Solicitor Raymundo Larraín Nesbitt takes us step-by-step through the legal procedure to buy new-build property in Spain from a developer.
By Raymundo Larraín Nesbitt
Director of Larraín Nesbitt Lawyers
8th of March 2017
Continuing last month’s topic on Buying Property in Spain from a Private Seller (Resale Property), this month I provide a general overview on the full legal procedure on buying off-plan property from a developer (also known as new-build). The procedure to buy off-plan differs significantly from buying resale; to the point it warrants its own article as the pitfalls vary meaningfully from one another.
The following article provides a sweeping outline on the buying procedure. If you are looking for concrete advice on a given matter, I highly advise you read my listed articles below which focus on specifics. Just scroll down the page to the bottom section which headline is “Related articles.”
I have simplified the procedure on purpose for ease of comprehension. If you are looking for more detail, I advise reading my article How to Buy Property in Spain Safely which gives an in-depth account of the full buying procedure.
It is strongly advised you read this article in tandem with my article Buying Off-Plan Property in Spain.
Bear in mind that you are paying a deposit on a property which under normal circumstances does not even exist yet and is unlikely to exist until a couple of years’ time. New-builds, unlike their key-ready resale counterparts, have an inherent element of risk associated to them. This risk is mitigated in the knowledge that new-builds are, in general, significantly cheaper than a resale property (on average by 30%). Moreover, as they are new, they are normally built catering to the highest quality standards and employing the most modern materials and know-how. This has a significant impact in insulation, for example, which may in turn impact your Town Hall tax bill by reducing it significantly (read pro-tips below).
After making enquiries and looking around for a property you may have taken a liking to one. Off-plan properties are normally listed by developers or real estate agencies. They will nudge you to sign what is known as a reservation contract (or holding deposit) which strikes the new-build property off the market for a pre-agreed period of time; normally spanning 30 days.
The deposit normally amounts from €3,000 to €6,000 depending on the property. The deposit contract is a succinct document that is normally only one page long. It has very few details, amongst them the developer´s name and company details, the development’s facilities, a general property description and the asking price.
The reservation deposit will be deducted from the final sales price at completion (third stage, see below).
Before the 30 days are up you will be expected to sign what is known as a Private Purchase Contract (or PPC for short). In Spanish, this is known as Contrato Privado de Compraventa. In English law we know it as Exchange of Contracts. The PPC will be a long legal contract which will list the buyer and seller´s personal details, a full property description, the agreed sales price, the schedule of stage payments, the buying terms and the time frame to complete before a Notary Public.
Your lawyer will have normally already supplied you with a report on title so you are perfectly aware of the legal situation of the property you want to buy before signing the private agreement. This report on title should cover at the very least the following check list:
Normally on signing a PPC you are expected to make a down payment equivalent to 10% of the purchase price which will be deducted upon completion (stage three). This amount of money is non-refundable.
You will be expected to pay approximately 35% of the final sales price in stage payments. These are deducted at completion (stage three) from what you owe.
Photo credit: Otherworldly Hotel Marqués de Riscal amid vineyards, Valladolid, Spain. By Frank Gehry.
One of the particularities of buying offplan property, is that completion normally takes place some two years after signing the PPC (stage two). The reason being is that the property is under construction and you only complete when it is finished.
Completion is the term used to sign the Title Deed which is witnessed by a Notary Public. Additionally, if mortgage finance is required a second deed is signed called a Mortgage Deed. Completion is the time when you pay the balance that you owe, normally 50% of the sales price.
You should read carefully through the deeds before you sign anything. This is particularly true of a Mortgage Deed. Your lawyer should ensure you do not sign abusive mortgage clauses.
If you need a mortgage loan to complete on the property, it is highly advisable you negotiate a reasonable time frame to secure it i.e. 45 to 60 days. This is particularly true if a borrower is non-resident. A borrower requires an Offer in Principle (or Agreement in Principle) from his lender known as Oferta Vinculante in Spanish.
At completion, you take legal possession of the property which is symbolized by being handed over the house keys.
At completion, you may be surprised to find a great number of people:
Your lawyer will file and pay the buyer´s taxes and lodge under your name at the Land Registry your new Spanish property.
Congratulations, you are now the official owner of a Spanish property. Enjoy!
Photo credit: Fallingwater (Kaufmann Residence) by Frank Lloyd Wright.
You should open a Spanish bank account if you haven’t done so already. Utility companies do not accept overseas payments so you should set at least all the following as a direct debit against your Spanish account:
As a rule of thumb purchase costs add 10 – 15% over and above the purchase price. In some regions of Spain, particularly in Valencia, this figure may be higher. Please take thorough legal advice to budget your purchase before you commit. You can read my article Taxes on Buying Spanish Property for more details.
Besides paying taxes (explained below), a buyer is bound to pay the following fees:
Hiring a seasoned lawyer, in my experience, pays for itself on all the money you stand to save on avoiding the most common pitfalls on buying a property in Spain.
Make sure you are assisted on your house-hunting by reputable experts (such as a long-established real estate agency, a reliable mortgage broker or a seasoned lawyer) to benefit most from the wide range of available bargains – you will be spoilt for choice.
It is important you avoid being pressurized into completing; take your time to fully assess the information you are being given and do not hesitate to ask any questions.
And to close, I stress draconianly not to complete without a Licence of First Occupation.
Because impartial legal advice is priceless.
“Your best work is your expression of yourself.” – Frank Gehry.
Frank Owen Gehry is a Canadian-American architect who won the Pritzker Prize in 1989. He is known for his buildings such as 8 Spruce Street, Dancing House, Port Olímpic, Jay Pritzker Pavilion, the Hotel Marqués de Riscal and the Guggenheim Museum in Bilbao, Spain. He built buildings across the United States and across South America.
Also published at Spanish Property Insight: Buying Property in Spain from a Developer (Off-Plan Property).
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