this registration provides more guarantees and legal certainty for the following reasons:
a) Effect against third parties: the civil deed of sale registered in the Property Registry is enforceable against third parties, meaning it will avoid duplication of sales, foreclosure from the previous owner (seller) and, moreover, it will allow to place a levy on the property when asking for a mortgage, for instance.
The contract of sale itself doesn’t allow a levy on the property when asking for a mortgage, which means that if you are willing to condition the purchase of the property to obtain a favourable outcome on bank financing, you should first formalise the civil deed of sale in order to register it in the Property Registry. This registration will allow you to place a levy on the property and ask for the mortgage.
Furthermore, it is important to highlight that the civil deed has the power to enforce, so in case of non-compliance in any of the agreed clauses, it may be directly executed as opposed to the contract of sale. Remember the declarative process must be previously urged in order for it to be executed. This will derive in a much slower process and a higher cost.
8. Foreign buyers: empowerment and the Hague Apostille. Problems conferring a power of attorney. Possibility of granting power to a third party for the sale of the property.
In the given event that you as a foreigner or the owner are unable to attend the signing of the contract, a common scenario in this COVID-19 times, you shall grant a power of attorney to a third party to proceed with the signing of the sale. This sale shall be carried out before a Spanish Notary.
In some cases, when the buyers are two or more people living abroad and only one of them is able to travel for the signing, maybe due to the current restrictions, this shall be carried out too by granting a power of attorney to the person travelling, although this time it must have the Hague Apostille. In such situation, this person may sign in his/her own name and right, as well as in representation of the others not attending. It is also a common practise to empower a lawyer when none of the buyers can attend the meeting.
9. NIE – (Foreigner’s Identity Card).
A NIE number is mandatory for all foreigners wishing to buy a property in Spain. It is a personal and unique tax identification number provided by the Spanish National Police. It can be requested both in Spain as well as abroad through the corresponding Spanish Embassies or Consulates.
At an early stage, your passport should be enough to sign the earnest money contract as well as the contract of sale, though immediately after this you will be needing the NIE in order to pay the corresponding taxes.
10. Tax Payment.
- New-build property: in the Canary Islands, this operation is taxed with the Canary Island General Indirect or IGIC, of 7%, as well as the tax on Documented Legal Acts or AJD, which may vary according to each case.
- Second-hand property or acquiring a property which has already been sold in the past. In this case, the Property Transfer Tax or ITP applies: it consists of a progressive tax, thus depending on the property price together with other requirements from the buyer.
Once the tax payment has been settled, the purchase shall be registered in the Property Registry, meaning the buyer will now show up as the current owner. Bear in mind that the notary and registration fees are to be paid by the buyer.
As a word of advice, when purchasing a property, we recommend getting some legal assistance to accompany you throughout this whole process, making sure you obtain the right and accurate information at all times.
Lawyer. Procedural Department