Once we have “found” the property we are going to buy, what is the procedure to follow?
1) Sign a purchase proposal or reservation agreement.
The first step will be to reserve the property, for this, the estate agent or the seller will normally ask you for a reservation fee of 3000 euros. Once this reservation has been paid, the seller agrees to remove the property from the market.
In this simple contract, your lawyer can already establish the most basic conditions of the future purchase, such as the purchase price, the maximum date for the completion of the sale, the deposit to be paid in the deposit contract or “contrato de arras”, whether it is sold furnished or not, etc.
2) Sign a deposit contract or “contrato de arras”.
Once your lawyer has checked all the documentation, it is advisable to guarantee the good course of an operation as important as the purchase of a property. This is why the so-called deposit contract or “contrato de arras” is often used. Your lawyer can review the guarantee contract proposed by the seller to verify that it is a fair deal, or draft it for you, ensuring that it meets your needs.
Then, the buyer will be asked to pay a deposit of around 10% with the signing of the purchase agreement (contrato de arras) and the rest will be due on completion.
How does the “contrato de arras” work?
The arras are an institution that works as a deposit or signal. They are given when the purchase of the property is agreed, to ensure that neither party backs out. By means of the deposit contract, the payment of an amount is agreed upon and delivered to the seller.
In the event that the sale is completed, the deposit is applied to the sale price as an advance.
However, if it is not formalised, it will act as a guarantee. According to article 1.454 of the Civil Code:
If the buyer fails to comply with his commitment to purchase the property, he will lose the amount paid as a deposit (arras).
If it is the seller who fails to comply with his commitment to transfer the property, he will return to the buyer the amount of the deposit in duplicate.
This deposit is usually substantial, which makes it very conflictive in practice. This is because the defaulter usually looks for a way to recover his money or not pay double. That is why it is important that your lawyer assists you in formalising the agreement and, if necessary, in claiming the deposit.
3) Sign a Purchase deed.
After checking the legal situation of the property, you will have to formalise the purchase. This is done by means of a purchase contract, which can be private or notarised. Obviously, the notarised deed is the option that offers more guarantees and we always recommend it to our clients.
It is frequent that before granting the public deed of sale the parties sign a private contract. This private contract generates the effect of the sale, so it has the power to force the parties to comply with the agreement.
If the sale is of first transmission, the private contract will be signed in most cases. But in the case of second transmissions it is rare to sign it.
The contract of sale by means of public deed, takes place, by way of appointment, before a Spanish Notary Public, with either the seller and the buyer. As it is obvious, the seller must be able to dispose of the property, that is to say, he/she must appear as the owner in the Land Registry. If there are several persons, they must all sign.
The only case in which different people can sign is when powers of attorney are granted for this purpose. We, as Spanish lawyers, have a lot of experience in acting on behalf of clients under power of attorney, this way we avoid the client the expense and inconvenience of travelling to Spain to do the paperwork, and more so now, in times of Covid-19.
If the property is mortgaged, then a representative of the Bank will also be in attendance.
If your lawyer assists you in entering into this contract, he/she will check the powers of attorney and deeds to verify that everything is correct.
Please note that there are particular cases:
If the property is the habitual residence of a family, both spouses (or common-law partners) must be present.
When it belongs to a company, the administrator or proxy must sign it.
If it is part of an inheritance, the heirs must be involved.
4) Registration of Title in the Land Registry
Once the deed of sale has been signed before a Spanih Public Notary, your lawyer, the notary’s office or a gestoría (management office) will register the property in the name of the buyer at the Land Registry, from that moment on, the new owner.
5) Who pays what?
The buyer and seller are free to contract whatever terms they choose. However, the seller should pay the PlusValia tax (Capital gains tax) and the buyer pays the Transfer Tax and the Land Registry Fee. If the property is mortgaged, then the seller should pay for cancellation of the same. It is common for the buyer to withhold money to ensure that the mortgage cancellation or the other taxes are paid.
You lawyer will establish whether the seller is a resident or non-resident of Spain. If the seller is a non-resident seller, the buyer MUST withhold 3% of the purchase monies. This money will be paid directly to the Tax Authorities (Hacienda) in the name of the seller. This is to guard against the non-resident seller failing to pay taxes. This is particularly necessary as any unpaid taxes can be billed to the owner of the property if the seller did not pay.
Resident sellers are not subject to a retention from the purchase monies. Residents’ tax is calculated as part of their income tax, paid the year after the sale. However, Residents will be required to produce proof of Tax Residency and quite possibly an up to date Fiscal Certificate confirming payment of their taxes.
In short, the Spanish lawyer works in defense of your interests.
So, in conclusion, the services of a real estate lawyer are more than recommended when buying or selling a property in Spain, because your lawyer will not only help you to better understand the documents you are signing and the procedures you are going through, but also their compliance with the law and he will also help you to avoid problems in the future.
We hope that you have been able to better understand the procedure of purchase and sale, and if you are thinking of buying or selling a property in Spain, do not hesitate to contact us.
Written by Elena Escribá