3. The buying process
The entire process of buying a property in Mallorca, from the moment you make an offer to the time you collect the keys to your new property, should be carried out with the guidance of an estate agent and lawyer. It is imperative that you have these two individuals available to offer advice, check documents and explain the intricacies of the Spanish buying process every step of the way. You will need their professional expertise to make the right decisions on banking in Spain, securing a mortgage and understanding the costs, fees and taxes involved in buying property. They will help you in the negotiating process and arrange the paperwork and necessary documentation to ensure the process is done correctly.
The notary will check the Property Register (registro de la propiedad) for changes and charges against the property. This must be done in the 4 days before signing of the deed. Have your lawyer check the deed for any escape clauses which absolve the notary of his obligations.
The notary will prepare the deed, ensure payment is made, certify the identity of the parties involved and witness the signing of the deed. He may also register the the property under the new owner's name in the Property Register and collect fees and taxes.
Property Contracts
You will need a purchase contract, drawn up and checked by your lawyer, to pay the deposit. Signing this initial contract is essentially the first step in buying a property. If the estate agent provides you with a standard contract have you lawyer check it.
There are several types of contract:
The standard private purchase contract (contrato privado de compraventa), binding on both the buyer and the seller and requires a deposit payment.
The option contract (contrato de opción de compra), not binding and a deposit must be paid and will be lost if you withdraw.
The reservation contract (documento de reserva) whereby you pay a small goodwill deposit to secure the property for a short period of time. If you withdraw from the sale the deposit is forfeited.
Deposits
A deposit (arrás, fianza, reserva or depósito) of around 10% will be paid to secure the property you wish to buy when signing the contract. This will then be deducted from the full amount upon completion of the sale. Conditional clauses within the contract can protect you from say, failing to get a mortgage, but can also be forfeited if you don't complete the purchase within the stipulated time span.
If you withdraw you may have to not only lose the deposit but also pay the estate agent fees. Check conditions, make sure you add all the necessary conditional clauses to safeguard your deposit against any legal or other problems and have the money put in a bonded account.
Buying Off Plan
For uncompleted or yet to be built properties, payment is usually made in stages with an initial downpayment deposit of say 40% with the remaining amount completed in stage payments. This may vary depending on the level of completion. You can also agree to pay a fixed amount every so many months. Your lawyer must certify completion of each stage in writing before you make the payment. Late payment can result in you losing all previous payments and the property being sold to a third party.
Ensure that the builder or developer has an insurance policy.
The contract will contain dates for completion, stage payments, penalties for non completion, guarantees, insurace policy and copies of plans. Add a clause whereby you withhold 10% or purchase price for up to a year against possible defects and deposit your money in a client bank account. If the building fails to obtain the official certificate to say it is fit for living in (Licencia de primera ocupación) or is not completed by the stipulated date you should get your money back with interest.
Conditional Clauses
Conditional clauses (cláusulas abrogatorias) in a purchase contract usually apply to events out of the vendor or buyer's control, and must be met to ensure the validity of the contract or it will be declared null and void.
Conditional clauses can really apply to anything, from mortgages, planning permissions and permits, construction plans, land areas and restrictive covenants (afecta de servidumbres), for which you can check the property register. The sale may also be dependent on the sale of another property or subject to an inspection or building survey.
The vendor may well be responsible fo any defects for the following six months after signing the deed, but it is always better to resolve these issues beforehand.
Final checks
Once the notary has all the necessary documentation, you will be asked to make the full payment, minus deposit and mortgage if applicable. You will also receive a bill for notary fees and taxes, and will usually be given 30 days to pay this.
You receive a complete draft of the deed. When you sign the deed you are agreeing to purchase the property as it is at the time of signing. Make a final visit to the property with your estate agent before signing the deed and check the inventory for fixtures, fittings, furniture and any other items which have been included in the sale. Make sure you are completly satisfied before proceeding.
Completion
One to 3 months after signing the contract, you sign the deed. This is known as completion or closing the sale.
Signing the deed
This takes place in the notary's office where he will read, sign and witness the signing of the contract. The notary will check that all conditions laid out in the contract have been fulfilled. If either party cannot be present, power of attorney may be granted to a third party to be present in their place and can be arranged by the notary for a fee. If necessary, it can be signed with an official stamp (apostille) before a public notary or Spanish consulate abroad. An alternative and possibly less binding method is the verbal representative (representante verbal) which can be ratified later at your Spanish consulate abroad or at the next notary visit. You will need your foreigners identity number NIE (número de Identificación de estranjeros).
Payment
Once the deposit has been subtracted, the payment must be made by bank transfer or banker's draft, often the best form of payment as it is safely in the bank, you can withhold payment in any unforeseen event or problem and the notary can confirm it immediately.
If both the seller and buyer wish the payment to be made in a foreign currency or between foreign banks, the deed must still declare the price in euros and all taxes calculated from this price.
Once you have paid and got a receipt, the notary will give you an unsigned copy of the title deed (copia simple) and the keys to your new property. You will have 30 days to complete payment for all the fees and taxes related to the purchase.
Buying from a Non Resident
If you buy property from a non resident you will have to pay 5% from the purchase price to the Spanish Tax Office within 30 days. This is a type of guarantee against the vendor's possible capital gains tax liability. If you do this you are protected, if you do not pay it, you are liable for any capital gains tax on the sale plus heavy fines.
A copy of the relevant form 211 (Impuestos Sobre la Renta de Las Personas Fisicas y Sobre Sociedades) must be given to the vendor so he/she can be repaid the amount.
Registration
This is the single most important step of the entire property buying process. You are not the legal owner of the property until the deed has been registered. The deed is signed and your name, as new owner of the property, is registered on the title deed and lodged in the property registry office (Registro de la Propriedad) becoming an escritura pública. Send the signed deed to the registry office on the day you sign, or make sure the notary or your lawyer does.
Inheritance and Capital Gains Tax
You can register the deed of the property in a single name, the names of both members of a married couple, in the names of children, a non relative or a company. Inheritance and tax consequences must be considered prior registration.
Buying property through a company
By registering a property through a Limited Company (SL) in Spain it is possible to avoid paying capital gains tax, inheritance tax and transfer tax, but will have to pay an annual 3% tax on rated value (valor catastral). This is potentially worthwhile if the purchase is a large figure or if the inheritance situation is complicated. Get legal advice before signing the contract as you would have to form the company before you purchase the property.