Solicitor Raymond Nesbitt takes us through the so-called “Golden Visa” law that offers residency permits to non-EU nationals in return for an investment of €500,000 in Spanish real estate.

Article copyrighted © 2013. Plagiarism will be criminally prosecuted.

By Raymundo Larraín Nesbitt
Lawyer – Abogado
8^th of November 2013

Spanish residency permits for property investors

The Spanish Government has finally approved the long-awaited Investor’s Residency Law (popularly dubbed as ‘Golden Visa’ law). Keen to give the ailing real estate sector a gentle nudge, it had long been mulling the idea of investor visas. Inspired by similar laws in fellow European Union member countries, Spain enacted on the 27th of September 2013 the Entrepreneur’s Law. It introduces, amongst a wide array of measures, for the first time residency visas and permits for non-EU investors.

A Law For Entrepreneur And Property Investors

Law 14/2013, of the 27th of September 2013, on support for entrepreneurs and internationalisation introduces in articles 61 through to 67 the conditions that have to be met by non-EU investors to qualify for Spanish residency. The law distinguishes clearly between residency visas and residency permits. I will elaborate in more detail what these are further below.

This new law allows non-EU investors to qualify for the highly coveted so-called Golden Visas. To summarise, this new law enables non-EU nationals to attain qualified residency permits in return for investing in Spanish real estate (and other assets), leading to permanent residency in Spain if certain conditions are fulfilled.

Investors’ General Requirements

Applicants pursuing investor visas / permits need to comply with the following general requirements which are specific to Non-Lucrative Residency Permits (art 62):

– Non-EU national (art 61)
– The investor applicant must be of legal age (18-years-old or over)
– The investor must not hold a criminal record whether in Spain or in the previous five years where he has resided
– Not be already in Spain irregularly
– Have access to medical insurance whether private or public
– Have sufficient financial means to support both himself and his family whilst in Spain. This should definitely not be an issue for those who have the socioeconomic profile to qualify for a Golden visa in the first place; it goes without saying.
– Pay the relevant application fee

Distinction between Investor Residency Visas and Residency Permits

In addition to the above general requirements set out in art 62 which are common to both types, applicants must also meet those stipulated in articles 63 (Investor Residency Visas) and article 66 (Investor Residency Permits).

This law distinguishes two types of permits:

Residency Visas (art 63): on following the requirements (see below) one qualifies for a residency visa which entitles an investor to reside in Spain for up to one year (art 65).

Residency Permits (art 66): however, if an investor wishes to stay longer he must qualify additionally for what is known as a residency permit. This permit entitles an investor to live for up to two years in Spain and is renewable providing the requirements are still met (art 67). This permit will be granted on the following twenty days of having applied for it. It can be granted by the Administrative Silence Rule (ASR) in case of non-reply by the Authorities. This path leads eventually to Spanish citizenship.

In both cases the investment needs to be maintained during the validity of the Residency Visa or Permit. Spanish Authorities may carry out routine checks to verify this is still the case.

Investor Residency Visas

One may attain a residency visa on investing in any of the following asset classes in compliance article 63.2:

a) Investing at least €2,000,000 in Spanish Treasury bonds
b) Investing at least €1,000,000 in shares of publicly trading Spanish companies or non-trading ones
c) Depositing at least €1,000,000 in Spanish bank accounts
d) Acquisition of real estate located within Spanish territory of at least €500,000 per applicant
e) A ‘major’ business investment which fulfills at least one of the following three conditions:

i) Meaningful job creation as a direct result of the investment
ii) Significant socioeconomic impact in the geographical location where the activity will be carried out
iii) Technological or scientific impact

The law adds that the investment can be made by either a physical or legal person. The legal person must not be located in one of the countries deemed as a tax haven by the Bank of Spain. A physical person must demonstrate it exercises a holding control of the company’s shares. This translates to the investor being able to control, directly or indirectly, the majority of voting rights besides having the power to name and remove the majority of members sitting in the board of directors.

Investor Residency Permits

To attain a residency permit one must comply with the following (art 66):

a) Comply with the requirements laid out in art 63 (see above for more details)
b) Hold a valid investor’s residency visa or one that is not overdue by more than 90 days from the expiration date
c) Have travelled to Spain at least once during the validity of the visa stay (you must be able to support this claim with evidence)
d) Provide legal support to uphold the investments made in art 63.2.a) (see above for details) have been held during the mandatory minimum legal period required by law. Depending on the first three cases different legal documents will be required to support this claim.
e) Having complied and be up to date with all Social Security and Tax related obligations

Spanish “Golden Visa” Residency / Visa Permit FAQs

1. Can I request a mortgage on investing €500,000 in Spanish real estate?

Yes, but only for the excess above €500,000. The law only requires that the first €500,000 is unencumbered – meaning the equity threshold must be free. The excess can be indeed financed through a mortgage loan if necessary. What is important to understand is that the first half million euros must be mortgage-free. So an investor is expected to have the financial means to come up with these funds unassisted by a lender, whether national or foreign.

2. I have read that I need to spend in Spain more than six months to qualify for residency. Is this true?

Generally yes. However this new law specifically targets affluent individuals who will normally be residing elsewhere. The law purposely waives this requirement and only requires that a would-be investor has travelled to Spain at least once during the validity of the visa (and is able to support it through evidence). So residing six months is not necessary for the specific case of a so-called Golden Visa applicant. In fact, as can be surmised from what I’ve written, an applicant may be out of the country for more than six months and still be able to qualify for it. However if you are aiming for Spanish citizenship your main business interest must be located in Spain despite not having to reside in the country continuously for six months. Prolonged absences of over six months will not prejudice the right to attain permanent residency (five years onwards).

3. Can I attain permanent residency or even Spanish citizenship through this law?

Yes eventually, assisted by lawyers specialising in residency.

4. Does this law preclude pre-existing ways to apply for permanent residency?

No it doesn’t. Existing permits and procedures are still valid. This law is specifically tailored for affluent non-EU investors and basically helps to cut the red tape.

5. Is this proposal retro-active? I already have invested €500,000 (or more) in Spanish real estate. Can I still qualify?

No, sadly you cannot. The law came into force on the following day of being published in Spain’s Official Law Gazette (B.O.E.) which was on the 28th of September 2013. Any investment made prior to the said date will not qualify for the purposes of Law 14/2013.

6. Are there any strings attached?

None, besides parting with your money.

7. Just the investor, or investor and family?

The law specifically requires that each applicant makes an investment. However a husband/wife and children under 18 can be considered included under the same application (art 62.4).

8. Are taxes included in the investment threshold?

Short answer is no i.e. you buy a new home for €460,000 plus 10% IVA = €506,000
The applicable VAT (€46,000) would not count towards being above the €500,000 threshold. So the application would be turned down on grounds of not meeting the threshold.

9. Do holders of the so-called Golden visa have unrestricted access to move within the European Union?

Holders of a Spanish Residence Permit will not require a visa to enter the Europe Schengen area. They can transit and enjoy free movement within the Schengen area for a maximum period of three months (90 days) per half-year from the date of first entry. However, please be advised that not all countries within the European Union are party to the Schengen Agreement i.e. the United Kingdom and the Republic of Ireland maintain opt-outs.

10. Where do I apply for a visa / residency permit?

Through us, just contact us.

“Golden Visa” Spanish Investor Residency Visas / Permits – Conclusion

Spain’s widely-publicized struggling economy offers unique investing opportunities for those savvy investors with the risk appetite to profit from today’s irrational rock-bottom prices.

Spain’s housing market has clearly turned the corner in 2013. The Government has been busy approving the necessary legal amendments advised by the Troika to help pave its way out of the recession on the road to recovery. As evidence of such a recovery we have witnessed over the last six months a spectacular stock rebound across the board, led by foreign capital, which has driven blue-chip Spanish shares to former highs.

In due course, in the real economy, a resurgence of the real estate market will follow over the next years fueled by foreign capital profiting from Spain’s (still) ridiculously low real estate prices. Granted it will not be as spectacular, and will likely take longer, than a stock rebound but it will materialise nonetheless.

It really goes without saying that the main focus on investing in Spain for residency purposes should be the asset itself. The visa or permit will follow in due course. I strongly advise before committing to invest in Spain that one first takes qualified advice from reputed experts or companies.

Larraín Nesbitt Lawyers, small on fees, big on service.

Larraín Nesbitt Lawyers is a law firm specialized in taxation, inheritance, conveyancing, and litigation. We will be very pleased to discuss your matter with you. You can contact us by e-mail at info@larrainnesbitt.com, by telephone on (+34) 952 19 22 88 or by completing our contact form.

Legal services Larraín Nesbitt Lawyers can offer you

• Golden Visa
• Conveyancing – Buying
• Fiscal Representation (Non-Resident Income Tax): Tax Model 210

 Golden Visa related articles

• Buying Distressed Property in Spain – 8th August 2011
• Buying Resale Property in Spain – 21st February 2013
• Buying Off-Plan Property in Spain – 8th of June 2013
• How to Buy Commercial Property in Spain – 4th July 2014
• How to Buy Rural Property in Spain – 8th August 2014
• How to Buy Property in Spain Safely – 10th October 2014
• House Hunting in Spain – 17th June 2015. The New York Times
• Taxes on Buying Spanish Property – 8th July 2015
• Non-Resident Taxes in Spain – 8th December 2015
• Golden Visa Spain – 8th June 2017

Please note the information provided in this article is of general interest only and is not to be construed or intended as substitute for professional legal advice. This article may be posted freely in websites or other social media so long as the author is duly credited. Plagiarizing, whether in whole or in part, this article without crediting the author may result in criminal prosecution. VOV.

2.013 © Raymundo Larraín Nesbitt. All rights reserved.

Every community of owners in Spain should have an insurance policy. This article is an FAQ and sweeping overview of what a community of owners insurance policy (normally) entails.

By Raymundo Larraín Nesbitt
Lawyer – Abogado
8^th of August 2013

Is community of owners insurance mandatory in Spain?

It depends where you live in Spain. Spain’s Horizontal Property Act in its article 9.1.f stipulates that Communities of Owners (C.O.) are free to take out an insurance policy to cover all damages. So from a national point of view there would be no obligation. However, as Spain is divided administratively into seventeen different autonomous regions, each act like mini-estates, these have their own powers to pass laws that affect matters within their territory. Some of these regions have made a C.O. policy mandatory i.e. Madrid and Valencian Comunity.

How is it funded?

It is mandatory that all C.O.s set aside 5% of the annual community budget to help build a communal reserve fund. The community insurance policy would be one of the expenses paid out from this fund. So basically all common-holders are actually pooling into this fund.

What does it normally cover?

This is a general question to which there is no specific answer. The correct reply is “it depends”. There is a broad range of policies available in the market with different price ranges. The difference in price is explained because the more expensive ones cover more accidents. So basically a community will tailor its insurance according to its own needs and circumstances. For example, it may not make much sense for a Community of Owners located in Marbella to pay a premium for additional cover against falling airplanes. However, this would make perfect sense in a Community that’s in the vicinity of a busy airport. So bottom line, you pay what you get. There is no general communal policy acting like a blueprint to match one and all Community of Owners. It’s left at the discretion of the Communities’ governing body to ensure what events require cover.

You would typically expect a Community of Owners policy to cover any and all of the following:

Fire-related damages
• Fire, explosion, lightning ray
• Smoke, acoustic noise, vandalism
• Faulty electric wiring
• Earthbound transport collision, aircraft collision
• Fire extinguishing expenses
• Rescue, demolition, debris cleaning, appraisal expenses
• Forced eviction or uninhabitable
• Rental loss
• Documents and archive replacement
• Automatic cover of insured capital

Water-related damages as well as those caused by adverse climatology
• Water-related damages in communal drains, gutters and waste pipes
• Faucets left accidentally running
• Leaks, damp patches and resulting mould growth
• Fire-proof installations
• Additional expenses borne by abusive use of community water
• Water damages caused in non-communal areas (privative)
• Plumbing expenses: localising the origin of the problem, repair of communal and non-communal areas
• Heavy rain, hailstone, snow and flooding. Mud-extraction (as a direct result of flooding in low areas such as underground garages and basements)

Further damages
• Broken communal crystals and floor tiling including skylights. Photovoltaic systems or solar panels
• Workmanship to have them mended or replaced

Additional guarantees
• Employee non-loyalty
• Faulty machinery and electrical equipment
• Health and Safety. Employee accidents within premises

Civil liability
• Of the Community, of the ‘Mancomunidad’
• Of community employees
• Of individual owners blunders i.e. forget to turn off a water tap and cause a small flood

Legal assistance
• (Legal) advise over the telephone
• Representation and litigation before Spanish courts of Justice
• Litigation against non-paying community owners for outstanding community fees

Aesthetic repair
Aesthetic damages to building facade or interiors (communal areas)

24-hour emergency repair assistance
Handymen urgent services i.e. locksmith

Unforeseen events
• Consortium
• Total loss. Demolition-related expenses. Professional fees
• Frost-related damages

Theft
• Theft, petty larceny, hold-ups (of goods located in communal areas; not in private dwellings)
• Communal fund misappropriation and mismanagement
• Theft-induced damages (i.e. broken windows due to break-in) in communal areas

Do I need to hire home insurance policy if my Community already has one?

Yes, they are completely unrelated. The former covers your home contents and the latter covers (mainly) the community.

I would strongly recommend that you hire your own insurance to cover your home contents. The communal policy is geared normally to cover almost exclusively communal areas and facilities. Its purpose is not to cover the contents of your private home within a Community of Owners. On very few occasions will the communal policy actually cover an accident in your own home and it will only be indirectly at best i.e. water-related damages originating in communal areas, such as a badly sealed gutter in the rooftop, that result in water seeping through into your master bedroom.

By the same token you can also be held liable if your own home causes a flood that extends to adjacent neighbouring properties i.e. split internal pipes. This is not covered by communal insurance and you will have to pay for all related damages and repairs.

Far-fetched claims such as “there is no need to hire a home insurance for contents if your community already has an insurance policy in place” are grossly misleading and unfounded. They should be disregarded as ill-advice. If you want to be appropriately covered and insured hire and pay your own private home insurance policy. There is a wide array available to suit all pockets. Be advised that normally on taking on a mortgage to buy property in Spain lenders will throw in the deal some form of home insurance. This is a linked product to your mortgage and you normally have little choice over it. Please read section six in my article on Spanish Mortgage Loans: Beware of Abusive Clauses.

Conclusion

While it’s true that a communal insurance is only mandatory in some parts of Spain the fact is that it only makes common sense to have one hired. Its annual cost can be greatly reduced by eliminating many of the above-listed covers leaving only those deemed as ‘essential’.

While most of the events covered are related only to communal areas there will also be some instances, particularly those induced by heavy rainfall, where privative areas are also indirectly covered as a direct result of induced damages originating in communal areas. So private owners may indeed claim against the Community insurance in such cases. The insurance company will send its own ‘peritos’ (qualified experts) to assess the cause and extent of the damage to ascertain if the community is indeed liable. In which case it will have to pay for the repairs.

Rainfall-related water damages are typical of communities dotting the Spanish coastal areas as properties, in my experience, are in general built ill-equipped against heavy rainfalls resulting in damp patches and aggressive mould growths. If these are left unchecked by the owner, over the winter period, they will likely lead to unpleasant surprises when he comes to enjoy his overseas property during their holiday break. Which is why it is strongly recommended to leave the property keys to someone of trust (family, friend, neighbour, estate agent) who may regularly drop by and take a quick peek at your property in your absence during the rainy season to ensure everything is above board and raise the alarm if not.

“The rain in Spain stays mainly in the plain” – Eliza Doolittle. My Fair Lady.

Larraín Nesbitt Lawyers, small on fees, big on service.

Larraín Nesbitt Lawyers is a law firm specialized in taxation, inheritance, conveyancing, and litigation. We will be very pleased to discuss your matter with you. You can contact us by e-mail at info@larrainnesbitt.com, by telephone on (+34) 952 19 22 88 or by completing our contact form.

Legal services Larraín Nesbitt Lawyers can offer you

• Community of Owners

Related articles

• The Comunidad de Propietarios (Ley de Propiedad Horizontal/ Commonhold Law) – 8th July 2012
• Community of Owners in Spain: Challenging Assembly Resolutions – 10th October 2011
• How to Cancel your Home Insurance Policy in Spain – 8th January 2013
• Home Insurance in Spain – 8th November 2013

Please note the information provided in this article is of general interest only and is not to be construed or intended as substitute for professional legal advice. This article may be posted freely in websites or other social media so long as the author is duly credited. Plagiarizing, whether in whole or in part, this article without crediting the author may result in criminal prosecution. VOV.

2.013 © Raymundo Larraín Nesbitt. All rights reserved.

The Government has drafted a new rental law in an attempt to bolster and streamline the ailing rental market, but curiously one of the biggest beneficiaries will be the hotel industry.

By Raymundo Larraín Nesbitt
Lawyer – Abogado
8^th of July 2013

Introduction

Property ownership in Spain is deeply embedded in the national psyche as I have analysed over the years in my articles. Some would even call it a national obsession (followed by football and not necessarily in the same order). Property ownership is widely viewed as ‘superior’ to renting almost as a social status all unto itself (!). Several popular well-known mantras upholding such (false) belief have endured over the boom years. But the receding tide of prosperity, induced by this recession, has exposed them for what they always were – false myths:

1. “Alquilar es tirar el dinero” which loosely translates as ‘renting is throwing away (good) money’
2. Another good one is “nunca bajan” translated as ‘(house prices) never fall’
3. And last is my all-time favourite: “siempre lo podrás vender” translated as ‘(don’t worry) you can always sell it’; yeah right!

Spanish parents are obsessed with leaving their children property when they should really be concerned on gifting them a top-notch education allowing them a chance in life to win their spurs.

Unsurprisingly, because of this historical national fixation for property ownership 83% of properties in Spain are inhabited by their owners as opposed to only 17% being rented out. Compare these (very) sad figures with a far more developed rental market in Europe which boasts an average of 30 to 40% rental occupation. Moreover, all this money that is (foolishly) ploughed into property is a wasted opportunity cost that could be better put to use in the money markets investing in companies and start-ups, creating jobs and wealth, rather than saddling with debt legions of Spanish families who now face the grim prospect of a lifetime sentence in the form of a financial millstone around their necks for the remainder of their existence. A huge change of financial culture in Spain is urgently required in line with Protestant countries (historically more financial savvy) that can only be achieved through education from an early age at school. I venture that one positive outcome of this ‘recession’ will be that scores of Spanish will now be forced to rent as opposed to buying outright.

The underlying historical reasons on this fascination are numerous and exceed the object of this article so I won’t digress. What matters is that the Government, with millions of properties standing empty and millions more of young – and not so young – workers unemployed, has finally smelled the coffee. They have been busy drafting a new law in an attempt to bolster and streamline an ailing rental market in the hope of making it more dynamic and robust.

Ley 4/2013, de 4 de junio, de medidas de flexibilización y fomento del mercado del alquiler de viviendas

Ley 4/2013 is the law published in Spain’s Official Law Gazette on the 5th of June that heralds these changes. The official line is that it brings on a slew of novelties which will hopefully bring a breath of fresh air into a stale rental market. This new law significantly amends Spain’s all-important Tenancy Act (Ley 29/1994, de 24 de noviembre, de Arrendamientos Urbanos). Popularly known by its acronym ‘LAU’.

However I speculate that the ‘real’ agenda being pushed by this law is another and I elaborate further in my conclusion below. In my opinion this is yet another patchwork law that attempts, for the umpteenth time, to do something about Spain’s chronically failing rental market – and most likely will fall flat on its face.

Major Highlights of Spain’s Amended Rental Law

• The exclusion of Spain’s Rental Act for touristic property lets. This is hands down the most significant change in my opinion made by this reform as it now purposefully leaves out what are known as ‘touristic tenancies’. The LAU used to rule on all tenancies (except those deemed as ‘luxury’ rentals). Touristic tenancies will now be ruled by Spain’s seventeen regional autonomous communities. To make it more complicated, not all autonomous regions have such laws implemented. Touristic rentals require a licence from the local administration. The matter is so complex that it easily merits its own article given the fact there are seventeen autonomous regions in Spain capable of enacting their own laws on the matter compounding it furthermore. Always making administrative matters easy.
• The legally mandatory five-year rental period for long-term rents is now reduced to a three-year period.
• As a direct result of the above, deposits must now be reviewed after the three-year period has elapsed (as opposed to the former five-year period).
• The tacit renewal is reduced from a three-year period down to one year.
• A landlord may now recover the possession of the property after a year has elapsed under certain circumstances. Unlike before, this now does not have to be expressly worded into the contract.
• The landlord may now sell the property and the new owner may terminate the existing tenancy agreement so long as it is not lodged at the Land Registry. Before this law, the new owner was forced to respect the existing mandatory tenancy until it ended. This is a very welcome measure indeed. So for all new contracts signed after the 5th of June 2013 it would be advisable for a tenant to have their tenancy agreement lodged at the Land Registry if they want some degree of protection against the owner selling the property and the new owner moving in and have them vacated. On lodging the tenancy agreement if the owners sells on the property, the new owner will be forced to respect the tenancy for the mandatory three-year period (used to be five years before this law).
• Tenants may now notify their landlords, at any moment, with only 30 days in advance of their will to terminate a tenancy provided they have already rented it for a six-month period. Before a tenant needed to wait until almost till the end of the tenancy or else face compensating the landlord for the lost rental if they decided to bail out ahead of time. Notwithstanding a suitable compensation can still be agreed. This is an advantage for tenants really, not for landlords, as it allows them more flexibility to terminate a tenancy.
• If in agreement, the let can now be forfeited for a set period of time so long as the repairs in the property are shouldered by the tenant. This must be mutually agreed.
• Both parties may now opt-out of the IPC, as the annual benchmark to increase a tenancy, and choose another index. IPC stands for ‘Índice de Precios al Consumidor’ which is a Consumer Price Index which is widely used in Spanish contracts as a benchmark to increase services in line with the annual rise of inflation.
• It can now be agreed by both parties that long-term tenants may waive their pre-emption and buyout rights (‘derecho de tanteo y retracto’) in a resale as is stipulated in section 25 of Spain’s Tenancy Act.
• Changes to Spain’s all-important Civil Jurisdiction Law, (1/2000 – LEC) to further streamline the eviction procedure. Non-paying tenants will now be given only a ten-day deadline to bring arrears up to speed. The more legal fat is stripped away, the more efficient and streamlined will the resulting eviction procedure turn out. This is frankly positive but hardly groundbreaking.

Conclusion: more beating around the bush

Although some of the above changes are indeed a positive step in the right direction, most are superficial. I remain largely sceptical of this new law because, once again, it doesn’t really address the main issues which historically hamper Spain’s rental market, and only beats around the bush.

So why on earth bother to approve a law that seemingly won’t make much of a change in the rental market? The cynic in me can’t help but think that, brushing aside negligible cosmetic changes in the overall picture, the real agenda being pushed is that of the hotel industry.

After a decade of booming construction, where thousands of new-build properties were bought en masse and let out to foreigners at large, the hotel industry has experienced massive losses as a result of all the unregulated competition from a myriad of humble property investors dotting the Spanish coastlines. It has reached the point where many first class hotels now close down during the low season, something unheard of previously. This new law – quietly but relentlessly – effectively introduces a restriction to letting by private individuals, leaving it to autonomous regional communities to rule on the fine details of what a touristic licence actually entails. Which is why I place it as the first, and most significant, point on reviewing and listing above the amendments brought about to Spain’s Tenancy Act (LAU).

One would have to ask oneself: who stands to benefit with this reform and whose interests are served by it? Cui bono? Certainly not the countless foreign small-time investors looking into buy-to-lets to make some money on the side to supplement their (meagre) income. Again an ill-conceived political measure that meddles in the economy that will prove to be counterproductive on the long-term as it will foreseeably deter would-be buyers who would have otherwise invested had they unrestricted freedom to rent. Talk about shooting oneself in the foot.

Forcing home owners across Spain to ensure their properties comply with the same regulations already imposed on hotels (minimum quality standards, health and safety, kitchen appliances etc.) is daft and may be safely labelled as an unnecessary exercise of interventionist legislation aimed to thwart or restrict the sacred use of private property (in benefit of the hotel industry). No to mention treating as equals those who are financially unequal as both hotels and private individuals stand to comply with the same set of standards if they want to attain a licence to rent. In any case, let’s not rush ahead as the fine details will be ruled by the seventeen autonomous regions so we will just have to wait and see before judging in advance regional legislations. Few communities have already ruled on this i.e. the Balearics.

EDIT 2015: My conclusion was correct. Fast-forward two years for the new batch of holiday rental laws that restrict private rentals:

Holiday Rental Laws in Spain - Explaining The Latest Changes – 8th of March 2015

Back on topic, to foster a robust rental market we’d be better off taking a bold stance and resolutely reworking the whole eviction system from the root rather than approve a string of half-hearted piecemeal laws which honestly will scarcely make a dent on matters. What would *really* kick-start the rental market in Spain would be chiefly:

1. Change the predominant Spanish mentality towards rental and ownership achievable only through an early education at school. Rental must stop being demonised by society at large and accepted as a perfectly valid option in life. State and private schools should teach finance to children. A long-term goal.
2. Have non-paying tenants evicted in less than ten days from a property instead of having to wait for months on end or even years to make it happen. A short to medium-term goal reworking the legal (procedural) system.

These two measures would greatly help to nurture and consolidate a budding rental market in Spain. Granted, it wouldn’t happen overnight. It takes considerable time to change people’s mentality. Besides, there are far too many legal constraints and guarantees safeguarding non-paying tenants’ rights. What about the landlords I ask? Long eviction periods lead to tenants trashing properties, to landlords losing rental to offset their mortgage repayments (which in turn may even lead to a repossession of the rented property), besides unnecessarily increasing tenant eviction legal fees paid for by distressed landlords. This nonsense should clearly be put to an end.

The rental sluggishness in Spain can largely be pinned down to landlords being afraid of renting out properties given how biased historically laws are in favour of (non-paying) tenants. This is the crux of the problem – fix it and you are half way there to pave the way to a robust rental market.

It is Spain’s ruling political class who wield the power to alter matters if they willed it – but I guess they don’t have the backbone for change; too unpopular and ‘politically incorrect’ or maybe they are simply complacent with the current status quo. Real statesmen do, at all times, what’s best for their country no matter the unpopularity or electoral cost. Because they have a long-term vision of matters with their hearts set in the country’s future prosperity as opposed to career politicians who take decisions on the hoof based on short-term opinion polls. Piecemeal attempts from career politicians will only further the pain and foreseeably set back recovery by several years.

But hey, politicians and lawmakers, in general, are also entitled to make a (very) nice living by drafting and publishing half-baked laws, such as this one, to justify their outrageous public stipends and perks whilst the rest of the country languishes bearing the brunt of an unending ‘recession’.

“Off with their heads!” ? Lewis Carroll. Alice in Wonderland.

English writer, mathematician, logician, Anglican deacon and photographer.

Larraín Nesbitt Lawyers, small on fees, big on service.

Larraín Nesbitt Lawyers is a law firm specialized in conveyancing, inheritance, taxation, and litigation. We will be very pleased to discuss your matter with you. You can contact us by e-mail at info@larrainnesbitt.com, by telephone on (+34) 952 19 22 88 or by completing our contact form.

Legal services Larraín Nesbitt Lawyers can offer you

• Registration of Holiday Rental Homes
• Rentals
• Fiscal Representation (Non-Resident Income Tax)

Related articles

• Renting in Spain: Top Ten Mistakes – 8th of June 2011
• Let-to-Buy in Spain: The Smart Choice – 8th of April 2012
• Letting in Spain: The Safe Way – 10th of October 2012
• New Measures to Bolster Spain’s Ailing Rental Market – 8th of July 2013
• Tenant Eviction in Spain – 8th of June 2014
• Holiday Rental Laws in Spain – 8th of March 2015
• House Hunting in Spain – The New York Times. June 2015
• Resurgent Spain: Málaga Sees Strong Sales – Mansion Global (The Wall Street Journal). December 2015
• Non-Resident Taxes in Spain – 8th December 2015
• Holiday Rental Laws in Andalusia (Decree 28/2016) – 8th of February 2016
• Decree 20/2002: Andalusia’s Holiday Rural Rental Decree – 8th of April 2016
• Urban Rental Law in Spain – Spain's Tenancy Act – 8th May 2016
• Renting in Spain - Landlord´s Taxation – 8th of January 2017
• Renting in Spain: Non-Resident Landlord's Rental Tax Relief – 14th of January 2017
• Holiday Rental Home Taxation in Spain – 8th of July 2017

Please note the information provided in this article is of general interest only and is not to be construed or intended as substitute for professional legal advice. This article may be posted freely in websites or other social media so long as the author is duly credited. Plagiarizing, whether in whole or in part, this article without crediting the author may result in criminal prosecution. No politician was harmed on writing this article. VOV.

2.013 © Raymundo Larraín Nesbitt. All rights reserved.

An up-to-date legal guide to buying off-plan property in Spain by Raymundo Larraín Nesbitt, a solicitor qualified to practice in Spain.

The following article is my third part on a five-part series focused on How to Buy Property in Spain Safely. You may also be interested in reading Buying Resale in Spain, Buying Distressed Property in Spain, How to Buy Commercial Property in Spain or How to Buy Rural Property in Spain.

By Raymundo Larraín Nesbitt
Director of Larraín Nesbitt Lawyers
8th of June 2013

Original article from 18th April 2.010

Introduction to buying off-plan property in Spain

Not so long ago there was a time in which purchasers gleefully bought en masse their dream homes in Spain. A few on the prowl to make a quick profit, the majority just wanted a quiet place to settle down and retire leading the relaxed lifestyle for which Spain is renowned.

Unfortunately for some, their dream turned sour for a number of reasons and we are now witnessing the consequences of it in the aftermath of Spain´s property bubble collapse. The majority of these problems could have been avoided by doing some research yet in other cases purchasers, in despite of being careful and taking all the necessary precautions, still encountered difficulties.

This gloomy outlook will no doubt change in the future when we start a new property cycle. The million-dollar question is second-guessing when that will be! Don’t hold your breath.

Your guess is as good as mine.

The aim of this article is to do a brief rundown on the basic legal checks that ought to be done prior to committing yourself on buying Spanish off plan.

Tips on Buying Off-Plan Property in Spain

The following 14 useful tips will help you avoid the majority of off-plan hazards. You would do well to follow them.

1. Hire a Qualified Registered Lawyer

I will refer on this to my first point in my prior article Buying Resale property in Spain in which I elaborate it in more detail. And yes, it’s also a shameless plug to peddle my legal services! The advantages are summed up in my article Buying Property in Spain – 10 Reasons to Hire a Lawyer.

Specifically on buying new build, it is highly advisable that you retain a registered lawyer before you commit yourself signing any document or else paying any amount. Initial down payments, such as security deposits which strike the property off the market, are non-refundable unless specifically agreed otherwise. If you pull out you will likely forfeit the deposit. Many legal problems may be easily avoided following this simple advice. So don’t be in a rush to hand over the money without having hired an independent lawyer first; do not allow yourself to be pressurized by estate agents. Rash decisions often turn out to be expensive mistakes.

Your home country’s consulate will hold a list of recommended independent English-speaking lawyers.

2. Is the Plot of Land Registered under the Developer’s Name?

In some cases developers marketed and sold on whole developments without even owning the land. This is what, for example, developer AIFOS used to do. They sold on entire off-plan developments without owning the land; they only had an option to purchase, within an agreed deadline, a plot of land.

One should not buy an off-plan unit in a land that is still not registered under the developer’s name. There are far too many associated risks to take a gamble with your hard-earned money.

The land should be appropriately classified to be built upon. Be very wary if you are being sold an off plan in a land that is still classified as rural. It may be a good idea to check with the local Planning Authorities that you are not buying in a land of special protection such as green belt land.

Naturally a lawyer will do the above checks for you as part of his conveyance due diligence. But it never hurts if you also have the time to spare and carry them out yourself.

3. Has the Developer Attained Planning Permission?

The basic recommendation would be not to sign a Reservation Contract or a Private Purchase Contract (PPC) unless the town hall where the property is located has issued a Building Licence (‘Licencia de Obras’ in Spanish) for the development.

Notwithstanding the latter, let us examine the nuances that spice up life.

I would, in general, recommend that a Building Licence (BL, for short) has not been obtained by means of what is known as the Administrative Silence Rule (ASR) as it may be successfully challenged should it have been attained breaching Planning laws, for example. Just to clarify, obtaining a BL through the ASR rule is perfectly valid in our legal system. However, if it has been obtained breaching planning laws it may be deemed void.

Additionally a BL must not have been challenged administratively e.g. imagine the case of a Building Licence issued by a town hall’s planning department. Someone may buy a property relying on the town hall’s licence. However, unbeknownst to this buyer, this may lead to an ongoing dispute between the local town hall and Regional Planning Authorities over the legality of the issued BL. Regional Authorities may actually override the town hall’s authority on planning issues so they are bound to win. Remember the Priors?

This is by far the biggest mistake that – unbeknownst to many – a buyer can possibly make. Many problems could easily be staved off on following it. The Building Licence will ensure that the building is above board and the property is not being built in green belt land, for example. Your lawyer will be able to verify the BL is not being challenged at court by anyone, including Regional Planning Authorities.

4. Do You Have a Bank Guarantee Securing your Stage Payments?

Once your lawyer has checked the plot of land is under the developer’s name and there is a valid Building Licence it’s time to sign the contract.

The instalments paid while the property is being built can be guaranteed by means of what is known generically as a ‘bank guarantee’. Please read for more information my detailed article on Bank Guarantees in Spain.

Bank Guarantees are a legal tool devised to secure the deposits of prospective off-plan purchasers should their properties not be delivered on time or their developers file for administration. Post credit crunch, all the bank guarantees we are executing are acting as safety nets for many stressed new-build purchasers who find themselves bogged down in mire out of no fault of their own i.e. developers filing for receivership.

Spanish bank guarantees may be a daunting legal minefield for many, albeit with the assistance of an independent lawyer acting on your side you will be able to dodge the pitfalls, both safely and successfully.

A Spanish Bank Guarantee may be either an Insurance Policy or Guarantee issued respectively by either an Insurance Company or Bank. Both types can be grouped under the generic term bank guarantee for simplicities’ sake. A bank guarantee’s purpose is to secure the full amount of deposits paid by off-plan purchasers. It secures the initial reservation deposit, which strikes the property off the market, the interim or stage payments as well as the applicable VAT paid on said amounts. On top of this you are also entitled to the legal interests on the amounts secured.

A bank guarantee is of critical importance acting as a safety net securing your full deposits should something go wrong. Bank Guarantees should have no expiration date as per Law 57/68. Bank Guarantees should expire only upon the developer attaining a Licence of First Occupation.

5. Has the Dwelling Attained a Licence of First Occupation (LFO)?

A Licence of First Occupation (or ‘Licencia de Primera Ocupación’ in Spanish) is a certificate issued by a town hall that confirms that a newly-built property fully complies with all planning and building regulations, and is ready to be used as a dwelling. A LFO allows off-plan purchasers to dwell in a property legally. You can read more on this subject in my detailed article on the Licence of First Occupation.

The LFO is important mainly for two reasons:

1. It provides a check on the planning legality. A LFO means the developer has built the dwelling in compliance with the original town hall’s Building Licence as well as complying with all Planning laws. The inspection to grant this licence is carried out by town hall’s chartered technicians who certify that the dwelling complies fully with Health, Safety, Planning and Construction Laws and is deemed apt for human habitation.
2. It is required by utility companies to have access to official supplies (water, electricity and gas). Spanish law requires the granting of the LFO to hook up the dwelling to the supply grid. Although in some parts of Spain there have been reported cases of supply companies waiving this and connecting you without the said licence. In such exceptional cases the only requirement was showing the application of having requested the LFO from the town hall.

I would advise, in general, to complete only once a Licence of First Occupation has been attained; however I must point out that completing without a LFO is legal in Spain and the property will be registered under your name at the Land Register. It is legal to sell properties without a LFO.

The following are just some of the drawbacks you may face if you happen to close on an off plan property lacking a LFO:

• Primarily, you will not be able to take out a mortgage on the property or remortgage it – if needed be – by any lender other than the developer’s bank.
• You will not be able to benefit from the official utility supplies; only from the developer’s supplies (water and electricity) with all the associated problems this has, namely that you may be cut off at any time as it is the developer who is paying for it and if they go into receivership you will be shut off. Besides, the site supply electricity doesn’t have the same strength and power surges are fairly common on simultaneously turning on various electrical appliances such as air conditioning. Until the LFO is attained, the developer has to pay, by law, for the utility supplies.
• Any future prospective purchaser, or their lawyer, will haggle with you and require a steep discount if you lack a LFO. In a resale, the purchasers in turn will undergo the same problems to secure finance by means of a mortgage loan. A lack of a LFO tacitly implies that you are actually reducing the pool of potential purchasers for your resale.
• If there are Planning issues, the town hall can set a charge against the property and you, as the new owner of an off-plan and not the developer, may be held liable to pay the fine for the planning illegality.
• Needless to say, you cannot rent a dwelling without a LFO.

There may be nonetheless exceptional circumstances in which it may be advisable to complete without one. Specifically if there’s no bank guarantee securing your down payments and the developer is in risk of going into administration, provided that there’s no ruling or legal procedure affecting the Building Licence due to planning issues (as explained above in point three).

It is very important to realise that until completion the property still belongs to the developer. So if you still have not closed and the developer becomes insolvent in the interim, the property lodged under his name may be seized by the developers’ lender or any other creditor that places a charge on it at the land registry. If you have no bank guarantee and the above happens, it is very likely you will forfeit your down payments. However, cases differ and require a case-by-case study by your appointed solicitor.

The issuance of the LFO by a town hall is the major milestone in the off-plan procedure. In fact, from a legal point of view, it marks the turning point whereby the property is now deemed to have been delivered legally to the purchaser. Once the LFO has been attained and the developer has sent you a registered letter compelling you to complete within a deadline before a Notary public, you should no longer withdraw from the PPC and litigate for a refund as you are bound to lose at court (specifically read point three in my article 10 Reasons Why Your Case Against a Developer may be Thrown out of Court in Spain). This is known as ‘forced completion’.

Developers can actually pursue you abroad against your home country’s assets once they’ve obtained a favourable judgement from a Spanish court. Do not think for one moment you can walk away breaching an off-plan contract and that there will be no legal consequences arising from it. Some developers will be happy just withholding the stage payments as compensation and yet others will sue you on top demanding fulfillment i.e. that you close on the property.
Indulging in reckless litigation may leave you seriously out-of-pocket.

6. Ghost Developments

Some new communities remain largely unsold post credit crunch and you may find additionally that many common holders are not contributing to the communities´ expenses. This nasty surprise may create practical problems such as green swimming pools, lack of security, derelict gardens and even break-ins. It may be recommendable before buying into a community that you ask around first. This will no doubt change in the future when the market picks up again and moves to a new cycle.

7. Coastal Laws

On buying off plan, make sure it is not within the protected area of Public Domain or else you may risk your house being pulled down, at your expense, by the local Authorities. Spain’s Coastal Law was passed in 1988 but it hasn’t been until recently that the Government has decided to enforce it harshly. There have been significant amendments to the point there has been a de facto coastal law amnesty.

8. Buy-to-Let

If you are buying to rent the property out, either as short or long-term, make sure the region of Spain in which you are buying allows for this. Some regions, i.e. Balearic Islands, have stringent regulations whereby a special licence is required to rent. Failure to comply will result in the town hall fining you. Disgruntled neighbours always make apt whistle-blowers, so be warned. Other regions in Spain, such as Andalusia, do not require letting licences but do have their own regulation in place on letting out property i.e. Decree 218/2005.

Please read my article on Renting in Spain: Top 10 mistakes as well as Letting in Spain: The Safe Way for more information on this subject.

The Government, pressured by the hotel industry, has recently passed a new law which will effectively restrict touristic private rentals (short term leases). I will comment on this on a separate article.

And as a final word of caution, unless your property is in a prime location, do not rely on the let to offset the mortgage repayments – won’t happen.

9. You do have a NIE number, right?

A NIE number is a Fiscal Identification Number for foreigners and is required, among other things, to buy property in Spain. You can read this detailed FAQ on Spanish NIE numbers. More details in my article: NIE Number Explained.

10. Applying for a Mortgage Loan

Most of off plan buyers will require a mortgage loan to secure a purchase. You can read my detailed articles on Spanish Mortgages Loans: An Overview and Spanish Mortgage Loans: Beware of Abusive Clauses to get you started with. The latter provides useful tips on the type of (abusive) mortgage clauses that Spanish lenders have a penchant for and you should be wary of signing. Spain’s Supreme Court has declared in 2013 (STS 241/2013) collar clauses as abusive; something which I had already been denouncing for years as they were clearly one-sided in favour of lenders.

11. Snagging List

Before you complete on a newly-built property you should always do a snagging list of the property. You can either draw up a snagging list yourself or else appoint one of the many experienced companies that may carry it out on your behalf. It goes without saying that lawyers do not carry out snagging lists! This is why I strongly advise you hire a chartered surveyor.

On inspecting the property they will draw a list of all the flaws the property has i.e. mismatched tiles, damp patches, mould growths, leaking faucets, flaked painting, damaged appliances, unsuitable drainage etc.

I highly advise not to complete on an off plan until you have fully carried out a snagging list and also followed it up ensuring the developer has indeed repaired each and all of the problems highlighted by your inspection. Once you complete it will be very difficult to have these fixed as your bargaining position will be considerably weakened on handing over the money. So play your card rights and demand they are repaired always pre-completion, not post-completion. Once you are satisfied with the repairs you may then complete.

For post-completion flaws and their repair, please read my article on Off-Plan Construction Flaws: Know Your Rights so you learn what your rights are and how to defend yourself once you have completed on a new build property. Post-completion, flaws may become apparent which were either not picked up during the snagging list or else are new.

12. Post-Completion: Make sure the Property is Now Registered under Your Name

I refer you to my previous article on buying resale in Spain and registering your title deeds or escritura in the property register. You would do well to request what is known as a nota simple. Please read my FAQ on the nota simple for more details. It is highly advisable to check the title is clean and there are no charges, liens or encumbrances against the property (other than the mortgage you may have applied for given the case).

13. Post-Completion: Dealing with Property Taxes, Utilities and Community Fees

Once you have acquired your new property, you will now have to face all the associated running expenses. Make sure you have budgeted this carefully so as to avoid unpleasant surprises! Some of the luxury gated communities with lush tropical gardens and beautiful infinity pools that dot the Spanish coastlines may have pretty steep maintenance expenses. Any unpaid community bills will result in the Community of Owners placing a charge against your property which may lead to auctioning it off publicly to recoup the debt! This legal procedure in Spain works fairly efficiently (as in twelve months on average). Besides be warned that a hot legal industry has developed over the last years to pursue these community debts abroad, both in the UK and the RoI, against debtor’s home assets.

Post-boom many new build developments remain largely unsold. Developers or ailing owners have been forced to hand over their properties to lenders on slipping into arrears. These lenders in turn are some of the worst offenders on community payments which translate into an increase of the fees borne by the remaining community members to offset this loss. Only Spain’s most prominent lenders are actually paying the community fees on their properties. Spanish savings banks are particularly notorious for not being up-to-date with their community fees. This is creating a vicious spiral putting the properties at stake of those financially weaker community members as they themselves struggle to remain afloat because the supposedly financially ‘stronger’ EU-bailed-out lenders are not contributing to their fair share of community payments. Bringing a legal case against them will mean community members will have to hire a lawyer which entails additional expenses.

You should open a Spanish bank account if you haven’t done so already. Utility companies do not accept overseas payments and like setting invoices as standing orders against your Spanish account. You should set at least as standing orders all the following:

• IBI tax. Paid once a year (akin to the UK’s Council tax).
• Rubbish collection tax. Paid twice or once a year depending on the town hall.
• Utility bills (invoiced quarterly in the case of water and monthly with electricity).
• Community fees (only if you’ve purchased in a Commonhold). Usually quarterly but can vary.

The particularities on buying off-plan are for example that IBI tax will not be usually readily available to pay until two years after you’ve purchased the property, maybe even more. You will be nonetheless held liable for those two previous years on the backdated IBI tax. Failure to pay IBI tax may lead to your house being auctioned off to recoup the debt. More on these taxes in my article Non-Resident Property Taxes in Spain.

Regarding utilities, even when a LFO has been issued you may find yourself waiting for some time before you are officially connected to the supply grid with your own individual water and electrical meters. Regarding Community fees you are liable for them since the LFO was attained by the developer, not before.

On buying off plan you may become part of what is known as a Community of Owners. You should make yourself acquainted with your Community of Owners rules (‘Ley de Propiedad Horizontal’ in Spanish or simply Commonhlod law) as well as how to challenge Assembly resolutions if necessary (both AGMs and EGMs).

You are also liable to file Income tax on owning property in Spain every year for which you may need to appoint Fiscal Representation.

Finally I cannot stress enough how advisable it is that you make a Spanish will to dispose of your Spanish estate. This will not preclude any other made in your home country and is limited exclusively to your Spanish assets. It will save your beneficiaries time, money and hassle at a time of bereavement.

14. Careful with the Tax Office on Buying or Selling at a Discounted Price

And now that I’ve established it is a great time to buy property in Spain – the bad news. Due to Spain’s ongoing real estate depreciation many buyers are securing properties at such knockdown prices they are unwittingly drawing the attention of the Tax Office. So much so that over the last years many will have received a letter from Spain’s Inland Revenue some six months after completion demanding complementary tax is paid on the property. This is known as “la complementaria” in Spanish legal jargon and affects resale property. You can read further in my article La Complementaria or Bargain-Hunter Tax on how to pre-empt it and how to appeal one.

In the case of Andalusia, with which I’m more familiar, on buying distressed Spanish property you should pre-empt this by requesting beforehand an assessed property valuation specifically for tax purposes. This will be a legally binding report which your lawyer may use at a later date. Regional Tax Offices in charge of tax transfers will have a value on properties, from which they will not budge, and if you happen to buy below said value they will request tax on the difference as they will suspect you may have under-declared at completion – which I can assure in most cases is simply not the case; it is merely one more consequence of today’s depressed market.

If you have already received this letter you can either pay the requested tax or else appeal it. Providing the difference is not ‘significant’, your chances of appealing it may be fairly high. Obviously if it is a low amount it may not warrant the expense of hiring a lawyer to appeal it. But for high-end property it may be worth every penny.

Buying Off-Plan Property in Spain – Conclusion

Although off-plan property may have fallen foul of buyer’s tastes due to all the associated post-credit crunch problems featured in the press, it will no doubt claw its way back. This is likely to take place when we exit this gloomy deflationary environment and enter a new cycle of real estate appreciation. Property cycles in Spain take, on average, fifteen years from peak-to-trough. The last cycle has taken from 1993 to 2007 approximately. For a recovery to materialise we need foremost low interest rates coupled with banks willing to lend. With neither liquidity readily available nor lenders prone to take chances (lending in Spain is at a staggering fifty-year low!) the property market’s lifeblood is sapped away leading us onto a languished standstill.

As always it will be shrewd investors who, having second-guessed correctly the ailing property market, will snap up the most sought-after units at knockdown prices, profiting from today’s irrational fear; much like in a stock market rebound. Many will look back with everlasting regret on not having seized the buying opportunity of a decade grabbing themselves a bargain under the sun in a bottoming out market.

Or conversely you can always wait to catch the next train which is not due until another fifteen years’ time!

“Caminante, no hay camino, se hace camino al andar” – Antonio Machado. Proverbios y Cantares XXIX. Campos de Castilla (1912).

Translation: "Wanderer, there is no path, the path is made by walking."

Brilliant Spanish poet and one of the leading figures of the Spanish literary movement known as the Generation of ’98.

Must-reads on the subject:

Buying property off-plan in Spain. Advice by the Foreign & Commonwealth Office, 12^th of March 2013

Buying off plan. SPI article from 2010

Advantages and disadvantages of off plan property. SPI article from 2010

Larraín Nesbitt Lawyers, small on fees, big on service.

Larraín Nesbitt Lawyers is a law firm specialized in conveyancing, inheritance, taxation, and litigation. We will be very pleased to discuss your matter with you. You can contact us by e-mail at info@larrainnesbitt.com, by telephone on (+34) 952 19 22 88 or by completing our contact form.

Legal services Larraín Nesbitt Lawyers can offer you

• Conveyancing – Buying
• Conveyancing – Selling
• Fiscal Representation (Non-Resident Income Tax)
• Will Service

Related articles

• Buying Distressed Property in Spain – 8th August 2011
• Community of Owners in Spain: Challenging Assembly Resolutions – 10th October 2011
• Off-Plan Construction Guarantees – 8th November 2011
• Rent-to-Buy in Spain: The Smart Choice – 8th April 2012
• Non-residents: Six Advantages of Making a Spanish Will – 8th August 2012
• Community of Owners, or Comunidad de Propietarios – 8th July 2012
• Buying Resale Property in Spain – 21st February 2013
• Title Deed Explained – 8th April 2013
• Nota Simple Explained – 8th April 2013
• Licence of First Occupation – 8th April 2013
• Bank Guarantees in Spain – 8th April 2013
• Buying Off-Plan Property in Spain – 8th of June 2013
• Investor Guide to Spain’s Golden Visa Law – 8th November 2013
• Bank Repossessions in Spain – 21st February 2014
• Buying and Owning Spanish Property through Companies: Pros and Cons (Dispelling Spanish Inheritance Tax Myths) – 7th March 2014
• How to Buy Commercial Property in Spain – 4th July 2014
• How to Buy Rural Property in Spain – 8th August 2014
• How to Buy Property in Spain Safely – 10th October 2014
• Taxes on Selling Spanish Property – 8th December 2014
• Spanish Wills and Probate Law In Light Of European Regulation – 8th January 2015
• Changes to Spain’s Inheritance and Gift Tax Law – 21st February 2015
• Spain’s Holiday Rental Laws – Explaining the Latest Changes – 8th March 2015
• Supreme Court Rulings on Bank Guarantees – 8th April 2015
• La Complementaria or Bargain-Hunter Tax – 8th May 2015
• House Hunting in Spain – Interview with The New York Times. June 2015
  
• Taxes on Buying Spanish Property – 8th July 2015
• Non-Resident Taxes in Spain – 8th December 2015
• Resurgent Spain: Málaga Sees Strong Sales – Interview with Mansion Global (The Wall Street Journal). December 2015
• Snagging List Explained – 28th October 2016
• Buying Property in Spain – 10 Reasons to Hire a Lawyer – 8th November 2016
• Buying Property in Spain from a Private Seller (Resale Property) – 21st of February 2017
• Buying Property in Spain from a Developer (Off-Plan Property) – 8^th March 2017
• How to inspect an off-plan property overseas – Interview with The Sunday Times. July 2017

Please note the information provided in this article is of general interest only and is not to be construed or intended as substitute for professional legal advice. This article may be posted freely in websites or other social media so long as the author is duly credited. Plagiarizing, whether in whole or in part, this article without crediting the author may result in criminal prosecution. VOV.

2.010 and 2.013 © Raymundo Larraín Nesbitt. All rights reserved.

Under the guise of protecting families from home repossessions, the Government of Andalusia, or Junta, introduces a very nasty little piece of interventionist legislation which perverse effects remain to be seen in the overall picture.

By Raymundo Larraín Nesbitt
Lawyer – Abogado
8^th of May 2013

Introduction

When one walks around Edinburgh, soaking in its breathtaking historic beauty, one cannot help but notice how many historical buildings are scarred with what seem like bricked-up windows. Baffled by this I couldn’t help but ask one of my colleagues the reason behind such a peculiar habit. He politely explained that this was a result of the unpopular ‘Window tax’ which was in place in Scotland in the 18th and 19th centuries. Landlords were taxed on the amount of windows a property had. So obviously many took the matter into their own hands and bricked-up windows with the unpleasant aesthetic effects we now witness. This is just an example of how a tax law can greatly influence society even shaping it two centuries on. Nowadays we have the ‘bedroom tax’ in the UK; hopefully no one will brick up their spare bedrooms in council housing!

Moving on to Andalucía, the ruling left-wing coalition approved on Tuesday 09/04/13 decree 6/2013 to ‘assure the social function of housing’ (see Andalusia plans to expropriate homes in foreclosure). This decree has come as a result of the difficult social and financial situation Spain is facing, which in the case of Andalucía has morphed into a full-blown depression, particularly amongst the unemployed and those who are being evicted as a result of widespread defaulting mortgage loans. In the introduction to this decree, it states that in Andalucía alone there is an average of 45 lender evictions taking place on a daily basis. I had already denounced this foreseeable situation back in 2007 when I wrote my article on Spanish Bank Repossessions. Yet the Government and autonomous Communities are only taking notice of this alarming phenomenon over the last year when it is arguably too late for thousands of families.

The object of this decree is double; on the one hand the main aim is to help those struggling borrowers who have fallen into arrears and are in the midst of being evicted by their lenders following a repossession procedure. The Junta plans to expropriate these properties, on a temporary basis, and hand them over to those who would be left destitute after a bank-repossession.

On the other hand, the decree also targets empty bank and developer-owned property at a time were homeless families can be tallied by hundreds of thousands (in Spain, as a whole, not just Andalucía). It is estimated that between 400,000 to 500,000 empty properties are registered under the names of legal persons in Andalucía alone.

These measures, which prima facie may sound good and even necessary, are in fact a very nasty little piece of interventionist legislation which perverse effects remain to be seen in the overall picture. A legal measure nothing short of communist if you ask me. Without further ado, I explain why.

It introduces the following obligations exclusive to the autonomous region of Andalucía:

1. The Junta will now be able to temporarily expropriate (for no more than a three- year period) bank repossessions from lenders and hand them over to defaulting borrowers who are in risk of social exclusion. These borrowers need to meet certain low-income requirements. In exchange lenders will receive the ‘justiprecio’ (fair price) of 2% of the properties’ value (certainly gives a new definition to what fair price is…). After the three years have elapsed the lender recovers the legal possession of the property.

This aggressive assault is dangerously reminiscent of South American banana republics’ lack of respect for private property rights. In fact, we have witnessed in Andalucía, more and more frequently, occupations (‘liberation’ in their jargon) of privately-owned fincas by large groups of the so-called Andalusian Workers Union even abetted by career politicians such as Juan Manuel Sanchez Gordillo (he has never worked for a private company and is proud of it). Margaret Thatcher would approve, not.

2. The Junta may apply fines (of up to €9,000 or £7,700 per annum) on all empty property located in Andalucía owned by legal persons (that is by corporate structures). Property under the name of physical persons is excluded from this decree. These dwellings must have a LFO or be in the process of attaining one. By the concept of ‘empty property’ is understood as all property that within a six month period has not been lived in.

3. A property will qualify as ‘empty’ on ticking one or more signs not limited to the following list (the Junta may add more as it sees fit):

• No-one is ‘empadronado’ in the property (no-one is registered as living at the property). Town halls do not need to request permission from owners to supply la Junta the information it may request from them.
• All postal communications are re-directed elsewhere i.e. such as the social domicile of the company owning the real estate asset, normally a law firm
• No utilities contracts set up or else a very low annual consumption (gas, water and electricity). This consumption is determined by an annex to the law which is subject to be changed as and when required by the Junta’s needs. Following art 28 utility companies are now under the legal obligation of supplying la Junta all dwelling utility consumption for cross-checking purposes. Utility companies do not need to request permission from the owner to disclose this sensitive information.
• No internet or telephone connection
• No-one living in the property in a six-month period
• Inspectors inquiring neighbours on whether a property is occupied or not.
• Legal representatives blocking the Junta’s inspectors demands for more information on the property and its use.

4. Art 39.2 of this decree ‘reminds’ all town halls located in Andalucía that they are empowered to increase IBI tax (akin to UK’s Council tax) on all empty property by up to 50%, irrespective of whether it is owned by a physical or legal person. This is not new and is already ruled in art 72 of the LRHL. It was simply not used at all by town halls because of its unpopularity, that is, until now. It would seem the Junta is giving a gentle nudge to town halls, as if reminding them of this faculty they have to raise the IBI tax and create fiscal ‘incentives’ for owners not to leave their properties standing unoccupied.

5. Creation of an Empty Property Register. Inspectors will determine what properties qualify to be included in this new registry and subject of fulfilling their ‘social function’ i.e. letting them for a paltry sum to less well-off families so they can live in them

Excluded Property from this Decree

1. Property holding a touristic licence.

2. Second homes registered under the name of physical persons (not holding companies) i.e. foreigners who only use them during the summer season. These would not be fined.

3. Rented property that is used no less than 30 days a year.

4. Properties owned by physical persons are excluded from this decree.

Properties subject to be fined and included in the Empty Property Register (‘Registro de Viviendas Deshabitadas’)

1. Property owned and registered under the name of legal persons, such as holding companies. This is very frequent amongst foreigners who set up companies owning their summer homes for tax mitigation purposes amongst other reasons. Irrespective of whether this property is used during the summer season by its owners, family or relatives it will still be fined by the Junta with up to £7,700 per year as it does not fulfil its ‘social function’. Lenders and property developers will also be affected by this.

2. Properties lodged in this registry may be subject of la Junta’s action to ‘incentivize’ them going onto the rental market for an affordable let.

The Backstory

The Junta de Andalucía ‘sold’ this decree as a measure primarily to benefit struggling borrowers suffering repossession by expropriating the collateral (the dwelling) from the repossessing bank itself (!). The Junta will now expropriate family homes that are about to be repossessed for a ‘justiprecio’ (this is a legal term coined in Spain’s pre-constitutional Franco-era Expropriation Act dating from 1954) which amounts to 2% (yes, you read well, two per cent) of the property’s value. After the three years have elapsed the property would revert to the lender who instigated the repossession procedure. This is thought only for those worse-off families who would otherwise be left destitute. Their income must be no more than three times the monthly benchmark amount for entitlement to social assistance and grants, which for this year has been set at €532 per month.

This dramatically changes the rule of play for lenders in a spectacular fashion in a so-called ‘capitalist economy’. Hugo Chavez gives his seal of approval to the Junta’s new approach to social housing. This populist measure will translate into lenders incurring in massive losses and may even affect their credit-rating as well as hamper their borrowing ability, which frankly speaking is not exactly at an all-time high. It will foreseeably splinter society neatly furthermore in the two traditional sides (which waged war against each other during the Civil war) at a time when Spain is undergoing serious institutional instability at all echelon levels. This is not in the best interest for social cohesion really…

We are witnessing first-hand how the sacred legal principle of private property, enshrined in art 33 of the Spanish Constitution, is modulated ‘in the social interest’. This little tag of ‘social interest’ was added to art 33 by left-wing politicians during Spain’s Transition. Our Spanish Constitution is in fact an amalgamation of left and right-wing principles which find themselves united within a legal body as a symbol of compromise between both sides to reach peace and start over anew democratically at the end of Franco’s regime. This tag line was a testimonial wording, an anomaly, which one studies at Law faculty with no real relevance – until now.

These populist measures with a whiff of Communism, product of irresponsible regional politicians, may have far-reaching consequences for everyone – and none of them good.

At a time where Spain is desperately waging a losing battle in Europe and abroad to restore its tarnished credibility amongst foreign investors actions like this are counter-productive, to put it mildly. At a time where politicians, from all the ideological spectrum, should be acting united with one voice to bring the country back to its feet we witness how rogue autonomous communities are adopting legal measures that contradict the central government’s efforts in a spectacular manner. The image of Spain’s disjointed and disorganized political efforts, often in open contradiction with one another, before what is reckoned as the most serious challenge it has faced over the last 74 years is simply astounding.

Moreover these expropriations are unnecessary and redundant as the central government already passed a law last year (Royal Decree 27/2012) where bank repossessions would be paralyzed over a two-year period in the case of low-income families.

But it gets worse. The decree does not stop here. It introduces a battery of changes that will affect not only lenders, but real estate agencies, legal persons and even physical persons!

The Junta de Andalucía has its aim on the over the 500,000 empty houses in Andalucía region alone.

It will create an ad hoc body of ‘inspectors’ who will monitor empty property and added it to a special Empty Property Register in the community with the purpose of renting them at affordable lets.

I’m the first person to condemn the social tragedy that is going on, specifically in Andalucía, but this cannot condone the use of expropriations of private property or even fining housing that stands empty for perfectly good reasons. To incentivize the languishing rental market the government should pass legislation making tenant eviction quick and efficient as in a matter of weeks not months or even years. That is how you address the social housing agenda; not by stripping people or companies’ assets away by decree. State imposed re-distribution of wealth is called Communism in my book and we all know how that story ends. Making people equally poor is not the way out of the woods.

Surely there are other more sensible venues to explore to tackle ongoing social problems in Andalucía rather than instilling cold fear in investors and creating unnecessary legal insecurity by moving the goal posts mid-play? Foreigners are already reeling with the new asset reporting law for Spanish residents with stiff fines for all those who fail to comply. Let us not add more problems to the ones we already have at hand – please – or we may threaten economic recovery by setting it back several years.

I can only hope the Central government steps in – decisively – and quashes this decree for its obvious aggression to constitutional principles such as the sacred principle of private property. If not, whatever next? Expropriation of bank deposits on all accounts in excess of €100,000 for the ‘greater good’? Oh wait…

“Politics: the art of creating new problems where none existed.”

Please note the information provided in this article is of general interest only and is not to be construed or intended as substitute for professional legal advice. This article may be posted freely in websites or other social media so long as the author is duly credited. Plagiarizing, whether in whole or in part, this article without crediting the author may result in criminal prosecution. No delusional politician was harmed on writing this article. VOV.

2.013 © Raymundo Larraín Nesbitt. All rights reserved.

THE VIEWS EXPRESSED ARE THE AUTHOR’S ALONE

The Nota Simple is one of the most important documents used in the Spanish property conveyancing process. This FAQ by Raymundo Larraín Nesbitt, a solicitor qualified to practice in Spain, answers all your questions about the Nota Simple.

By Raymundo Larraín Nesbitt
Lawyer – Abogado
8^th of April 2013

What is a Nota Simple?

It is a short legal report of the property (garage, dwelling, store room etc.) obtained from the Land Registry. In English the Nota Simple is called a Property Registry Filing.

What information does a Nota Simple contain?

• The current owner(s)
• Type of ownership
• General description of the property i.e. number of bedrooms, kitchen, living room, etc.
• Total built square metres and percentage of communal areas. Common hold quota and its share
• Boundaries of the property
• Any charges, debts, easements or encumbrances that limit the use of the property i.e. mortgages, rights of way, rights of view, unpaid council tax, community debts, private debts, embargo pending legal resolutions, usufruct right, foreclosure procedures etc.
• Classification of property i.e. residential, agricultural, VPO (‘Vivienda de Protecccion Oficial’; social housing)
• If there is a mortgage against the property it will have an overview of the basic details: total amount owed, total number of years to repay it, number of monthly instalments, outstanding debt, applicable interest rate, default interest rate, full mortgage liability etc.
• And sometimes even the cadastral reference; only if you are lucky

Is the information always accurate?

No. Boundaries, particularly for rural property, are hazy at best as the boundaries are described subject to the names of neighbours who may be long dead. Also the description of the property may be completely inaccurate. For example, if the owner has undertaken works to refurbish the property or made extensions to it these will obviously not be recorded at the Land Registry.

In the case of rural property, many owners took advantage of a legal loophole and using a licence for ‘aperos’ (rural shed tool hut) built instead a luxury villa with swimming pool. At the land Registry the property’s description will remain as the original agricultural land with an orange grove with a small tool hut of 10 square metres. If this owner plans to sell on the property without having updated the Land Registry’s details the buyer will have trouble on seeking finance from a lender. The lender will only see rural land while in reality there may be a 2mn euros property sitting on the land. The lender will only lend a small percentage of the value based on what it deems the rural land to be worth which will be considerably less. The seller will be forced to update the land registry details if he wants to sell.

The nota simple is like taking a legal photograph of a property at a certain moment. It’s accurate at that time but may change over time. If you request a nota simple one week and the following week a charge is placed against it this will obviously not appear in the nota simple of the previous week. So basically a property has a dynamic legal status which is subject to change over time. The nota simple takes a still picture of the legal status at a given moment only. If you want an update you will need to request and updated nota simple as it is logical.

What do I do if the information is not correct?

The property owner(s) needs to fix it himself, at his expense. You normally will need to hire a lawyer to sort out the inaccuracy. On the above example, where a villa has been built on rural land, the lawyer will need to draft what is known as a ‘Declaración de Obra Nueva’ (New Build deed). The owner will have to pay the associated taxes to the town hall for this extension and only then will this new deed be allowed to be signed before a notary. Once the new build deed is signed by the notary it will be lodged at the Land Registry. The Land Registry details will be automatically updated after some time to match the changes made to the property following the new build deed.

What is the Nota Simple used for?

A nota simple is very practical and has multiple uses.

• Buying or selling property. If I want to buy a property; I would want to check if the property has charges, liens, easements or encumbrances against it.
• Loans. Maybe an owner needs funds and requests a loan against the property. The lender will verify what percentage of the property they own or if it’s freehold and if there any other debts or charges against it.

Who signs it?

A nota simple is not signed. You can apply for it in person or online.

On the other hand, a ‘certificación registral’ is a formal document the Land Registrar signs personally which is ‘authentic’ and makes proof of the content of the Land Registry (i.e. in judicial proceedings). It is more expensive.

Where is it kept / stored?

A nota simple is really just an extract of the Land Books, so it is not kept anywhere. The Land Books are physically stored at the Land Registry and the custodian is the Land Registrar assisted by other civil servants.

Is it possible to get a copy in English, or do I have to arrange my own translation?

Yes, you can obtain it in English online. You have to pay extra for the work of the translators that are outsourced by the Land Registry. This will be a document that is drafted in double column Spanish-English. A standard nota simple (only in Spanish) is cheaper.

Are copies legally accepted documents, or do you have to have the original?

No, they are not. A nota simple is a non-certified document only suitable for general information purposes. A nota simple has no legal validity as proof. If there are any errors in it no one is held liable.

If you require a legally accepted binding document you have to request the more expensive ‘certificación registral’ signed and sealed by the Land Registrar himself which is ’authentic’ (it is a public document) and can be used in any legal proceeding. If there are any errors in it the Land Registrar is held personally liable and will have to pay compensation to the affected person out of his professional indemnity insurance cover.

I’ve lost my copy, how do I get a new copy?

You can apply for a nota simple in person at the Land Registry or online.

What information do I need to obtain a copy?

There are a number of ways, as explained at the Registradores.org website:

• IDUFIR. This stands for single property registration identifier. The fastest search.
• Search by particulars of the property. You have to provide the town details, land registry details, volume, page, number etc. Ideally the best way is if you already have the land registry number of the property. This information is normally in the title deed or in the mortgage deed. If you have an old nota simple this will normally also have it.
• You can also look for properties if you have the name and surname of the owner(s). Additionally if you have their NIE or passport number. If the property is under the name of a company it may be more difficult.
• Search using a street address. This is the most challenging search.

How long does it take to get a copy?

If you apply for it in person it is usually ready on the following day.

If you apply for it online it takes between 24 to 48 hours.

How much does it cost?

We offer this service from €50 (plus VAT). English translation also available (additional fees apply).

Follow this link to our service: Nota Simple - Land Registry Search (LRS).

A certificación registral will set you back more.

Generic Nota simple Example

Click the link below to see a sample copy in Spanish & English. This generic nota simple is dissected and fully explained in English.

Nota Simple example

Larraín Nesbitt Lawyers, small on fees, big on service.

Larraín Nesbitt Lawyers is a law firm specialized in taxation, inheritance, conveyancing, and litigation. We will be very pleased to discuss your matter with you. You can contact us by e-mail at info@larrainnesbitt.com, by telephone on (+34) 952 19 22 88 or by completing our contact form.

Legal services Larraín Nesbitt Lawyers can offer you

• Nota Simple - Land Registry Search (LRS)
• Legal Property Report (LPR)
• Company Registry Search (CRS)
• Conveyancing – Buying
• Conveyancing – Selling

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2.013 © Raymundo Larraín Nesbitt, All rights reserved.

The Escritura – Spanish for Title deeds – is one of the most important documents used in the Spanish property conveyancing process, as it everywhere that recognises private property. This FAQ by Raymundo Larraín Nesbitt, a solicitor qualified to practice in Spain, answers all your questions about the escritura / title deeds in Spain.

By Raymundo Larraín Nesbitt
Lawyer – Abogado
8^th of April 2013

What is an Escritura?

‘Escritura’ is a generic term. In this FAQ it is understood as the Title deed to a property.

1. What information does it contain?

A Title deed is a long legal document that has a great deal of information. It will contain:

• Former owner(s) personal details (seller)
• Buyers personal details
• Details of the legal representatives involved
• Details of the translator
• Land Registry details
• Property address (which rarely matches the real street address)
• General property description which is usually obtained from a nota simple (dwelling, garage, store room)
• Cadastral reference
• Property price
• Taxes involved
• Breakdown on how the price is being paid
• Reference to the mortgage – if applicable. The full mortgage details are in a separate deed called the Mortgage deed
• Miscellanea:
• i) Certificate of the Community of Owners stating the property is debt-free and up-to-date with its communal payments.
• ii) Utility bills
• iii) Council tax bills
• iv) Cheques
• v) Copy of the Licence of First Occupation (if buying off-plan)

2. Is the information always accurate? What do I do if the information is not correct?

Yes, it normally is accurate. You contact your lawyer to sort it out.

3. What is it used for?

A Title deed is a public document that certifies the change of legal ownership. Once the Notary signs it, it will then be used to lodge it at the land registry to change the ownership details.

4. Who signs it?

The seller, the buyer, the lawyers involved, the translator and the Notary.

5. Where is it kept / stored?

It is kept at the Notary before whom it was signed.

6. Is it possible to get a copy in English, or do I have to arrange my own translation?

Not possible. You will need to arrange your own translation.

7. Are copies legally accepted documents, or do you have to have the original?

Copies are not legally accepted documents. They are not signed or sealed. There is no ‘original’. The copy that is handed to you at completion is not an ‘original’. You can lose it and it will not matter. You can always request more copies.

A legally accepted document is the ‘copia autorizada’ which is signed and sealed by the Notary himself.

8. I’ve lost my copy, how do I get a new copy?

You can request it from the Notary before whom it was signed. It may take several days.

9. I want to get the escritura for a property I am interested in. How do I go about it?

Unless you have a legitimate interest you cannot. Only the vendor, or his lawyer, can supply you with a copy. In many autonomous communities in Spain it mandatory for real estate agencies to store copies of title deeds for properties in their books. So if you are interested in a copy they should be able to provide you with one.

10. Where do I get a copy from?

From the Notary before whom it was signed.

11. What information do I need to obtain a copy?

With a copy of your passport or NIE number it is sufficient.

12. How long does it take to get a copy?

A simple copy (‘copia simple’) a couple of days at most. A ‘copia autorizada’ (signed and sealed by the Notary himself) may take longer.

13. How much does it cost?

It has no fixed cost. The price will vary according to a number of elements such as the number of pages. On average €40 to €50 (£30 to £40).

14. Can I get request a copy online?

No.

15. If not, what information about a property can I get online?

You need to request a nota simple from the Land Registry which is a different document altogether. Please see my Nota Simple Explained FAQ.

Larraín Nesbitt Lawyers, small on fees, big on service.

Larraín Nesbitt Lawyers is a law firm specialized in conveyancing, taxation, inheritance, and litigation. We will be very pleased to discuss your matter with you. You can contact us by e-mail at info@larrainnesbitt.com, by telephone on (+34) 952 19 22 88 or by completing our contact form.

Legal services Larraín Nesbitt Lawyers can offer you

• Land Registry Search (Nota Simple)
• Company Registry Search
• Conveyancing – Buying
• Conveyancing – Selling

 Related articles

Please note the information provided in this article is of general interest only and is not to be construed or intended as substitute for professional legal advice. This article may be posted freely in websites or other social media so long as the author is duly credited. Plagiarizing, whether in whole or in part, this article without crediting the author may result in criminal prosecution. VOV

2.013 © Raymundo Larraín Nesbitt, All rights reserved.

The Licence of First Occupation (LFO) is a crucial document in the Spanish conveyancing process. This article tells you everything you need to know about it.

By Raymundo Larraín Nesbitt
Lawyer – Abogado
8^th of April 2013

Fact sheet from 2.005

Original article from 29th January 2.009

Abridged article here: Licence of First Occupation

Introduction

Overwhelmed by the sheer amount of client queries on what a Licence of First Occupation (LFO) was in the boom years, I decided to write a fact sheet back in 2005. Over time it evolved, as I added more and more FAQs, resulting in the extended revamped article you are now reading. A LFO is also commonly referred to as a First Occupancy Licence, First Occupation Licence, Cédula de Ocupación or Cédula de Habitabilidad.

Over the last years we have read in the press countless horror stories about people buying off plan properties in Spain which had not attained a Licence of First Occupation (LFO) at the time of completion, and all the woes they are now facing as a result of it. But what really is a LFO and what importance does it bear on an off plan purchase?

In this article I strive to demystify it, shedding light on the matter to cast away widespread misconceptions and highlight the basics.

What is a Licence of First Occupation?

Upon the granting by the developer’s architect of a Certificate of End of Construction (CEC) for newly-built property, a developer will apply for a Licence of First Occupancy. The Licence of First Occupation (LFO) is an administrative licence which the town hall, where the property is located, grants and verifies the development is in full compliance with the Building Licence (BL) and all associated Planning laws.

This is a legal concept applied only to new build property (also known as off plan); it does not apply to resale. A LFO allows the owner to dwell or rent the new build legally. Each newly built dwelling will have an individual LFO granted albeit in large developments the LFO are normally grouped for economies of scale. Resale properties will already have a LFO granted.

The attainment of a LFO is a major legal milestone in an off plan purchase as it marks the ‘legal birth’ of a property. I will analyse in depth these legal implications in my next article on Buying Off Plan Property in Spain.

No one can speed up the granting of a First Occupancy Licence, neither the developer nor us the solicitors; its granting depends solely on the Spanish town hall’s civil servants. Town halls allow time for a developer to mend any planning irregularity or pending communal work which may push back the attainment of a LFO until these outstanding issues are settled (by several months or maybe even years in the more serious cases).

A Dissected and Demystified LFO

A Licence of First Occupation is basically a document consisting of one or more pages issued by a town hall and addressed to the developer who applied for the licence which states that the Licence of First Occupation has been granted for the property or group of properties in the application.

It normally has the following elements: Example of First Occupancy Licence (LFO)

1. Logo of the town hall issuing the licence
2. Stamp with the date in which the document is issued and an accessions register number.
3. File Number
4. Plot of land planning reference
5. Developer’s name
6. Number and type of properties which are being granted licence
7. Date on which the LFO was attained
8. Name and signature of the town hall secretary who grants the licence and town hall’s stamp

Why do you need a LFO?

The LFO is critical for two reasons:

1. Its granting means the developer has built the dwelling complying fully with the original town hall’s Building Licence (BL) as well as complying with all Planning laws. The inspection to grant this Licence is carried out by town hall’s chartered technicians who certify the dwelling is in full compliance of Health, Access, Security, Planning and Construction Laws and is deemed as apt for human habitation.

2. It is also required by a property to have full unrestricted access to official utility companies (water, electricity, gas and telecommunications). Spanish law requires the granting of a LFO to hook up the dwelling to the grid supply. Although in some parts of Spain there have been cases of supply companies waiving this and connecting you without said licence. In such cases the only requirement was showing the application of having requested a LFO from the town hall. As I write, this is exceptional.

Lenders normally require a LFO before they consider granting a mortgage loan against a property. The only exception would be the developer’s bank which has already underwritten the whole development and is able to offer a mortgage loan without it because they are eager to spread the developer’s default risk. Also, taking on the mortgage developer’s mortgage has many advantages as it reduces the legal set-up expenses borne by the prospective purchaser. But it is not mandatory, you have may swap the developer’s mortgage to another lender of your own choice.

How Long Does a LFO Take on Average to be attained?

It depends. If the town hall’s technicians detect irregularities in a development or deviations from the original BL then the LFO will be delayed until the developer fixes these problems. In a smaller town you can reasonably expect the LFO to be issued within a few months of the developer having submitted the Certificate of End of Construction providing the development has no major irregularities. In large cities its granting may be pushed back by several months, or more, due to the work overload of town hall’s planning departments.

Is Every Off-plan Development Issued a LFO?

Yes. As previously written, each dwelling has its own individual LFO granted, although in large developments they are normally grouped for simplicities’ sake. A detached villa will have its own individual LFO whereas large developments consisting of various phases will have grouped LFOs issued. Each of these phases normally has its own LFO. So for example in a huge development of 300 units grouped in 4 phases there could be four different building licences and you would have one all-inclusive LFO granted for each individual phase grouping 75 dwellings at a time.

This could well mean that, even within the same finished development, some properties may be ‘legal’ (a granted LFO) yet others are not legally deemed as habitable because they lack a LFO. Physically all of them may seem identically finished but legally only some can be dwelled in. You could only tell which are which by means of thorough legal analysis.

What are the Risks of not having a LFO Granted?

If a LFO has not been granted one year or more after the Certificate of End of Construction was submitted it usually means there is a serious underlying problem. The said problem can arise from a myriad of causes such as planning problems (e.g. the development had only been granted a building licence for two storeys and four have been built, the property has been built in an area zoned as green belt, or an archaeological site of interest has been uncovered), or could mean there might be a health hazard because there is a breach of Health laws (e.g. the sewage pipeline is incorrectly laid out).

One of the most recent cases has taken place in the peaceful town of Catral in Valencia, Costa Blanca, where several developments have been finished and the purchasers have completed on the properties without a LFO been granted. More than 1,000 houses are now deemed illegal. It turns out many of those dwellings were built within the perimeter of a National park zoned as green belt land. The Government has announced that it may pull down some of them.

I Have Read Online that Completion without a LFO is Illegal.

No, this is a widely spread misconception. Completion on a property, before a Spanish notary, without a LFO is legal in Spain and a property will be lodged under your name at the land registry.

However, it is not legal to occupy/live in a property without the mandatory administrative LFO. So basically you legally own a dwelling which you may not occupy nor rent from a legal point of view. Another matter is if local Authorities actually bother to pursue actively those who live in, or let properties which lack the mandatory LFO.

Many off-plan purchasers on having waited for years on end to attain a LFO, or with no prospects of it ever being granted due to planning issues, have decided to cancel the purchase contract and litigate to obtain a full refund of their stage payments. This contract cancellation has to be done by means of a lawyer and may require a judicial ruling.

What is the Difference between a Standard LFO and one Attained by the Administrative Silence Rule?

None, both LFOs are equally valid from a legal point of view. Under Law 30/92 if a town hall does not reply to a licence petition within three months it is automatically considered granted. This is known as the Administrative Silence Rule (ASR) and is a special administrative procedure which enables licences to be attained after a certain period of time has elapsed (currently 3 months), if no response has been obtained from a town hall. A LFO obtained through Administrative Silence it is just as valid as a standard one obtained expressly through a town hall under Spanish Administrative Law. It is pointless to challenge a licence obtained by Administrative Silence as it is perfectly legal in our system, provided it wasn’t obtained breaching any laws.

The latter is a fairly important point. Licences, in general, may not be attained ‘contra legem’, against the law. This is a long-standing legal principle enshrined by jurisprudence and doctrine i.e. STS 1051/2013 (Spain’s Supreme Court ruling). When disciplinary action is taking place for breach in planning laws one cannot attain a LFO by the ASR.

i) For example, an off plan development built on green belt land may not attain a LFO as it was done so breaching Planning laws.
ii) A town hall’s Master Urban Plan has a land zoned for individual detached dwellings and a developer builds instead a three-storey building to make more money.

A LFO applied for by ASR may be challenged successfully in such cases. The off plan purchase contract may be resolved and the would-be buyer is entitled to apply for a full refund of his stage payments. This, which may sound easy on paper, may entail years of protracted litigation. Litigation should never be entered into light-heartedly and you should always seek first an alternative solution – if possible – with a developer. Trust me, this will avoid you much aggravation over the following years.

What are the Associated Problems of Completing on a Property without a LFO?

Although it is legal to complete without a LFO, it entails numerous practical and legal drawbacks which ought to be carefully pondered. To name but a few:

1. You will not be able to take out a mortgage on the property or re-mortgage it by any lender other than the developer’s.
2. You will not be able to benefit from the services from utility companies; only from the builder’s supply (water and electricity) with all the associated problems this has; namely that you may be cut off at any time as it is the developer who is paying for it and if they go into receivership you will be shut off. Besides, a builder’s supply is only intended for construction, not for domestic purposes. Site supply electricity (‘luz de obra’) has limited strength and power surges are commonplace on simultaneously turning on multiple electrical appliances such as air conditioning and a dishwasher.
3. You will have problems re-selling it. A prospective purchaser – or their lawyer – will haggle with you a steep discount if you lack a LFO in a newly built resale. In a resale, purchasers in turn will undergo the same problems to secure finance by means of a mortgage loan. A lack of a LFO implies that you are actually reducing the pool of potential buyers for your resale.
4. If there are planning issues, the town hall may set a charge against the property and you, as the new owner of a new build, may be held liable to pay the fine for the planning illegality (and not the developer).
5. You will not be able to let the property, at least legally.

Should I Complete Without a Licence of First Occupation?

I generally advise clients to complete on off-plans only if a LFO has been granted by a town hall. However there are qualified exceptions to this general rule which ought to be carefully considered.

For example, if a development complies fully with all the required planning permissions, you lack a bank guarantee, there’s no ruling affecting the building licence due to planning issues and there is a high risk of the developer going into administration in the near future, it would be highly advisable to complete. You would still have to wait until a LFO is granted before you can live or rent the property, but at least now there is no risk of you losing your funds if the developer becomes bankrupt.

It is very important to realise that until completion before a notary a property still belongs legally to the developer. So if you still have not closed and the developer goes into receivership in the interim, the property lodged under his name may be seized by the developers’ creditors. They will place a charge against it at the land registry. If you have no bank guarantee and the above scenario unfolds, it is very likely you will forfeit all your down payments as you will be regarded – by law – as a non-secured creditor (meaning you are almost piled at the bottom of the creditor’s ladder standing little to no chance of recovering your stage payments).

In such a particular scenario I encourage clients to complete on the off plan property ASAP even if it has not LFO. After four years elapse post-completion, authorities must grant a LFO providing no disciplinary action was taken. So if the worse comes to the worse and the developer goes under you will at least have a property lodged legally under your name (thus having secured your stage payments) and in four years’ time post-completion it will be fully legal.

Can I be forced to complete without a LFO?

Not in general. Now come into play the nuances or grey areas…

In an ideal legal world one shouldn’t complete on a newly-built property until the LFO is attained by a developer for all the associated practical problems I’ve highlighted above. That’s how it should work in theory and there should be a national law that rules on this. In practice only a handful of autonomous communities in Spain, such as Andalucía, have legislated on this matter.

However, in practice at times some Private Purchase Contracts (PPCs) have been drafted by developer’s lawyers with such devious wording that completion hinges on some document other than the granting of the LFO. This leaves the buyer in a tricky position at best as they leave the door ajar to litigation – and it is not clear cut who has the upper hand; it will pretty much depend on the judge’s take and can easily be argued both ways to be honest.

Some judges argue the buyer, or his lawyer, had – theoretically – the ‘freedom’ not to sign such a clause (abusive perhaps?). In practice developer’s contracts are identically and mass drafted for everyone (and not subject to individual negotiation or amendments) and this ‘theoretical’ freedom as seen in the eyes of some judges is, in practice, non-existent leaving purchaser’s lawyers treading in uneasy ground on having signed it.

Example of such wording: “completion will take place upon the granting of the Certificate of End of Construction (CEC)”. The CEC is actually signed by the architect who happens to be on the developer’s payroll! Not exactly unbiased, is it? The CEC as I explain at the beginning of this article is the document that is required by the developer to apply for a LFO. But the LFO itself is the licence that verifies that the development was built in accordance with the granted Building Licence and all planning laws. How can you possibly be expected to complete on a property which hasn’t even been inspected by the local planning authorities? There could be all sorts of problems and there usually are.

What the above entails is that completion is left at the discretion of the developer with this wording. When the developer thinks it is high time for completion he will urge the architect to issue the CEC. This of course doesn’t imply the development is anywhere finished or even within reasonable expectation of being granted a LFO any time soon.

There will always be time for the town hall to point out all the outstanding issues and thus push back on the granting of the LFO until all flaws are mended by the developer. But this could take months or even years!

Yet, in the meantime, the developer is legally compelling the off plan buyer to complete by means of a registered letter or notary communication as technically the CEC has already been granted as per the PPC’s wording (at his behest, by his own architect!). So technically the buyer is at contractual breach (!) if they fail to complete once legally compelled (ex art 1504 SCC). This is of course open to debate as there is no LFO in place. The developer could take years on end to attain one and yet you are deemed to be in breach of contract! It is ludicrous. As I write this is a grey area that developer’s lawyers will exploit to its fullest at the cost of buyers consumer rights.

In my humble opinion the law should be addressed asap at a national level to clearly and resolutely require, once and for all, the granting of a LFO to complete to plug this nefarious legal loophole in most autonomous communities. Only then will buyers (and their lawyers) play confidently on even ground. Until then the door is left ajar, open for abuse by one party, which happens to be the strongest and the one who actually worded the contract in the first place creating this imbalance to suit their interests. This does not create legal security for foreign buyers / investors and should be addressed at a national level to plug it.

Specific focus on Andalucía

Andalucía’s Decree 60/2010, of Andalucía’s Urbanistic Discipline, requires in its art 27 that a notary must request at completion both the Licence of First Occupation and the Certificate of End of Construction (CEC). This looks pretty clear, doesn’t it? Well it is not. It’s clear as mud from a legal point of view.

Before you crack open the champagne, the problem is that decree 60/2010 has a rank below that of a law. And the law itself, Andalucía’s Building Act (LOUA), is at best unclear and lax in its terms and at no point requires specifically a LFO to be granted for completion. A general legal principle in Spanish law is that a law of lower rank cannot contradict, or exceed the competence, of a higher ranked law. This is the problem at hand. The LOUA which is from 2002 does not clearly require a LFO for completion. But a lower-ranked law, such as decree 60 from 2010, does specifically require it. A notary in Andalucía could, depending solely on his criteria, require – or not – a LFO to complete. This is unacceptable in my opinion. Developers will always try to impose a notary of their own choice at completion…hence the importance of a buyer’s right to freely choose before which notary he wants to complete.

Moreover the DGRN (Dirección General de los Registros y del Notariado), which sets the nationwide guidelines for all notaries in Spain, specifies that there is no (national) law that requires a LFO as a prerequisite for completion in new builds – and they are unsurprisingly spot on. So in truth an able lawyer, or notary, could argue it both ways in the specific case of Andalucía.

Afore just highlights the problem in Andalucía, but there are sixteen other communities in Spain which are likewise empowered to enact their own laws on the matter compounding the problem furthermore creating a legal Tower of Babel – shades of grey.

Can I be forced to Complete when a LFO is attained by the Developer?

Yes, this is known as forced completion. As from the moment the developer attains it off-plan purchasers, regardless if they have completed or not, will be held liable for the outstanding Community fees.

The fact that a buyer has not completed on the property is not the fault of the developer and he cannot be held liable to pay for these Community fees, unless he specifically agrees otherwise.

The issuance of the LFO by a town hall is the major milestone in the off-plan procedure. In fact, from a legal point of view, it marks the turning point whereby the property is now deemed to have been delivered legally to the purchaser. Once the LFO has been attained and the developer has sent you a registered letter compelling you to complete within a deadline before a notary public, you should no longer withdraw from the PPC and litigate (specifically read point three in the link supplied) for a refund as you are bound to lose at court. That is why it is known as a ‘forced completion.’

Even developers under Judicial Administration can force you to complete once the LFO is attained. The fact they are under an insolvency procedure does not stop them legally from being able to compel you to complete ex articles 1.124 and 1.504 of the Spanish Civil Code (SCC).

Conclusion

A LFO only applies to new builds or off plan property, not to resale. A LFO is important as it draws the line between a new build being legally fit – or not – for human habitation. A lack of a LFO may imply serious underlying problems. You need a LFO to be connected to utility companies.

As from the moment a developer attains a LFO they can legally compel you to complete by means of a registered letter / notary communication.

Bottom line, as rule of thumb do not complete without a LFO.

Qualified exceptions are few and far between. Individual cases differ and require a careful case-by-case study.

I strongly advise you to appoint a competent lawyer with enough experience in Spanish property law to ensure your interests are fully protected.

“Nothing in the world is black or white, forever shades of grey.” – C.B. One of a kind woman.

Larraín Nesbitt Lawyers, small on fees, big on service.

Larraín Nesbitt Lawyers is a law firm specialized in taxation, inheritance, conveyancing, and litigation. We will be very pleased to discuss your matter with you. You can contact us by e-mail at info@larrainnesbitt.com, by telephone on (+34) 952 19 22 88 or by completing our contact form.

Legal services Larraín Nesbitt Lawyers can offer you

• Conveyancing – Buying
• Conveyancing – Selling
• Rentals
• Fiscal Representation (Non-Resident Income Tax)
• NIE Number (Tax Identification Number)
• Will Service

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• How to Buy Property in Spain – Advice by the Foreign & Commonwealth Office
• Buying Distressed Property in Spain – 8th August 2011
• Community of Owners in Spain: Challenging Assembly Resolutions – 10th October 2011
• Off-Plan Construction Guarantees – 8th November 2011
• Rent-to-Buy in Spain: The Smart Choice – 8th April 2012
• Non-residents: Six Advantages of Making a Spanish Will – 8th August 2012
• Community of Owners, or Comunidad de Propietarios – 8th July 2012
• Buying Resale Property in Spain – 21st February 2013
• Title Deed Explained – 8th April 2013
• Nota Simple Explained – 8th April 2013
• Licence of First Occupation – 8th April 2013
• Bank Guarantees in Spain – 8th April 2013
• Buying Off-Plan Property in Spain – 8th of June 2013
• Investor Guide to Spain’s Golden Visa Law – 8th November 2013
• Bank Repossessions in Spain – 21st February 2014
• Buying and Owning Spanish Property through Companies: Pros and Cons – 7th March 2014
• How to Buy Commercial Property in Spain – 4th July 2014
• How to Buy Rural Property in Spain – 8th August 2014
• How to Buy Property in Spain Safely – 10th October 2014
• Taxes on Selling Spanish Property – 8th December 2014
• Spanish Wills and Probate Law In Light Of European Regulation – 8th January 2015
• Changes to Spain’s Inheritance and Gift Tax Law – 21st February 2015
• Spain’s Holiday Rental Laws – Explaining the Latest Changes – 8th March 2015
• Supreme Court Rulings on Bank Guarantees – 8th April 2015
• La Complementaria or Bargain Hunter Tax – 8th May 2015
• House Hunting in Spain – 17th June 2015. The New York Times
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• Resurgent Spain: Málaga Sees Strong Sales – Mansion Global (The Wall Street Journal). December 2015
• Snagging List Explained – 28th October 2016

Please note the information provided in this article is of general interest only and is not to be construed or intended as substitute for professional legal advice. This article may be posted freely in websites or other social media so long as the author is duly credited. Plagiarizing, whether in whole or in part, this article without crediting the author may result in criminal prosecution. VOV.

2.005 and 2.013 © Raymundo Larraín Nesbitt, All rights reserved.

Bank guarantees in Spain are a legal tool devised to secure the deposits of off-plan buyers should their properties not be delivered on time or their developers file for bankruptcy. Post-credit-crunch, bank guarantees are acting as safety nets for many purchasers in dire cases. Law 57/68 rules on bank guarantees.

Original article from 12th November 2.008

By Raymundo Larraín Nesbitt
Lawyer – Abogado
8^th of April 2013

Introduction

Bank guarantees in Spain have been a controversial subject over the last years which have sparked heated debates. Regrettably I have witnessed how some financial institutions are in fact refusing to honour bank guarantees. It is in such cases in which the need of a specialized litigation lawyer comes into play to help enforce them before a law court. Bank guarantees may be a daunting minefield for many albeit with the assistance of an independent lawyer acting on your side you will be able to waive the pitfalls both safely and successfully.

The purpose of this article, along with my article on Licence of First Occupation, is to pave the way for my upcoming article on Buying Off-Plan in Spain. These are essential mosaic articles that allow a focused study on a particular subject and, as a jigsaw puzzle, are part of a broader picture which aims to shed light on buying off-plan property in Spain.

I recommend this article is read in tandem with Supreme Court Rulings on Bank Guarantees and Law 20/2015 New Bank Guarantee Legislation which changes and shapes our understanding on how bank guarantees work in practice.

Bank Guarantees for Off-Plan Property in Spain

Buying off-plan property in Spain has many advantages but also its associated risks. It is important would-be buyers fully understand what this implies. Not long ago it was normal to obtain a significant discount (premium) on buying off-plan as you assumed a risk (mainly the uncertainty of the property ever being delivered and the time elapsed until completion) until the unit was ready to be delivered legally (with a Licence of First Occupation, in Spanish ‘Licencia de Primera Ocupacion’). Many took advantage in the boom years selling on these properties for a sizeable profit prior to completion (also known as ‘flipping’) as it was basically a leveraged investment which only required a fraction of the funds to be paid up front. That same off-plan dwelling was significantly more expensive (i.e. 30%) if you purchased it key-ready as once completed there was no inherent risk.

The whole purpose of bank guarantees is precisely to offset the ‘waiting risk’ until a property is completed. They are devised to mitigate, if not completely remove, the financial risk associated to a developer not completing a development and pocketing your deposits. In this manner they would act as safety nets and the buyer would be able to recover their deposits in full plus the legal interest. That’s the theory anyhow. In practice it is a tad more complex.

The off-plan meltdown gradually cooled off leading us onto today’s depressed market. Off-plan hazards nowadays frequently outweigh the rewards, making the prospect of buying resale property in Spain or let-to-buy in Spain look far more appealing; particularly in light of the large stock of readily available property. That is until the dust settles and the market picks up again kick-starting a new property boom.

Property cycles in Spain take, on average, 15 years from peak-to-trough. The last cycle has taken from 1993 to 2007. To be perfectly honest, this time recovery will foreseeably take ‘somewhat’ longer to materialise. Don’t hold your breath.

What is a Spanish Bank Guarantee?

A Spanish bank guarantee can be either an insurance policy or a guarantee issued respectively by an insurance company or a bank. In this article, for simplicity’s sake, I will group both types under the generic term ‘bank guarantee’. A bank guarantee’s purpose is to secure the full amount of deposits paid by off-plan purchasers. It secures the initial reservation deposit, which strikes the property off the market, the interim or stage payments as well as the applicable VAT paid on said amounts. On top of this you are also entitled to the legal interests on the amounts secured. Bank guarantees are mandatory and should be available to all buyers of new-build property.

A bank guarantee has high set-up costs. Law states this expense must be borne and maintained by the developer. If your developer wants to force you to pay for these costs you must report them to your local or regional consumer protection office who will fine them heavily. A bank guarantee is of critical importance acting as a safety net securing your full deposits should something go awry.

It goes without saying that a buyer must always keep careful record of all advanced payments. I mention this specifically when one uses the services of currency exchange companies (which have very competitive rates) as your money actually goes into one of their accounts, not the developers. On completion a notary will require prove of all payments made for money laundering purposes. You want a complete audit trail of all monies involved in the purchase.

How long does the Protection of a Bank Guarantee Last?

In strict accordance with article 4 of Law 57/68 bank guarantees have no expiration date. They should only expire upon the granting of the Licence of First Occupation by the town hall where the property is located. In practice this seldom happens and almost all bank guarantees are issued with an expiration date spanning typically 2 years. It is critical that your appointed conveyance lawyer renews them on time so your deposits are secured at all times.

A Bank Guarantee, Dissected and Demystified

A bank guarantee should be individualised for each particular purchaser. It should include the following:

1. Name & surname of purchaser/s.
2. Their nationality & passport number/s.
3. Their homeland address.
4. The exact amount in Euros which is being guaranteed.
5. Developer’s name.
6. The name and address of the development where they are purchasing.
7. The details of the residential unit they are purchasing i.e. Block 1, second floor, flat F.
8. Name & seal of the bank or insurance company guaranteeing underwriting the stage payments.

If it is a bank guarantee, the number of the ‘Registro Especial de Avales’ as well as the bank account details where the amounts secured will be lodged.

The Law’s Wording

Law 57/1968 rules the protection of stage payments in off-plan properties. This very short law of only seven articles was enacted to secure the stage payments of purchasers should, for example, a developer file for creditor protection or the build be cancelled for planning reasons and thus not delivered in the stipulated deadline. Bank guarantees are only applicable to off-plan properties, not to resale property.

Brief Overview of Law 57/1968

1. Article 1 rules that developers will have to provide free of charge to purchasers a bank guarantee or insurance policy (henceforth bank guarantee for either type) to guarantee the refund of their stage payments plus 6% interest in the event of the developer becoming insolvent. Spain’s Building Act (Law 38/99) actually amends this percentage in its first additional disposition and it will be the legal interest set in the Budget Law published annually by Spain’s Law Gazette (‘Boletín Oficial del Estado’). These legal interests are simple annual interests, not compounded. For 2013 the legal interest has been set at 4% by the Government. However if a developer expressly accepts the 6% interest set in Law 57/68 then said interest overrules the legal interest (which is currently lower).

2. Article 2 makes it imperative to include a clause in the Private Purchase Contract (PPC) whereby it is stipulated that all interim payments will be guaranteed by bank guarantees. You can claim on a bank guarantee on the following three cases:

– A development has not been started (after a prudential period of time has elapsed)
– The construction is not completed within the stipulated deadline in your Private Purchase Contract (PPC) *
– The developer has failed to attain a Licence of First Occupation (after a prudential period of time has elapsed)

* Small digression. Almost all developments in Spain are delivered late so this remark by the law is advised to be taken with a pinch – or two – of salt. Please read point one of my article: “10 Reasons why your case Against a Developer may be thrown out of Court in Spain”. I would say a reasonable delay spans six to twelve months. Some judges are of the opinion that six months is not enough time to consider it a contractual default. Moreover developers, assisted by very competent lawyers, can successfully argue that unforeseen events (force majeure as per art 1105 of the Spanish Civil Code, SCC), such as strikes, bad weather etc. may impact on delivery pushing it back. If they are able to justify the delay, this extra time will not count against them. That’s why caution is the key word here before getting trigger-happy on suing. Litigation is a double-edged sword that needs to be wielded both carefully and responsibly as it may backfire at your own expense. It should not be entered into light-heartedly. Be very wary of law firms pitching you have a ‘strong case’ and making far-fetched promises of 95% success rate claims. You may have a strong case, not.

Another fact worthy of highlight is that only because a PPC has a specific clause whereby it is mentioned that a buyer has a bank guarantee securing their funds this does not actually mean they have one. You have to be thorough and crosscheck with your lawyer that you do in fact have a bank guarantee issued under your name securing all your deposits including the initial reservation fee. In fact, ask to see it. Better safe than sorry. This may annoy your appointed lawyer (it would make me grumble!) but it is necessary – this is your money at stake, no one else’s. You have a right to ensure your stage payments are fully protected.

3. Article 3 stipulates that if the deadline to hand over the property is surpassed without the development being finished – or even started – the purchaser, at his own choice, may either rescind the contract executing the bank guarantee claiming a full return of the deposits plus legal interests accrued in the interim or else grant a developer an extension to complete the property. The latter must be expressly accepted, in writing, by the buyer with an addendum to the PPC reflecting this extension to the delivery date of the property signed by the developer and buyer (or else his appointed legal representative).

4. Article 4 is very important as many things hinge on its wording. In compliance with it, bank guarantees will only be cancelled upon the developer attaining, not applying for it, a Licence of First Occupation. This point is crucial. So much so I will repeat it and expand upon it. A bank guarantee does not expire until a developer has a LFO physically issued by a town hall. So any wording in a bank guarantee stating, for example, any of the following is null and void as per art 4 of Law 57/68:

– A bank guarantee has an expiry date on a given date
– A bank guarantee expires upon the developer attaining the Certificate of End of Construction (In Spanish, ‘Certificado Final de Obras’)
– A bank guarantee expires on the developer applying for a LFO

Following article 4 of Law 57/1968, bank guarantees only become null and void when two conditions are met:

1. As from the time a developer attains a Licence of First Occupation from the town hall’s planning department.

2. The developer makes the new-build property available to a buyer (as in physically handing it over to him).

Artículo cuarto

Expedida la cédula de habitabilidad por la Delegación Provincial del Ministerio de la Vivienda y acreditada por el promotor la entrega de la vivienda al comprador, se cancelarán las garantías otorgadas por la Entidad aseguradora o avalista.

At completion the purchaser’s conveyance lawyer will hand over all bank guarantees to the developer’s appointed legal representative.

5. Article 5 stipulates the obligation of the developer in the PPC, and all related publicity, to mention specifically the details of the financial services provider guaranteeing the payments and the special escrow account where your payments will be paid into (name of bank, account number).

6. Article 6 has been revoked.

7. Article 7 stipulates the Consumer’s Rights set forth in this law cannot be waived by the purchasing party even if they agree to it. The purchaser’s rights set forth in law 57/68 are inalienable under any circumstance.

Types of Bank Guarantees in Spain

As the Law 57/68 doesn’t specifically rule which type of bank guarantee should be issued by the developer there is freedom. Basically this allows for two types:

Standard Bank Guarantee

Bank guarantees ideally can be claimed upon immediately by the purchaser in case the developer defaults or the property not being delivered. However post credit crunch this is no longer the case as some banks are refusing to honour them. Prior to executing it, it actually requires a judge’s ruling stating that the bank ought to refund – or not – the off-plan purchaser. This means the purchaser will actually have to engage the services of a specialized litigation lawyer who will claim upon said bank guarantee in a special executive procedure. The litigation expenses are borne initially by the purchaser up front albeit may be claimed back from the bank together with the full refund of the stage payments and legal interests. This Executive procedure is much swifter than an ordinary court procedure spanning normally between 3 to 8 months. This is the most common type of bank guarantee which is set-up and one cannot argue that it is illegal or unlawful; it is only less practical if banks happen to refuse honouring them.

‘Aval a primer requerimiento’

This is just a standard bank guarantee which includes a special clause by which it can be claimed upon immediately by the conveyance lawyer without the need of a judge’s ruling. The bank cannot refuse to honour it. This is really the ideal bank guarantee to have because it saves the hassle, stress and additional expenses of having to go through a court procedure, even if it’s an Executive one. Sadly, it is very infrequent.

Obtaining a Bank Guarantee

Who requests a Bank Guarantee?

Ideally a developer should hand you over the bank guarantees without even having to request them, this seldom occurs of course. In practice it is the duty of the conveyance lawyer you appoint to follow this up and request it. If you have appointed no lawyer then it will be up to yourself to request it from the developer. The developer in turn will arrange with the bank or insurance company underwriting the whole development the set-up of bank guarantees.

After having paid the initial security deposit which strikes the property off the market, you are typically expected to make interim payments which amount, on average, to 30 or 40% of the property’s value. These payments are normally made in regular instalments (i.e. three or four quarterly payments). Your lawyer will then request from the developer one bank guarantee at a time to cover each and every instalment besides the initial security deposit. So normally your lawyer will have one bank guarantee for each of your stage payments securing the full amount.

As per this law a developer cannot charge to issue a mandatory bank guarantee. Issuing a bank guarantee has high set-up fees for the developer as they must allocate an amount of money in a special bank account besides being an opportunity cost for them as they could put to work these funds elsewhere. This may help to explain why some developers are reluctant to hand them out unless the purchaser’s lawyer has requested them previously.

When are Bank Guarantees Issued?

Bank guarantees are issued normally 30 to 40 days after you make a down payment. Naturally a bank or insurance company cannot issue a bank guarantee if you have not paid the stage payment. In other words, a bank guarantee cannot be issued prior to handing over the stage payment to a developer as some people are advocating publicly. This just shows a lack of understanding, however wishful, on how the system works in practice.

Advice such as: “do not make any payments to the developer without a bank guarantee” are flawed. First you pay, only then will you be issued a bank guarantee. Obviously if you’ve already made one payment and several months have elapsed and there is no bank guarantee forthcoming and you are shortly expected, under binding contractual terms of the PPC, to make further payments you should be wary and seek legal advice. It is risky to keep handing money over if your first stage payments have not been guaranteed yet.

Bank Guarantees on Self-Built Properties

I am building my own dream-villa, should the constructor hand me a bank guarantee? The simple answer is no. In this particular case in which a person has bought a plot of land and they are building their own detached villa the Building Act regards them as self-developers. The constructor is hired by them and is acting on their behalf. In this particular case bank guarantees are not applicable as the purchaser is the developer. However, Law requires the self-developer to arrange the mandatory Ten-Year Insurance (Seguro Decenal). A lack of compliance attaining this mandatory insurance will result in this self-developer being forbidden to sell their house within the next ten years whilst alive unless expressly waived by a purchaser. This leaves the door ajar to problems which are best examined in another article.

Common Bank Guarantee Pitfalls

There are far too many pitfalls to be included as a comprehensive list in my brief bank guarantee overview. Please take professional advice from your appointed lawyer on this matter.

I will list the most common:

1. The bank guarantee’s expiration is conditioned to attaining the Certificate of End of Construction (CEC) instead of the Licence of First Occupation. Law 57/68 sets forth in article 4 that the bank guarantee should be valid until attaining the Licence of First Occupation. The problem is that a CEC, which is the prerequisite prior to the granting of a LFO, doesn’t mean the development is regarded as legal. In fact the CEC is issued by the architect in charge of the development who is actually on the developer’s payroll. Besides contradicting the specific wording of said law this clause should not be accepted as a development, despite having a Certificate of End of Construction, may not be legal. The CEC bears no relevance whatsoever on whether a development is legal or not. Moreover, for a Certificate of End of Construction to be valid it must be signed by the architect, technical architect (‘aparejador’) and must be approved and countersigned with the official seals of both the architect’s regional college and technical architect’s regional college. So a Certificate of End of Construction signed by only one of them would not be deemed valid and bears no significance on the legality of a development. Only the Licence of First Occupation does. For more details on this, please read my article on Licence of First Occupation.

2. The bank guarantee is conditioned to an expiry date. This is fairly common and contradicts blatantly both the spirit and wording of the law. The problem with expiry dates is that almost all developments are handed late for one reason or another. The danger in including expiry dates is that if the development isn’t finished on time as per the clauses in the Private Purchase Contract and the deadline is overrun the bank guarantee will cease to be valid. However this is a subject of hot controversy between lawyers and judges as there are many who believe that the inclusion of expiry dates is null and void as it goes against the Law (article 4 of law 57/68). This will remain contentious until there is a string of likeminded rulings from the Higher Courts. In the meantime being practical, I would advise to renew a bank guarantee to ensure your financial interests are secured at all times should the worst come to the worst.

3. Cowboy Insurance Companies. On the wake of the long-lasting property boom many such cases have been reported in the media. Invariably these rogue insurance companies are incorporated abroad specifically to be outside the reach of the Spanish jurisdiction. On doing this they waive Spain’s requirements and should the developer default, they are purposely unable to back up the bank guarantees or insurance policies they have undersigned. The process to make them accountable for is long, winding, expensive and often fruitless. That is why I strongly advise that whichever bank or insurance company which issues a bank guarantees is located within Spanish territory as a precaution, to be under the supervision of the Spanish authorities. The DGSFP’s website (Spain’s official body responsible for the supervision of insurance companies) has a list of unauthorised insurance companies which are neither registered nor authorised to trade in Spain. Under no circumstances should you enter into a contract with the above listed companies. This list is updated, from time to time.

4. Group or collective bank guarantee whose beneficiary is not the purchaser. This happens typically when investors buy from the developer, at a discounted price, a whole development or a large number of units to resell it abroad in the UK or in Ireland at a higher price. The bank guarantee will be under the name of the investors and not under the name of the end-buyer as it should legally. These bank guarantees are normally for a very high amount of money (millions of euros) as they group various residential units. They are extremely difficult to claim upon legally making them in practice worthless.

5. My bank, or insurance company, does not honour my bank guarantee. Post credit crunch it is renowned that some banks and insurance companies are refusing to honour them as has been highlighted by the Bank of Spain itself in 2008. In this case a specific executive procedure may be followed by your lawyer as a bank guarantee is regarded as an Executive Title. However, not in all cases is it recommendable to follow this executive procedure and your litigation lawyer will advise accordingly on a case-by-case. Consider it as a tactic devised to wear you out as litigation is daunting for many and requires liquidity as it must be paid up front. The expenses may be recouped from the other party later on.

Bank Guarantees – Conclusion

A bank guarantee is a document of paramount importance for off-plan purchasers as it secures their stage payments. I cannot stress enough the importance of attaining a bank guarantee. So even if you are requested to pay a bank guarantee – which is unlawful – I would advise you doing so because it will act as a safety net securing your financial interests in the event of a developer going into receivership or if the development is stalled and overdue i.e. for lack of liquidity

I am very critical of how the whole affair on bank guarantees has been grossly mishandled by those tasked to oversee it. There has been far too much complacency involved which has resulted in the abuse of the good faith of thousands of foreign buyers. This should be addressed urgently so this does not repeat itself again and assist, as much as possible, those who are already caught in its web.

In my personal opinion, this 45-year-old law, hearkening back to the pre-constitutional Franco regime, needs some serious reworking as it allows many loopholes because of its poor wording. The Spanish Government would do well to understand that foreign off-plan buyers rely heavily on bank guarantees to invest in new builds. If the Government wants to kickstart Spain’s real estate sector it should address as a priority sensitive issues such as law 57/68 in advance of a new property cycle. Only then will foreign investors have renewed faith in our legal system to buy again off-plan with trust.

“Trust, like reputation, is hard to earn, but easy to lose.”

Larraín Nesbitt Lawyers, small on fees, big on service.

Larraín Nesbitt Lawyers is a law firm specialized in conveyancing, taxation, inheritance, and litigation. We will be very pleased to discuss your matter with you. You can contact us by e-mail at info@larrainnesbitt.com, by telephone on (+34) 952 19 22 88 or by completing our contact form.

Legal services Larraín Nesbitt Lawyers can offer you

• Conveyancing – Buying
• Conveyancing – Selling
• Rentals
• Fiscal Representation (Non-Resident Income Tax)
• NIE Number (Tax Identification Number)
• Will Service

Related articles

• How to Buy Property in Spain – Advice by the Foreign & Commonwealth Office
• Buying Distressed Property in Spain – 8th August 2011
• Community of Owners in Spain: Challenging Assembly Resolutions – 10th October 2011
• Off-Plan Construction Guarantees – 8th November 2011
• Rent-to-Buy in Spain: The Smart Choice – 8th April 2012
• Non-residents: Six Advantages of Making a Spanish Will – 8th August 2012
• Community of Owners, or Comunidad de Propietarios – 8th July 2012
• Buying Resale Property in Spain – 21st February 2013
• Title Deed Explained – 8th April 2013
• Nota Simple Explained – 8th April 2013
• Licence of First Occupation – 8th April 2013
• Bank Guarantees in Spain – 8th April 2013
• Buying Off-Plan Property in Spain – 8th of June 2013
• Investor Guide to Spain’s Golden Visa Law – 8th November 2013
• Bank Repossessions in Spain – 21st February 2014
• Buying and Owning Spanish Property through Companies: Pros and Cons – 7th March 2014
• How to Buy Commercial Property in Spain – 4th July 2014
• How to Buy Rural Property in Spain – 8th August 2014
• How to Buy Property in Spain Safely – 10th October 2014
• Taxes on Selling Spanish Property – 8th December 2014
• Spanish Wills and Probate Law In Light Of European Regulation – 8th January 2015
• Changes to Spain’s Inheritance and Gift Tax Law – 21st February 2015
• Spain’s Holiday Rental Laws – Explaining the Latest Changes – 8th March 2015
• Supreme Court Rulings on Bank Guarantees – 8th April 2015
• La Complementaria or Bargain Hunter Tax – 8th May 2015
• House Hunting in Spain – 17th June 2015. The New York Times
• Dispelling Spanish Inheritance Tax Myths – 8th August 2015
• Resurgent Spain: Málaga Sees Strong Sales – Mansion Global (The Wall Street Journal). December 2015
• Snagging List Explained – 28th October 2016

Please note the information provided in this article is of general interest only and is not to be construed or intended as substitute for professional legal advice. This article may be posted freely in websites or other social media so long as the author is duly credited. Plagiarizing, whether in whole or in part, this article without crediting the author may result in criminal prosecution. VOV.

2.008 and 2.013 © Raymundo Larraín Nesbitt, All rights reserved.

An up-to-date legal guide to buying resale property in Spain by Raymundo Larraín Nesbitt, a Spanish qualified lawyer (abogado).

The following article is my second part on a five-part series focused on How to Buy Property in Spain Safely. You may also be interested in reading Buying Distressed Property in Spain, Buying Off-Plan Property in Spain, How to Buy Commercial Property in Spain or How to Buy Rural Property in Spain.

By Raymundo Larraín Nesbitt
Lawyer – Abogado
21^st of February 2013

Original article from 31st January 2.010

Introduction

The following eleven useful tips will help would-be buyers avoid the majority of buying resale property associated pitfalls. I won’t mention the so-called Valencian Land Grab Law as this is a localised problem affecting only Valencia that bears no impact whatsoever on the remainder of Spain’s seventeen Autonomous Communities.

1. Hire a Qualified Registered Lawyer

This is the single most important advice you can be given. If you only happen to follow this first tip the rest of the points mentioned in this article become redundant. The advantages are summed up in my article Buying Property in Spain – 10 Reasons to Hire a Lawyer.

Hiring a lawyer is by no means mandatory on conveyance procedures. But I cannot stress enough the importance of retaining a Spanish lawyer, if you are a foreigner, to act on your behalf in a conveyance procedure, both on buying and selling property.

It is often that I hear that those with vested interests in there being no lawyers involved – I wonder why – are often the most outspoken on advocating that retaining a lawyer is an unnecessary expense and always put as an example that Spaniards don’t hire them on buying property.

Whilst it may be true that Spaniards, in most cases, do not retain a lawyer to act on their behalf in a conveyance this can be explained for a number of reasons. Almost every Spaniard has a relative or a friend who happens to be a lawyer and advises them free of charge. Besides they are fluent in their own language (!) and have ready access to a myriad of legal articles which are regularly published in the press. Despite this Spaniards still end up having all sorts of problems on buying or selling property because they did not want to incur in additional expenses hiring a lawyer. Quite often their blunder far exceeds what a lawyer would have charged for his service (typically 1% of the property’s value plus VAT).

To identify oneself as an ‘abogado/lawyer’ one must be both qualified and registered in Spain:

i) Qualified: having passed and attained a Spanish Law degree or else by having homologated it
ii) Registered: being admitted to practice Law at one of Spain’s regional Bar Associations

The second point is already inclusive of the first one, as on applying to practice Law before a Bar Association one must submit both his Law degree and his full academic record. Additionally, someone with a criminal record may not join the Law Society. One should exercise extreme caution on those claiming to be an ‘abogado’ and yet are unregistered to practice. Ask yourself why? Quite a few of the notorious mishaps featured in the press relate to non-qualified intruders dealing in conveyance matters.

Someone who is not registered in a Bar Association cannot entertain to address themselves as a ‘lawyer’ nor legally perform the duties and roles of one.

Registered lawyers need to abide by the Code of Ethics of the regional Law Society to which they belong. In serious cases a lawyer can be struck off the Bar and barred to practice law.

I write the above because I have been alarmed over the last years, since Spain’s economic depression began in 2007, by the increasing number of Spanish bogus law firms which have been set up by unscrupulous people who are neither registered to practice as lawyers nor qualified (no legal background whatsoever or even holding a completely unrelated professional background i.e. Advertising Executive!).

Only registered lawyers have Professional Indemnity Insurance which may protect you in the event of malpractice or negligence. You can claim against said insurance in such a case. All registered lawyers are assigned a practising number by their Law Society i.e. number 6072 of Malaga’s Law Society. You can easily check if your lawyer is registered to practice law on this Registered Lawyer’s Database.

Bottom line; make sure your lawyer is registered to practice, for your own sake. Be wary of cold-calling from legal advisors, senior legal advisors, legal executives, legal assistants, paralegals and in general anyone who does not clearly identify himself/herself as a lawyer/abogado (and is therefore registered). Unlike other countries such as the United Kingdom these fancy titles don’t mean anything in Spain – we have no paralegals. Or you are either a registered Spanish lawyer or you are not – period. It’s that simple. Someone who is not a trained registered lawyer is not qualified to give legal advice in any shape or form, cannot entertain to address himself/herself as a ‘lawyer’, cannot solicit clients for legal services – even if outsourced – nor practice law in Spain.

If the property you wish to buy is of a high value you may want to seek advice beforehand so as to mitigate tax exposure, namely to Spanish Inheritance Tax. Often the best tax planning results are achieved prior to acquiring a property as they may require the incorporation of a string of holding companies to lock up the asset.

Bottom line it is advisable to retain an independent lawyer in Spain.

You can check this list of recommended English-speaking lawyers or request one from your home country’s local consulate in Spain.

2.Has the Property Been Registered Properly?

It is commonplace that extensions on properties are unregistered at the Land Registry. You will only find out on requesting a mortgage loan when a lender either turns you down or else offers significantly less money than what you anticipated because the extensions remain unregistered i.e. a four bedroom villa is registered only as a two bedroom property. Following this example, a lender will only value the property as a two-bedroom as the remaining two bedrooms do not exist from a legal point of view and therefore cannot be mortgaged thus reducing the overall value of the property.

This problem can be easily overcome by signing a new build deed at a Notary and paying the associated local tax levied by the town hall for the extension. This deed is then registered and the property description is amended accordingly adapting it to reality. This ought to be done by the vendor prior to the sale, unless specifically agreed otherwise. Such a case is rife in rural properties.

Other cases, such as illegal rural properties, may be fraught with legal problems i.e. a rural property was given a licence to build a small tool hut (‘casa de aperos’) of 3*3 m² to store the tools to plough the fields. Yet using this legal ‘loophole’ planning rules are easily circumvented and a villa may be built instead – which may be lead local authorities to threat with demolition at the owner’s expense besides imposing fines and even criminal action being taken in the most serious cases. Rural properties can be a legal quagmire and it is essential you retain a lawyer to act on your behalf and best advice you on the matter, from the very beginning.

In other cases, for perfectly legitimate reasons, properties remain unregistered or they lack a title deed (‘escritura’) i.e. property inherited from one generation to another in rural areas. There are several legal ways to overcome this minor setback: ‘Acta de Notoriedad’ or else following an ‘Expediente de Dominio’.

3. Is the Property Registered under the Vendor’s Name?

This may sound as a fairly obvious point but quite often than not I’ve found out the person who had the property listed at the estate agency was not the registered owner. This can be explained for a number of legitimate reasons i.e. the registered owner has passed away recently and the inheritance tax liability has not been sorted out yet. Until the Spanish IHT is not settled, the property cannot be registered, mortgaged or sold by his beneficiaries.

This will be one of the first checks your appointed lawyer will carry out. You can actually do it yourself requesting what is known as a nota simple at the Land Registry where the property is located either physically or online (you have to be a registered user for the latter).

Only the owner or someone else appointed by him acting as proxy (empowered with a Power of Attorney) can sell a property.

4. Ensure the Property Complies with Spain’s Coastal Law

If you are buying a resale, make sure it is not within the protected area of Public Domain or else you may risk your house being pulled down, at your expense, by the local Authorities. Spain’s Coastal Law was passed in 1988 but it hasn’t been until recently that the Government decided to enforce it harshly.

The Government has however recently proposed introducing an amendment to the costal law which in practice will amount – to all intents and purposes – to a generalised amnesty. Thousands of properties which were assailed over looming demolition will now be safe to buy and sell as a result. A very smart move by the Government that has successfully averted what would otherwise have been a death knell for Spain’s real estate sector.

5. Are There Charges, Encumbrances or Debts Against the Property?

Additionally the above land registry information will describe the property (size, bedrooms, boundaries etc.) and reveal if there are any charges or liens against it i.e. a mortgage, a right-of-way or even an embargo.

However you should know that not all debts against a property are lodged at the Land Registry. This is yet another angle which your conveyance lawyer will cover. For example, on buying a resale in a Community of Owners in Spain outstanding debts go against the property itself not against the former owner. On buying a resale you are liable for all the debts of the previous owner in the current year in which you are buying as well as the previous two years; in other words, dating back three years. Your lawyer should request a certificate from the Community of Owners stating the property is up-to-date with the community payments and will include it in the Notary’s deed at completion. This certificate will act as your safeguard against any community claim on bad debts from the previous homeowner.

The new owner will also be held liable for unpaid utility services and local taxes. This is because these debts go against the property itself, not against the previous owner. So whoever owns the property will be held liable. Your lawyer will likewise also ensure prior to buying a resale there are none outstanding.

Other local taxes levied by the town hall where the property is located may be left outstanding by the previous owner (i.e. IBI tax and Garbage collection). These will not be lodged either at the Land Registry.

It may be a good idea to hire Title Insurance just to play it safe. There are companies offering a twenty year legal protection at very competitive prices. It’s well worth looking into.

6. Are There Tenants Living in The Property?

You should be keenly aware that in Spain laws are biased towards tenants for historical reasons. If you happen to buy a resale which, unbeknownst to you, is being let by means of a Tenancy agreement signed after the 1st of January 1995, you will be forced to respect their tenancy until it elapses to take possession of the property. In Spain long- terms are for five years although this has been slightly amended by the ‘Express Eviction Law’ which was passed recently. You can however reach an agreement with the tenant to leave the property beforehand in exchange of a suitable settlement. Additionally recent laws have introduced a limited number of scenarios where this mandatory five-year rule may be overridden by the landlord if required. But you cannot force them on this point.

On buying bank repossessions in Spain you may find a tenant living inside with a long-term contract. Even lenders on repossessing properties have to respect long-term tenants, unless they reach a settlement with them.

Moreover, these long-term tenants may be legally entitled to exercise their pre-emption and buyout rights (‘derecho de tanteo y retracto’) in a resale as enshrined in section 25 of Spain’s Tenancy Act. Landlords must notify their long term tenants, prior to the sale of the property, their intention in doing so as well as the sale conditions so that tenants may exercise their right of first refusal within the next 30 days. Failure to communicate it or doing it in a flawed manner (i.e. the mentioned sales price is in fact higher) will trigger their buyout right. It will then be up to the tenant on whether to exercise it or not.

One of the main problems on buying in Spain is that unfortunately there is no tenant’s public registry that you can check previously; so on buying a resale you are really taking a gamble as you just don’t know for sure if there are long-term tenants living in the property. Seldom are long-term tenancies registered at the Land Registry.

A lawyer can of course draft specific clauses both in a Private Purchase Contract (PPC), as well as in the title deed, to protect you against the above as well as other unforeseen events i.e. squatters in Spain.

7. Know Your Owner’s Rights

If you are buying in a Spanish Community of Owners (‘Comunidad de Propietarios’) it is advisable you request beforehand both the Community Statutes and the Internal Community Rules (the latter being optional, do not always exist) to avoid future problems with your neighbours i.e. an internal rule which bans tenants from using communal installations such as a swimming pool or a gymnasium (both are real life examples). Such limitations can be particularly troublesome for landlords who bought property on a Spanish buy-to-let premise not to mention that it can be challenged. Assembly resolutions may be challenged (both AGMs and EGMs) if necessary.

Additionally, depending on which of Spain’s 17 regions the property you are buying is located in, besides being protected by the Consumer Protection Act which rules nationwide, you are also protected by specific regional consumer laws. An example of the latter would be Decree 218/2005 which rules on consumer rights on buying and renting property exclusively for the autonomous region of Andalucía. These regional laws compliment and bolster national laws adding security and rights to consumers at large.

8. You do have a NIE number, right?

A Spanish NIE number is a Tax Identification Number for foreigners enabling you to file and pay taxes into the Spanish Tax office. It will be required, for example, on buying and selling property, on inheriting assets in Spain, on opening a bank account, on buying a car, etc. More details in my article: NIE Number Explained.

You cannot complete on a property in Spain without one, either on buying or selling, as the Notary will disallow it.

9. Post-Completion: Make Sure the Property is now Registered Under Your Name

Once you’ve completed (or closed) on the property you should ensure it has been registered properly under your name. This process takes on average 30-60 days after completion. If you applied for a Spanish mortgage loan and your lender is the one dealing with registering the property, expect at least a delay of six months – if not more – until you are returned the original title deed. Banks always withhold the original Mortgage deed for their records and will give you only an authorised copy. Once the property has been duly registered you can request the original title deed for your safekeeping. Losing the original title deed or escritura is only a minor setback as you can easily request copies from the Notary where it was signed.

10. Post-Completion: Dealing with Property Taxes, Utilities and Community Fees

Once you have acquired your new property, you will now have to face all the associated running expenses. Make sure you have budgeted this carefully so as to avoid unpleasant surprises! Some of the luxury gated communities with lush tropical gardens and beautiful infinity pools that dot the Spanish coastlines may have pretty steep maintenance expenses. Any unpaid community bills will result in the Community of Owners placing a charge against your property which may lead to auctioning it off publicly to recoup the debt! This legal procedure in Spain works fairly efficiently (as in twelve months on average).

Post-boom many new build developments remain largely unsold. Developers or ailing owners have been forced to hand over their properties to lenders on slipping into arrears. These lenders in turn are some of the worst offenders on community payments which translate into an increase of the fees borne by the remaining community members to offset this loss. Only Spain’s most prominent lenders are actually paying the community fees on their properties. Spanish savings banks are particularly notorious for not being up-to-date with their community fees. This is creating a vicious spiral putting the properties at stake of those financially weaker community members as they themselves struggle to remain afloat because the supposedly financially ‘stronger’ EU-bailed-out lenders are not contributing to their fair share of community payments. Bringing a legal case against them will mean community members will have to hire a lawyer which entails additional expenses.

You should open a Spanish bank account if you haven’t done so already. Utility companies do not accept overseas payments and like setting invoices as standing orders against your Spanish account. You should set at least as standing orders all the following:

• IBI tax. Paid once a year (akin to the UK’s Council tax).
• Rubbish collection tax. Paid twice or once a year depending on the town hall.
• Utility bills (invoiced quarterly in the case of water and monthly with electricity).
• Community fees (only if you’ve purchased in a Commonhold). Usually quarterly but can vary.

More on these taxes in my article Non-Resident Property Taxes in Spain.

You may also be liable to file Non-Resident Income tax on owning property in Spain every year for which you may need to appoint Fiscal Representation in Spain.

Finally I cannot stress enough how advisable it is that you make a Spanish will to dispose of your Spanish estate. This will not preclude any other made in your home country and is limited exclusively to your Spanish assets. It will save your beneficiaries time, money and hassle at a time of bereavement.

11. Careful with the Tax Office on Buying or Selling at a Discounted Price

And now that I’ve established it is a great time to buy property in Spain – the bad news. Due to Spain’s ongoing real estate depreciation many buyers are securing properties at such knockdown prices they are unwittingly drawing the attention of the Tax Office. So much so that over the last years many will have received a letter from Spain’s Inland Revenue some six months after completion demanding complementary tax is paid on the property. This is known as “la complementaria” in Spanish legal jargon and affects resale property. You can read further in my article La Complementaria or Bargain-Hunter Tax on how to pre-empt it and how to appeal one.

In the case of Andalusia, with which I’m more familiar, on buying distressed Spanish property (BMV or Below Market Value) you should pre-empt this by requesting beforehand an assessed property valuation specifically for tax purposes. This will be a legally binding report which your lawyer may use at a later date. Regional Tax Offices in charge of tax transfers will have a value on properties, from which they will not budge, and if you happen to buy below said value they will request tax on the difference as they will suspect you may have under-declared at completion – which I can assure in most cases is simply not the case; it is merely one more consequence of today’s depressed market.

If you have already received this letter you can either pay the requested tax or else appeal it. Providing the difference is not ‘significant’, your chances of appealing it may be fairly high. Obviously if it is a low amount it may not warrant the expense of hiring a lawyer to appeal it. But for high-end property it may be worth every penny.

Buying Resale Property in Spain – Conclusion

Despite the negative press the Spanish property market has endured abroad over the last years, specifically off-plan, the fact is that the vast majority of dozens of thousands of buyers who purchase property in Spain every year experience no problems and enjoy a straightforward transaction. In any case, if unsure, you can always sign a rent-to-buy contract to test the waters.

That is not to say there are no problems, far from it. There’s a lot of room left for improvements enforcing existing laws (i.e. Law 57/68 regarding bank guarantees in Spain comes strongly to mind). Moreover, both the Spanish Government and the Regional Authorities are continuously working hard to pass on new laws that will address the system’s flaws (i.e. Law 13/2009) and better protect Consumer’s Rights enabling smoother conveyance procedures in a safe buying environment.

After my shameless optimistic plug, one last word of caution specific to Spain’s troubled times. While it’s true there are exceptional opportunities to be made in today’s property market, would-be buyers should carefully ponder in their decision-making serious ongoing risks (caveat emptor):

• Currency fluctuation (i.e. plummeting sterling against euro) which may bring losses in the long run when sterling recovers against the euro if you buy now.
• Creeping interest rates in the Eurozone which may affect your loan repayment ability (particularly if you earn in sterling but your Spanish mortgage payments are in euros).
• Generalized real estate asset depreciation.
• Mounting political, institutional and social unrest.
• Severe credit shortage (the lowest on record on a fifty-year period) aggravated by rising interest rates and Spain’s uncertain financial health.
• And last but not least, is Spain’s noteworthy ongoing mounting sovereign debt problem which consequences still remain to be seen…bailout or no bailout – take your pick.

But ironically, it is precisely because of all the aforementioned market uncertainties that unique bargains are to be found in today’s market, a buyers’ market, not apt for the faint of heart.

“Todo necio confunde valor y precio” – Antonio Machado (Only fools confuse value and price). Proverbios y Cantares, LXVIII.

Brilliant Spanish poet and one of the leading figures of the Spanish literary movement known as the Generation of ’98.

Larraín Nesbitt Lawyers, small on fees, big on service.

Larraín Nesbitt Lawyers is a law firm specialized in taxation, inheritance, conveyancing, and litigation. We will be very pleased to discuss your matter with you. You can contact us by e-mail at info@larrainnesbitt.com, by telephone on (+34) 952 19 22 88 or by completing our contact form.

Legal services Larraín Nesbitt Lawyers can offer you

• Conveyancing – Buying
• Conveyancing – Selling
• Rentals
• Fiscal Representation (Non-Resident Income Tax)
• NIE Number (Tax Identification Number)
• Will Service

Related articles

Advice on buying property in Spain from the U.K.’s Foreign & Commonwealth Department
Advice on buying property in Spain from the R.O.I.’s Foreign Affair’s Department
How to Buy a Home in Spain – Spain’s Land Registry Organisation (pdf in English)

• How to Buy Property in Spain – Advice by the Foreign & Commonwealth Office
• Buying Distressed Property in Spain – 8th August 2011
• Community of Owners in Spain: Challenging Assembly Resolutions – 10th October 2011
• Off-Plan Construction Guarantees – 8th November 2011
• Rent-to-Buy in Spain: The Smart Choice – 8th April 2012
• Non-residents: Six Advantages of Making a Spanish Will – 8th August 2012
• Community of Owners, or Comunidad de Propietarios – 8th July 2012
• Buying Resale Property in Spain – 21st February 2013
• Title Deed Explained – 8th April 2013
• Nota Simple Explained – 8th April 2013
• Licence of First Occupation – 8th April 2013
• Bank Guarantees in Spain – 8th April 2013
• Buying Off-Plan Property in Spain – 8th of June 2013
• Investor Guide to Spain’s Golden Visa Law – 8th November 2013
• Bank Repossessions in Spain – 21st February 2014
• Buying and Owning Spanish Property through Companies: Pros and Cons – 7th March 2014
• How to Buy Commercial Property in Spain – 4th July 2014
• How to Buy Rural Property in Spain – 8th August 2014
• How to Buy Property in Spain Safely – 10th October 2014
• Taxes on Selling Spanish Property – 8th December 2014
• Spanish Wills and Probate Law In Light Of European Regulation – 8th January 2015
• Changes to Spain’s Inheritance and Gift Tax Law – 21st February 2015
• Spain’s Holiday Rental Laws – Explaining the Latest Changes – 8th March 2015
• Supreme Court Rulings on Bank Guarantees – 8th April 2015
• La Complementaria or Bargain-Hunter Tax – 8th May 2015
• House Hunting in Spain – The New York Times. June 2015
• Taxes on Buying Spanish Property – 8th July 2015
• Dispelling Spanish Inheritance Tax Myths – 8th August 2015
• Non-Resident Taxes in Spain – 8th December 2015
• Resurgent Spain: Málaga Sees Strong Sales – Mansion Global (The Wall Street Journal). December 2015
• Snagging List Explained – 28th October 2016
• Buying Property in Spain – 10 Reasons to Hire a Lawyer – 8th November 2016
• Buying Property in Spain from a Private Seller (Resale Property) – 21st of February 2017
• Buying Property in Spain from a Developer (Off-Plan Property) – 8^th March 2017
• NIE Number Explained – 8th May 2017

Please note the information provided in this article is of general interest only and is not to be construed or intended as substitute for professional legal advice. This article may be posted freely in websites or other social media so long as the author is duly credited. Plagiarizing, whether in whole or in part, this article without crediting the author may result in criminal prosecution. Voluntas omnia vincit.

2.010 and 2.013 © Raymundo Larraín Nesbitt, All rights reserved.