LDT SPANISH MORTGAGES & LEGAL SUPPORT
LEGAL PROTECTION WHEN BUYING IN SPAIN
How to ensure you are legally safe when buying property in Spain.
Legal protection services.
The news and papers are often full of stories about people who have bought in Spain only to have their dreams shattered because of legal issues relating to their property. It would be easy to believe that Spain and purchasing in Spain is very risky with property and real estate laws and regulations that are difficult to understand with a general lack of transparency. In fact the complete reverse is true.
Is Spain really a risky place to buy.
Laws relating to property are, apart from the area of taxation clear, concise and only pose a problem when not followed or the right advice from a legal expert is not taken.
In the past both buyers and lawyers in Spain have been very lax about ensuring the guidelines area followed. Spanish Lawyers who in general received their clients on recommendation from estate agents or developers worked for two masters the client and the introducer. This incestuous triangle along with a rather laid back attitude to the regulations and localized fraud meant many buyers bought in Spain without realizing the property they had bought did not meet the laid down rules.
In the past few years fraud has been tightened up on making it impossible in normal circumstances for local authorities to allow illegal builds or to give permissions for builds to be made on protected land but with the right legal support and advice all potential issues can be highlighted, and the risks if applicable, outlined and understood before a financial commitment is made.
Rustic Land.
Rustic land in comparison to urban land is whole different ballgame. Many restrictions apply for properties built on Rustic land and many properties built in the country remain illegal. What can appear to be a beautiful Villa may in fact be registered as a tool shed and a tool shed is all that will ever be legal with the property never technically being deemed as being available for habitable use.
Older properties built many years ago are less likely to have issues than newer builds and restrictions on what can be built on country land, and when, have tightened considerably in the last few years.
Rustica land does not have the same protection as urban land against infrastructure changes affecting the property and land and Rustica land itself has little to no value in the event of a compulsory purchase order.
Careful consideration and extensive legal searches should be undertaken when considering buying a country property as the law surrounding the property and land is far more complex than those surrounding urban property.
Protected land.
Building on protected land is a complete no, no and buying a property that has been built in areas of protection, unless the property existed before the protection was put in place will always be illegal. The property could at any time come under a demolition order, it can in fact be demolished even if it appears that all build licenses were correctly applied for and granted at original build. Any build certificates will have been obtained illegally and those who participated in it will have broken the law.
What legal checks should a Spanish Lawyer undertake on my behalf.
First occupation license.
All properties in Spain should hold a certificate of occupancy called the ”licencia de primera ocupación“. This certificate is granted after a property has been built has been inspected by the local authority. It is technically required in order to register the property at land registry, obtain connection to utilities and for a mortgage to be secured.
For older properties built some years ago and in a different time when the certificate was not deemed as important a certificate may not be available and because of length of time not required but in all other circumstances it is essential.
Under no circumstances without indemnified legal advice should you buy a property that does not hold the first license of occupancy even if it is connected to main utilities and or has a current mortgage secured.
Why do some properties not have the certificate of occupation.
In the past if a first occupation license was applied for and no communication between the applicant and the Town Hall was forthcoming in a timescale of about 6 months it was assumed (wrongly) that the license had been granted under a “rule of silence”. Many lawyers in Spain advised clients that the certificate itself was not required legally because it was only an issue if the Town Hall had raised objections and if no objections were raised it was assumed it was granted. This was and is a complete fallacy.
Whilst in the past even Spanish Banks granted mortgages on properties without the occupation certificate being in place this did not mean the certificate was not required. No Bank would grant a mortgage in current environment without an occupation license unless the property was outside the requirement on timescales, or the property had been ratified by the authorities under the current and up to date urban plan.
10 year building warranty.
Whilst a 10 year building warranty insurance certificate is not required if you build a property purely for you to live in, it is required if you wish to sell within the first 10 years of its construction. If you buy a property that is less than 10 years old and the warranty is not in place you will have no protection should, faults appear and will find it difficult to get a Spanish mortgage. If you need to sell at a later date but within the 10 years and your potential buyer has appointed a good lawyer you will find it difficult to complete the sale, as a good Spanish lawyer would advise their client not to purchase unless an retrospective insurance was obtained.
Obtaining a building warranty after completion of the property is possible but difficult and costly. Some insurance companies will grant one but they are taking a much higher risk because they have not been involved in the early stages of the build and had the opportunity to supervise and check the quality of workmanship and materials.
Land classifications and restrictions.
Urban land.
Property built on Urban land, designated for the purpose of residential builds, will have very clear guidelines surrounding what can built, what plot sizes are required, how many floors can be built and what type of property can built.
What are general urban build rules in Spain?
Each authority in Spain has a 5 year Urban plan which designates clearly what is allowable and what is not. In response to the issues created by past activities which included developers building before build licenses were granted and local planning fraud a number of previously illegal properties in Spain have now been ratified under new urban plans despite being outside them when built. This means technically the properties are now legal but may not be granted an occupancy license until outstanding infractions or fines have been paid and met by the original builder.
Whole developments may have been built on land that appears urban but was designated for other use, or may have been built outside build density limitations. Whilst a few developments will never have their issues resolved and should be avoided at all costs most urban developments and properties have now been ratified across the country and whilst they should be approached with caution so you understand fully the potential all be it small long term risks to a new owner are generally safe to buy.
Correct registration of square meters built.
Another key area to be careful of particularly when buying a resale property in Spain is what is registered at land registry versus what actually exists. A Villa with 6 bedrooms where 4 are situated underground may in fact be registered as a 2 bed home with a basement. Unless an application has been made and the relevant license been granted to increase the living accommodation the property will remain a 2 bedroomed house with a basement.
How could it affect me not having all square meters registered.
Under Bank of Spain rules only square meters actually registered at land registry can be taken into account on a formal valuation.
Basement space, terraces, etc, do not hold the same value as living accommodation so a valuation for mortgage purposes can be heavily affected if the property is not correctly registered.
Large properties that have been extended may in fact be registered as much smaller properties and it is only the meters registered that are fully legal.
A good lawyer will always ensure that a buyer or purchaser has been protected against the issue of buying something where all square meters are not registered by means of a proper measurement of the property which is then checked against the meters registered on the Nota Simple.This is not necessary for apartments or small properties as any under registration is rather obvious but for larger houses it is a must.
Land registry in Spain is not the only check that should be made. Land registry can get it wrong so relevant checks with School of Architecture, local Town Hall and the regional Junta should be made to ensure the information held by all of them matches the reality.
Catastral values.
Each property has a minimum value registered at Town Hall. This minimum value is the value used for the purpose of IBI and also provides information about what the Town Hall believe is situated there and the square meters.
When buying it is important to check what the level of catastral value is as it is most likely it is this value the region will work out on what basis purchase taxes are payable, even if the property has in fact been bought for less.
Once property in Spain is bought, if you have paid below the catastral value and your purchase taxes have been passed to the tax authority on the base of actual price you may find you are presented with a further tax bill based on catastral value which you will have to pay. Failure to pay the tax bill will result in embargos and fines.
Outstanding debts or infractions.
All property related issues or debts are inherited with the property in Spain. If you buy a property that has outstanding fines, debts or bills they will become yours on day of completion.
It is of paramount importance that the lawyer in Spain appointed to manage the purchase, checks with all authorities and utilities what possible outstanding bills or fines are applicable and that these are resolved before completion.
Embargos against a property may not appear on the Nota Simple even if it is less than one month old as there is often a time lapse between action being taken to registration of the issue. A clean Nota Simple is not sufficient in isolation. This is particularly true of you are buying a property owned by a company where the company itself may have outstanding payments to public authorities like the tax office which are in process.
It is possible to gain from the relevant parties certificates that confirm the property is clean, legal with no infractions in process.
Types of purchase contract.
All good lawyers will ensure the purchase contact you sign is on your best interest. It is possible for a seller to request you sign a bought “as seen” contract which means if they have withheld certain information or not disclosed known issues you may have extreme problems getting compensation at a later date.
You should as a buyer have a contract that requires full disclosure of all matters so that should any future problems arise that were known by the seller you have legal redress.
It is not uncommon where some issues are highlighted and require resolution for the buyer to retain an amount of funds via their Spanish lawyer that are only released on successful conclusion of the matter.
There are also two types of purchase contract the “right to buy” and the “sale” contract. Legal advice should always be taken as to which type of contract is best for your circumstances and have explained to you the risks and benefits associated with each one.
The reality is one type of contract provides more protection for the seller and one for the buyer. Depending on which side of the fence you are on will dictate which is the better purchase contract for you. Contact us today.