Tag Archives: purchase

Under the new Entrepreneurs’ Law, a residence permit can be obtained by purchasing a property in Spain

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In enabling this, the Spanish government is attempting to reinvigorate the property market by attracting foreigners from outside the European Union with the granting of a residence permit for investing in Spain, which brings the added benefit of being able to move virtually freely around various member states under the Schengen Agreement.  

Here, too, there is a danger that an investor will view the purchase of a property as an opportunity to do business in Europe.  This can mean that they fail to check sufficiently thoroughly as to whether the purchase of the property is safe and reputable, as they want to take advantage of the opportunity to gain legal residency in Spain.  The risk is the same as for the tourist who wants to enjoy their holiday rather than attending meetings with lawyers.  In this case, too, the investment is a means, not an end, for just as the tourist sees the acquisition of a property as a means that secures them their holiday in Spain, the entrepreneur sees their opportunity to obtain a residence permit by purchasing a property, which then enables them to move freely around the Schengen area.  Both view getting adequate protection for their purchase as unnecessary.  If any problems subsequently arise, they find themselves compelled to find a lawyer to solve the problems arising from their failure to seek independent, professional advice.  However, by then it is often too late, and if there is a solution, it will involve much higher costs than if they had sought advice at the right time.  Well-advised investors can avoid making such mistakes.

Carlos Prieto Cid – Lawyer

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Purchasing property in Spain as an investor, not as a tourist

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Each year, many of the millions of tourists who spend their holiday in Spain decide to buy a property in their destination country.  However, when investing their savings in Spain, they often act whilst still in a holiday mood, and make major decisions without due care and attention.

In almost any language, the term ‘tourist’ leaves a slight aftertaste in the mouth.  Airlines offer their cheapest tickets under the heading ‘tourist class’, while in every country that survives on tourism – and Spain is no exception – tourists are seen as easy prey who are only in town for a short period of time and can easily be taken for a ride.  This image of the typical tourist, whom it is easy to hoodwink and escape unpunished, is largely down to their poor language skills and lack of knowledge of the local customs, but also because tourists are on holiday, of course, and want to enjoy their short time away from home and are therefore relaxed and less vigilant.  As a result, they do not act with the same amount of care as they might in a similar situation at home.

Purchasing a property always involves a large outlay.  In many cases, sums are invested which represent many years of saving.  Such a decision should be given the appropriate degree of protection and made with as much information as possible on the potential legal and financial risks.  Sadly, as lawyers, every day we see how foreigners are conned when purchasing a property and lose their money as a result of failing to seek advice.  Often, people think they don’t need any advice, but then comes a rude awakening.  The cost of an independent consultation is minimal compared to the often hidden dangers when signing a contract of sale for a property; and such advice can only be independent if it has no connection with any other professionals involved in the sales contract.

Carlos Prieto Cid – Lawyer

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Further increase in the final costs of the transfer of property in Spain

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The costs associated with the transfer of ownership may affect the decisions of both parties, buyer and seller, as the net price that the seller receives after deducting expenses and taxes may be much less than expected in the beginning, and the final price to the buyer by adding costs and taxes may be much higher than previously thought.

The parties of a contract for the transfer of property (usually a purchase contract) can decide freely about these matters. However, we are going to analyze now what the laws say when the parties do not achieve an agreement among themselves:

  • The municipality tax on the added value of the property sold, in the case of urban land, is one of the costs to be paid by the sellers. This is a percentage of the difference between the declared value at the time of purchase and the estimated value of the property at the time of acquiring it by the seller.
  • The income tax on the increase in value is also an expense of sellers. If the seller is non-resident, the buyer must submit a deposit (3% of the price) as an insurance tax directly to the tax office. For this reason, this amount is usually subtracted from the purchase price. Subsequently, we have to calculate the payable tax, which also consists of a percentage of the difference between the declared value at the time of acquisition and declared value of the property at the time of sale.
  • The tax on the transfer of property is the buyer’s responsibility. The tax has been raised again in Catalonia and other regions of Spain, and now the buyer has to pay 10 % of the selling price for this concept.
  • The account of the notary (exclusively for the purchase contract) is according to the law at the expense of buyers, unless the parties agree otherwise. The role of the notary in Spain (unlike other countries) is only a formalization, converting the final contract in a public document. This contract has been issued in advance by the parties with the assistance of a lawyer. The notarization of the contract of sale in accordance with Spanish law is not absolutely necessary, but it is very appropriate, because a contract that is not contained in a public document cannot be registered in the registry of property. And such recordation of the change in ownership is not only a guarantee for the buyer, but also a prerequisite when the buyer has to finance the price with a mortgage.
  • What we have just commented justifies as well that the cost of recording the change in ownership in the registry of property has to be paid by the buyer.
  • The costs of preparing the documents to be submitted along with the case, is to be paid by the seller (these documents are normally processed or checked by lawyers). The cost of a lawyer could be common to both parties, as well as the lawyer provides the following services:
    • To provide consulting and legal assistance during the whole process of transfer of ownership.
    • To translate the will of the parties to the legal and technical language.
    • To make a final agreement of sale and prepare it to be notarized by a notary.
    • To foresee the tax consequences of the transaction for both parties and to prepare and submit formally and in time the tax returns in the most convenient manner.

But it is always better for the parties to agree in advance (even in an oral form) the main terms and conditions of the contract, so that the lawyer is able to represent the interests of both parties without any kind of conflict, simply because he develops the sales agreement already adopted by the parties.

Carlos Prieto Cid – Lawyer

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Impact of the new Spanish Coastal Law in existing buildings and coastal preservation

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The last revision to Coastal Law pretends to achieve an economic use of the coasts sustainable over time and respectful with the environmental protection. The changes introduced give more legal certainty and clarity and solve some short-term problems created by the previous legislation, but in practice, they reduce the chances of preserving the coastal strip.

The Coastal Law was adopted in 1988 and assumed significant changes in relation to the former regime. Nevertheless, the legislator was very cautious and therefore decided that the legal changes should not immediately entry into force but be delayed over the time. This has led to a conflicting application of the rule and even to its retreat: the law of 1988 failed to defeat the established social realities and that is actually why the government decided that it should be corrected. On the other hand, this law of 1988 created significant legal uncertainty that caused the resolution of the European Parliament in 2009, asking the Spanish authorities to “urgently review and, if necessary, modify the action of the Coastal Act to protect the legal rights of dwelling property owners and those who own small plots in the coastal areas, which do not adversely impact on the coastal environment … “.

Let’s analyze the key amendments of the reform:

1 – Clarification and specification of the concept of marine and coastal public property and improvement of the procedure of demarcation of boundaries:

The littoral is legally defined as the strip where the sea meets the land. The Spanish Constitution establishes that the littoral (including the coastal zone, the territorial sea and the beaches) will always be in any case public domain. Thus, it is important to recognize how far this common property extends, especially when we consider that the Spanish coast is the most densely populated area in the country and it concentrates the most strategic economic activities of the nation, such as tourism and fishing.

The law states that the coastal protection zone will be the land strip within reach of the biggest waves recorded during strong storms. This recording depends on technical criteria that should be created to give more confidence, reliability and stability at the borders.

The main innovation introduced in relation to the protected coastal zone is to reduce the width of the legal easement from one hundred to twenty meters, but only in settlements which were not classified in 1988 as an urban area although they had the characteristics of such. This reduction also applies exceptionally   in the upper shores of the rivers, sensitive to the ebb and flow, in order to avoid that at sites far away from the river mouth, this easement of100 metershas to be respected.

Carlos Prieto Cid – Lawyer

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Building Energy Efficiency Certificate: a new requirement for the sale of real estate

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The Spanish Royal Decree 235/2013, of 5 April, has just come into force. It approves the basic procedure for the certification of energy efficiency of buildings. Under this new regulation, from June 1st 2013 on, you cannot validly formalize contracts for the sale or lease of property without the submission of such certification.

Real estate selling management has become a very difficult task in the last years, but not only because of the crisis: the continued imposition of new legal requirements has also hindered this sale management, with the excuse to increase the guarantees for the buyer. For example: recently, we have found that it has become impossible to record a property purchase contract in the Registry of Deeds if the transfer of ownership has not been previously communicated to the municipality concerned, so that the tax popularly known as “plusvalia” could be calculated and paid. Previously we had also found that, in the case of sale of dwelling, it has become necessary to prove its habitability by filing a document that, in many cases, costs a lot to get (or at least, a long time). And in most cases, in which such statements only come to ratify the existing factual situation, its demand has only served to slow processes and increase the costs and the bureaucracy around the sale of a property, which are already excessive.

The last obstacle to be overcome by sellers of property is the obligation to provide buyers or tenants the BEEC energy certificate confirming the energy efficiency of the house. This document will describe how the house effectively consumes electricity and will include objective information on the minimum energy requirements so that future owners or tenants of the building (or a part of it) have the opportunity to compare and evaluate its performance with other similar proposals.

The purpose of this regulation, allowing consumers to compare the energy efficiency of buildings, is to promote energy saving investments and also more energy efficient buildings in the housing market. In addition, this guideline helps to report information about carbon dioxide (CO2) emissions from the residential sector, which will facilitate the adoption of measures to reduce emissions and improve the energy rating of buildings. Laudable goal, of course, but in a very long term, if there is something new to be built in this country. Nowadays, what we have is a huge offer of buildings that do not find a buyer and selling them has become with the new directive even more difficult.

Carlos Prieto Cid – Lawyer

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The risk in buying inherited real estate

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Buying real estate is always an important decision because it involves a significant investment. Thus, you should always think about the consequences and know exactly what you risk in your case.

Each case has its own set of problems. Today I want to consider a very specific situation: the children or the surviving spouse inherit a house or an apartment, where the deceased person had his or her permanent residence. During the signing of the necessary notary documents, to reduce the high Spanish inheritance tax, heirs are happy to listen to the proposal for including a declaration in the document of acceptance of the inheritance saying that they have no intention of selling the property in the next five years: this way, it will save quite a large sum for payment of the tax or even pay nothing, and the instrument of acceptance of the inheritance may also be registered in the land registry without problems.

As time passes, the heirs forget that at the time of the acceptance of the inheritance they have signed this declaration to take profit of this exemption from the tax, which was notarized, and then someone appears offering  a very reasonable price for the property (it has happened often so in the golden days, long before the crisis began). Then the heirs decide to sell, and therefore the buyer acquires the property and agrees to pay a high price. It can even be possible that a bank finances the operation with the warranty that the property the buyer is going to acquire is theoretically free from encumbrances. But this is not quite true: there are responsibilities in respect of the property, which are recorded in the register of deeds but of which very often no one thinks (nor the buyer who acquires, nor the notary who certifies the transaction, neither the bank who risks his money): State tax authorities have the right to review the tax declarations filed in each transfer of ownership, and if they do not agree with the calculation and the amount paid at the time of the acquirement, they can unilaterally make a new calculation of the tax, having the warranty, that the property is encumbered in any case to cover potential liabilities to tax authorities, regardless of who nowadays the owner is.

This would mean in our example that the tax authorities could present to the buyer a nasty surprise if it turned out that the conditions for exemption at the time of acquisition of the property by inheritance have not been met: as the real estate acquired by inheritance using the tax deduction should now be charged with a liability to which the current owner has nothing to do. And the tax, which is calculated by the tax authorities unilaterally to be paid by the children or the spouse of the deceased person, the former owners of the property, may represent a high percentage of its value.

That is why we always recommend not signing any contract or pre-contract of sale without first checking with the lawyer the problems that may arise in each case. This case is just one example of the many troubles, lying in wait for buyers at the time of signing the contract without diligence. However, there are many other cases, which include a big risk. The tax authorities are currently in need of resources due to the crisis and have at their disposal a large number of idle officials, who are currently engaged in audits of all types of legal transactions in the last four years (inheritance, sale, donation, etc.), looking for an excuse to be able to submit payments of additional taxes that are still enforceable, and require the additional appropriate amount.

Carlos Prieto Cid – Lawyer

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Incoherent land information systems in Spain

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In Spain, it is often the case that entries recorded in the cadastre and the land register (register of deeds) are not identical and the two registries can often contradict the actual plots on the ground.

The reason for this is that the sources of the information differ: in the land register, only information contained in official documents is recorded (e.g. notary certified contracts or judicial decisions); however, the information in the cadastre is submitted and recorded by municipality officials or the tax office.

The function of the information also varies: in the land register, a private individual enters the information which he wishes to defend with the guarantee of the official register; in the cadastre, the administration prepares the information necessary for the calculation of taxes and the enforcement of its own demands.

This potential contradiction is not the only difference between the Spanish and other foreign land registers: another and very important difference in the Spanish land register is the mandatory recording of a building’s description, including details of the construction areas, with a notary certificate, while in other foreign land registers (like in Germany, for example), only the explicit size of the plot (without any description of the buildings) is recorded.  Significantly, this means that if alterations are made to the building, its altered condition must also be updated in the land register with a retrospective notary “New Works Declaration”. However, this is often not done, either through ignorance, a reluctance to pay the notary, tax and registry costs, or more usually because (new) building has not been granted.

Nearly all contracts of sale for property are dependent on the funding of the buyer.  This funding is usually granted by a bank, but always with the guarantee that it is recorded in the land register as a mortgage on the purchased property.  It is therefore very important that the information recorded in the land register does not conflict with reality because any information missing from the land register can mean that the financing bank will not cover the purchase price agreed for the property (this price is agreed irrespective of what is actually stated in the land register). Therefore, if you are intending to put a property on the market as a seller, it is advisable to find out all entries in the land register and cadastre and compare them with the actual plots.

Providing that the correct measurements are recorded in the cadastre, it is relatively simple to amend the land register.  With existing (or older) valid building permission and construction final approval documented by the municipality, things can move forward quickly.  It becomes difficult however when a building or part of a building exists which has not been recorded and for which there is no official approval.  Then only the lengthy and expensive route of gaining planning and building permission through an architect remains.

The situation is different when not only the factual information, but also the legal information recorded is incorrect: this often occurs in the case of inheritances which have not been formalised or when the buyer has not notarized the signed contract of sale.  Because only information contained in official documentation can be recorded in the land register, private contracts of sale cannot be registered.

Carlos Prieto Cid – Lawyer

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Legalization of buildings outside the law

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Traditionally it has been possible in our country to legalize buildings outside the law through the mere passage of time. However, the Law 8/2011 has added new requirements when recording new buildings in the register of deeds, giving more legal security to the system.

When selling a property, the buyer usually requires financing. To obtain financing is not only very difficult nowadays, due to the current banking situation, but also virtually impossible if the buyer can not offer a mortgage to the bank that lends him the money. To make it possible for the bank to register the necessary property mortgage, the real value of the estate to be charged should be reflected in the register of deeds. This is only achieved when the elements that provide greater value to the property, that is, the existing buildings on it, are properly registered. To register these edifications, a notarial declaration of the new building is always been necessary and this document must be submitted to the register in order to be recorded, accompanied by many documents to control its urbanistic legality.

Despite this, there was always a back door to buildings that violated the law, which could end up sneaking in urban registration of the property, with the economic and financial consequences discussed above. The mere passage of time with no reaction of the relevant planning authorities, the municipalities, leads to the possibility of regularization of these illegal edifications. As the deadlines for the sanctioning procedures passed and the planning authorities could no longer prosecute these buildings, they could end regularized, if certain conditions were met. But in the present days, the last reform of the Land Act we mentioned above, has added a key requirement, prior to the possibility of recording the irregular building in the register of deeds: we should show a municipal certification defining the content of the situation outside the law of the building we intend to record.

Article 20.4 of the Act indicates that
“4 …. in the case of constructions, buildings and facilities for which no appropriate measures to restore legality involving urban demolition can be taken, because the relevant limitation period has passed, the registration record of the completion of the work shall be controlled by the following procedure:

  • a) the notary deeds with the statement of a new building can be recorded in the Land Registry if they are accompanied by a certificate issued by the City Council or by a competent technician, or a descriptive notarized certification of the property or a cadastral descriptive and graphic certification of the property, when these documents confirm the completion of the work in a specified date and the description coincides with the title. For this purpose, the Registrar shall verify if there is a notation in the Register of Deeds because of the initiation of an urban discipline procedure for the property subject of the construction, building and installation in question and that the site is non demanial or affected by easements for public use.
  • b) The registration entry will record the outside-the-law position of all or part of the construction, building and installation, in accordance with applicable urban management. It will be necessary to provide the administrative act by which the situation is declared outside management, with the proper delimitation of its contents.
  • c) The Registrar shall report to the City the respective entries in the cases included in previous issues, and such notification will be recorded in the inscription”

This new regulation, in force throughout the state, which requires prior to registration the provision of a municipal certificate on the content of urban illegality is coherent with the goal to be reached with the law of passing “registration measures designed to ensure and strengthen certainty in the real estate contracts and business, through the Land Registry” and “emphasizing on register protection measures which aim to prevent and prosecute in the future situations that occur today and that are impacting very negatively on investment in real estate, both domestically and internationally“.

Let us hope that eventually these legal measures have the desired effect and strengthen the security image as necessary to encourage property investment, especially by foreigners.

Carlos Prieto Cid, Lawyer

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International Judicial Assistance

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The increasing internationalization of economic activity and therefore of our society is causing a widespread outbreak of international issues in daily life and therefore also in the life of the local court proceedings. It is nowadays very common that in a judicial procedure one or both parties are domiciled abroad, or that it is necessary to obtain judicial evidence beyond our borders along the process.

When the lawyer has to formalise a power of attorney or an affidavit to certificate the validity of foreign law, or when a judicial warrant is necessary for a notification to the parties abroad or for evidentiary purposes in another country, all stages of judicial proceedings may have an international element that complicates the whole procedure or, in extreme situations, makes it virtually impossible to implement.

In Europe, cooperation between member states on justice and internal security is one of the three pillars of the European Union, along with the economic community and the common foreign and security policy. Moreover, since the entry into force of the Amsterdam Treaty, the Community provisions can be applied to each of the areas concerning police and judicial cooperation as contained in Title VI of the European Union Treaty, although this “communitarisation” of the rules for police and judicial cooperation has to be agreed unanimously by the Council and ratified by all Member States.

Although common European justice has never come to be developed as much as the economic and monetary union or inter-governmental coordination on foreign policy and security policy, in recent years developments in this area have become more popular and it is no longer so strange that the courts use these resources to carry out their daily activities. However, we find many difficulties to achieve that court officials use the European way of judicial cooperation effectively. The principle underlying the European regulations of these matters of judicial cooperation is to enable judicial officers of the member states to cooperate with each other using simple pre-established protocols, provided that, ex officio or at request, that international action is considered necessary by the judge. However, without proper coordination between lawyers experienced in international litigation and the attorneys and the court officials involved, today the international judicial cooperation would be very inefficient, because the existing protocols are not always known or respected by the court officials, what provokes an avoidable waste of time and resources during the process.

If we find such a lot of inefficiencies in the framework of the European Union, what could be said about the problems caused by international judicial assistance outside the scope of European cooperation? Therefore, the procedural experience of international law firms with European or global orientation, such as the ones joining the network EUROJURIS INTERNATIONAL can be of great help when planning international processes, not just for the parties involved, who can enjoy a much more efficient service of representation in court, but also for other lawyers, who are eventually in these situations and can count on their support and specialist external advice to avoid being caught in unexpected procedural problems when entering the complex field of judicial processes initiated in their own country, but that require the processing of incidents abroad.

Carlos Prieto Cid, Lawyer

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The role of the lawyer in the sale of property

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In the glorious years of the housing bubble, when everything was easily bought, lawyers played an essential role in advising buyers to purchase property with all guarantees. Now that everything is being sold, our role is still essential to prevent a sale from being frustrated by legal reasons.

An ordinary person takes only very few times during his life the decision to buy or sell a property. However, there seems to be no awareness in the society that, before making this fundamental decision is wise to consult with an attorney. All the contrary, the general idea is that one should only go to a lawyer to solve legal problems and not, as it should be, to try to avoid them. That is why we lawyers often find customers that come to our office once they have already signed a contract, thinking that with a magic wand we can resolve a problematic situation, which would never have happened if they had consulted us on time.

Among the professionals involved in the decision making of a real estate purchase contract, the lawyer is the only one who can give advice with the warranty that this is only his role and that is why he gets paid, with the absolute independence of the one who knows that is going to collect his fees whether the operation is performed or not. In short, the lawyer is the only professional who can calmly tell his customer: do not sign! That’s why taking advice from a lawyer before signing a contract for purchase and sale of real estate is essential and the sooner you come to him, the better.

In real estate market intermediaries tend to avoid the intervention of lawyers, because they think it increases the costs of the transaction and therefore it reduces their room for maneuver. But the reality is quite the opposite: the costs of our intervention are very profitable. We can actually give many examples of real estate transactions that would have failed if there had not been an immediate intervention of lawyers. The most common problems that we solve are:

• problems with the matrimonial regime applicable
• a necessary formalization of an acceptance of inheritance,
• buildings awaiting a declaration of new construction (even if they have been legal built, but not registered)
• fiscal and money laundering control problems specific to non-resident sellers or non-resident buyers,
• special powers necessary to formalize the operation, when the contract parties cannot be present at the formalization of the purchase contract…

But the range of possibilities is enormous and each of these issues can cripple sales management until making it impossible, especially at the present time, because of the lack of buyers and the oversupply of housing available to the market. Furthermore, experience in international operations with nonresident buyers or nonresident sellers is at the moment crucial, as the housing market mainly offers its stock to potential foreign buyers from countries increasing their capacity and interest in purchasing property in Spain (Russians, Swiss, Indian, Chinese, etc.)…

The failure of a real estate transaction means for the real estate brokers involved an effective cost in time, dedication, displacements and risk analysis, and these costs have no compensation if the operation is not actually performed. The causes of such a failure are often legal issues that only an attorney skilled in the art would have foreseen early enough to provide possible solutions and avoid the loss of the buyer. Or, if not feasible any of the proposed solutions, the lawyer could advise to abandon the operation on time, before incurring further unnecessary costs. Working with real estate agents or other intermediaries in the housing market is an important opportunity for business and the synergies it generates are very helpful both for lawyers and for the agencies involved, providing their common customer the benefit to be able to buy or to sell with guarantees and to mature his decision with all the necessary information.

Carlos Prieto Cid, Lawyer

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