BUYING PROPERTY IN SPAIN
REAL ESTATE LAW
At our Firm we can assist you in your estate and business planning. We provide a wide variety of services in this area. We will typically work with your existing tax, financial and/or investment advisors to achieve your goals to preserve and manage your assets.
BUYING A NEW PROPERTY IN SPAIN
If you have decided to buy an unfinished property in Spain, the developer is legally required to provide you the following information:
Inscription details of the Developer at the Spanish Company Registry, its trade name, address and data of the promotional society. House maps and general location of the unit. Instructions of the use and maintenance of the installations.
Building specifications and description of the electricity, water, gas and heating networks and fire protection measures. Dimensions and specification of the fixture and fittings. This information is contained in the memoria de calidades. Property description and details of the useful surface, common zones and accessory services. Price of the property and accessory services and terms of payment. Keep in mind that anything the developer publishes must be performed, as the publicity the developer supplies has the power of a legal contract.
The deposit and the advanced payments
Normally, you shall reserve your apartment while its construction is completed. You shall sign a private contract with the seller and put down a non-returnable deposit (about 10% of the property total price). In the meantime, you will be expected to make advanced payments (shared parts of the property total price), which should be protected by an insurance policy, until the construction is completed. By that date you shall sign the sales contract before a Spanish Notary. Be aware that not until the property is completed, does the buyer obtain its ownership. You must open a bank account to make these payments as for the developer receive them periodically.
Guarantee of advanced payments
The shared parts of the property total price, must be insured in order to get the return of all money paid in advance plus interest at 6% of penalization in the event the developer does not commence the works of the property on the date scheduled, or in case of non-completion of the property. On signing the sales contract, the developer must provide documentation with the type of guarantee for the advanced payments and indication of the guarantor. In the event the insured events occur, the purchaser may demand the developer for refund of the advanced payments with an annual 6% interest increase. If the developer does not answer the demand, the purchaser should contact the guarantor to demand for refund.
The private sales contract
Buyer and developer shall sign a private sales contract, which serves to settle the conditions for the future purchase, once the construction is completed. This contract shall contain the following provisions: seller and buyer identification. Seller and buyer legal capacity to make a contract. Description of the property; details of the useful surface, common zones and accessory services, and its location. The selling price and taxes levied on the property to be paid.
That in case of dispute, both parties agree to submit to the exclusive competence of the Spanish courts from the location of the property. Signature of the parties to the purchase contract. Payment terms while the apartment is under construction, up to its completion. Bank account details where advanced payments are to be paid in. Reference to the penalties to be applied either in case the buyer does not accomplish the payment terms agreed, or the seller does not provide the qualities promised.
The date when the buyer will take possession of the house. The contract shall also contain the penalty applicable in case the developer does not complete the construction of the property on time. Plan of the property and its description and specifications.
Together with the private contract, the developer must provide you the following documentation: description of the property and the building where it is located, the common areas and accessory services. Plans of the property and its location.
Electric wire, fire protection measures. Reference to the materials used in the construction of the property. Details of registration of the building in the Property Registry, or mention to the non registration of it. Copy of the building permit. This is not the final contract, which shall be signed before a Notary on a public deed.
Signature of the deed
Registration. As soon as the construction is finished you shall sign the Purchase deed before a Notary, which shall contain the mortgage contingency, and the specifics of it: amount, rate and term, where applicable. The Notary is the public official who makes this contract to be legal. He certifies that the parties sign the contract properly. He keeps the original document in his files in case any problem could arise later. Note that the notary does not certify that all statements are true, only that the parties have sworn to them. The purchase deed must be registered with the Spanish Property Registry. Once it is done, the title deed fully assures your title: the registered contract makes you the owner of the property.
The registration of the house is also important for tax purposes, the real estate tax (IBI tax) shall be paid every year since you could be fined by the Spanish tax authorities. If you cannot be present to sign the contract, you can make a power of attorney allowing another person to sign it for you, if necessary. You shall be receiving the keys of your property upon signature of the contract in the presence of a Notary.
Taxes to pay
The taxes referred below shall only be paid on purchasing a new property: Value added tax (IVA) 7% of the total price. It is necessary to be paid as the sale is a business operation between a developer and a private individual. Stamp duty 0.5%, it must be paid upon signature of a notary document. To pay these taxes, you will be required to obtain the Spanish tax identification number, say the NIE, if you are non-resident, or the NIF if you are Spanish resident.
Fees to pay
When buying a new property, the following fees, subject to VAT, shall also be paid: Notary: You must pay the notary fees when you sign the deed, these are fixed on official scale and will vary depending on the size of the property.
You must pay the registration of the deed at the Spanish Property Registry in order the property of the house can be transferred to you. Before going to the registry, you should have paid the corresponding taxes, its receipts must be given to the Register, and otherwise you will not be allowed to make the registration. OUR FIRM may inform how much these fees will be.
Other points to check when buying a new house
In order to avoid possible problems that could arise later, do not forget to check every point described below.
Otherwise you may find that your dream house is illegally built. You will do well to have a skilled OUR FIRM lawyer handle with this paperwork, as they know the ins and outs of it.
The Partial Plan
When you are willing to buy a dwelling zoned within an urbanization in Spain, you should first check the Partial Plan. It is the plan of building plots, which must be approved by the urbanism department (town planning department) of the Town hall where the plots are recorded in. This plan assures that your urbanization is legal and that there are no other developments planned nearby that could affect your new property. Urbanization is a planned community which provides a minimum of services and a minimum of quality control of the constructions, installations, roads.
Building in conformity with the Coastal Law
If your property is going to be built near the beach, make sure that your property will comply with The Spanish Coastal Law of 1988 or that the builder has an authorization from the Coast department, which provides that the authorities must restrict building within 100 meters of the beach and establishes a zone of influence up to one kilometre inland.
The building license, the certificate of completion of the building and the certificate of occupancy
The builder must have obtained the building license issued by the Town Hall, which allows him to build the house. The certificate of the building completion is issued by the architect once the building is complete. The developer needs it in order to get the certificate of occupancy. The developer must provide you with the certificate of occupancy, which is issued by the Town Hall. This administrative document permits you to inhabit your new dwelling. Only when the certificates of completion of the building and the certificate of occupancy have been issued, can the purchase deed be duly finalized and notarised. The developer shall obtain and pay them. It could be difficult to register the sale if the building does not have legal approval. Other problems could arise; demolition of the property could be enforced.
Builder's liability for construction defects
Once you receive your home's keys, you should check your house in order to detect whether there exist defects or not.
Homeowners can, in some cases, force to fix their house after they move in, under some specific conditions. The term of guarantee for possible construction defects is as follows:
For those houses, which applications for building licenses were issued before May of 2000, the guarantee periods are as follows: 6 months, at least, since the deed was signed, for defective construction which have no effect on the building's final purpose. 10 years, from the date of completion of the works for defective construction of the essential parts of a building. 15 years, for the cases in which the contractor had no complied with the terms of the contract.
For those houses which applications for building licences were issued after the month of May 2000, the guarantee periods are as follows: 1 year for defective construction which has an adverse effect on the finish of the house (electricity installations, painting). In this case, the builder is responsible for all property damages. 3 years for defective construction which have an adverse effect on the habitability conditions (humidity). In this case, the other agents involved in the construction of the building are liable for the property damages. 10 years for defective construction which have an adverse effect on the building structure.
Spanish law provides a time limit of 2 years to claim for construction defects from the date on which the defect was apparent and known to the proprietor, provided that the defect arose during the guarantee period described above. The different agents will be personally and individually liable for property damages to the buildings caused by their own acts as well as by the acts of others for whom they are legally responsible. They will be jointly liable when the responsibility for the damages cannot be attributed to any one individual or entity.
PURCHASE OF A SECOND HAND PROPERTY
Once you have decided which property better suits you, it will be very important to check the following documentation before you sign the contract or make a deposit to reserve the property:
Ask for a simple note at the Property Registry
In order to obtain the full details of the owner, the exact size of the property, also you can check whether the property is free of charges or is otherwise subject to mortgages, restrictions on use, court orders for seizure. In case there exist a mortgage on the property, make sure that the seller justify that the payments are updated, otherwise the bank could seize the property. Check if the house is rented out as the Spanish rental law protects the tenants. For that purpose, make sure that the purchasing contract states that the house is not rented out. In case you buy an apartment, it is advisable to ask the President or Administrator of the community of property owners, whether the monthly community fees are paid or not, since the buyer should pay any pending fees. Notwithstanding, the seller must provide you with a certification, which shall specify that the fees payment is updated. Check on the paid-up municipal real estate tax (IBI) to make sure that its payment is up-to-date; otherwise the buyer should pay the back tax and penalties. It is necessary to request the Tax identification code (CIF) and the Spanish Company Register, in case the seller is a private developer. If the seller is an estate agent, he must provide you with its number of estate agent professional association.
From our office in Marbella, we can do all the work to make sure that the property is legally built and free of debt, and to make sure that the buying/selling process will go smoothly. What we don't do is appear at the closing; a property lawyer's work comes before the closing. The Spanish notary has a more elevated role than just verifying signatures. At the closing, the notary takes over, acting on behalf of both parties to make sure that the transaction is proper and agreed to.
Taxes to pay
If you are willing to buy a second hand property in Spain, keep in mind there are some taxes you shall pay:
The transfer tax (ITP)
The purchaser must pay this upon signature of the sales contract. Its value is 6 % of the purchasing price, as indicated in the sales contract.
If the purchasing price declared is much lower than the approximate market value the Tax inspectors could feel that the purchasing price is too low and you may be applied heavy penalties.
Capital Gains tax on land
This is the tax on the increase in the value of the property since the last sale: although it must be paid by the seller, usually both parties agree that buyer pays it. If you are willing to buy a property in Spain you should first get the tax registration number, the NIE if you are non-resident or the NIF if you are Spanish resident, it allows you to pay the corresponding taxes in Spain.
FEES TO PAY
Apart from the corresponding taxes, you should pay the following fees:
You must pay the notary fees when you sign the deed; these are fixed on official scale and will vary depending on the size of the property.
You must pay the registration of the deed at the property registry in order the property of the house can be transferred to you. Before going to the registry, you should have paid the corresponding taxes, its receipts must be given to the Register, and otherwise you will not be allowed to make the property registration.
The sales contract. Signature of the deed
You should sign a purchase contract before a Notary, which shall contain the mortgage contingency, and the specifics of it: amount, rate and term, where applicable. The contract must accurately describe the property you are buying, fully identify the seller and buyer, and state that the property is free of charges.
The Notary is the public official who makes this contract to be legal. He certifies that the parties sign the contract properly. He keeps the original document in his files in case any problem could arise later. Note that the notary does not certify that all statements are true, only that the parties have sworn to them.
The purchase deed must be registered with the Spanish Property Registry. Once it is done, the title deed fully assures your title: the registered contract makes you the owner of the property. The registration of the house is also important for tax purposes, the real estate tax (IBI tax) shall be paid every year since you could be fined by the tax authorities. If you cannot be present to sign the contract, you can make a power of attorney allowing another person to sign it for you, if necessary.
You shall be receiving the keys of your property upon signature of the contract in the presence of a Notary.
Reservation of the second hand property
The "Arras agreement". Let's suppose that you are willing to purchase a property located in Spain, but you need some more time, either to assemble the money, or obtaining the mortgage to pay it, what you can do is make a reservation of the property by signing an "arras agreement". When you sign this kind of agreement, you are putting-down a deposit to keep the property, the other side of the coin is that you will lose this deposit if you don't complete the sale on the date stated, or that the vendor shall return double the amount deposited, was he finally not to honour the contract in the stated date. This deposit should not take part of the total purchase price, but it is the price that the buyer gives to the seller for paying the purchase option (opciÃ³n de compra), since the seller could demand the full amount of the purchasing price in case the deposit took part of it and we renounced to buying the house. It is advisable to put the deposit into a blocked bonded client account. You will need skilled legal counsel for this action.
Builder's liability for construction defects in second hand properties
If you have problems and construction defects with your newly bought property, remember that you may take the builder, developer and the architect to court within 10 years of substantial completion of the home. If your home was built more than 10 years ago, you only have 6 months, after signature of the deed, to claim against the seller for the defects arisen. The terms of guarantee for construction defects applicable to new houses are also applicable to second hand properties where construction defects had arisen.
Other points to check when buying a second hand property
In order to avoid possible problems that may arise later, do not forget to check some points before buying your second hand house. You could find out afterwards that your dream house is illegally built. You will do well to have our lawyer handle the following licenses and approvals, as they know the ins and outs of the paperwork:
Check the Partial Plan
In case the property is located within an urbanization. If your house is near the beach, you should check if it is built in conformity with the Spanish Coastal Law. Check that the building license, the certificate of completion of the building and the certificate of occupancy have been issued.
Buying a property which do not have registered title
What if the property you are willing to buy does not have registered title? If you think this might not happen, you are away off base, it actually happens in Spain. These cases often occur in country houses either because the formers owners avoided in this way to pay transfer taxes and fees, because the owners of the property are various brothers whose family never had registered title, or because the original owner had died without registering the property. Other things may happen: the property of your dreams can be already registered in the name of a person who no longer claims it because he sold it to someone on a private contract, and this one has never registered the sale. If you are willing to buy a property which does not have a public title deed, you may establish the title through a process called Expediente de Dominio. This is a long and complex process which requires court action, and involves publication of your claim in the National Official Gazette. You shall also file a certification at the Spanish Property Registry and the Cadastre, describing the state of the property and that it is not legally registered. The Cadastre Office is the Spanish official office which keeps in its files the Spanish plots description and its assessed value for tax purposes.
The court's decision shall determine the title of your property. These are only general guidelines and not definitive statements of the law; all questions about the law's applications to individual cases shall be directed to a lawyer.
Buying a property in Spain from a non-resident
If you are willing to buy a property located in Spain from a non-resident property owner, be aware that you should deposit 5 % of the purchase price against any tax due from the seller, previous file of the corresponding form available from Spanish Tax offices. Should you fail to do this, your new property will be subject to a lien in order that the Taxman recovers the due amount. Here we must remind you that if the purchasing price declared is much lower than the approximate market value the Tax inspectors could feel that the purchasing price is too low and you may be applied heavy penalties. Our lawyer may inform you about the market value of the property that you are willing to buy.
GETTING A MORTGAGE IN SPAIN
What is a mortgage? This is the normal way to finance a property in case one does not have the full amount of the purchasing price at the moment of the signature of the sales contract before a Spanish Notary. The mortgage is a contract between lender and borrower to assure the borrower will repay the debt, otherwise he will lose the property pledged. On mortgaging a property, the loan is secured on the property. In Spain there are interesting mortgage rates, and banks have special products designed for non-residents borrowers. Others adapt the existing types to the personal circumstances of the buyers. You should normally be requested to proof your income together with your monthly spending. Your lawyer should check which mortgage suits you best.
It should be stated on which basis period will the original amount be paid and the term. The mortgage will be filed at the Spanish Property Registry. It is suggested that all technical and legal matters pertaining to mortgages be referred to our lawyer for advice and guidance.
What is it necessary for a mortgage to have full legal effect? Mortgages must be formalized in a public deed of mortgage before a Public Notary. The property must be registered at the Property Registry with the name of the owners whom the mortgage is given to. The mortgage shall also be registered at the Property Registry to evidence that it is a preferential charge in the property. A non-registered mortgage is an ordinary loan and therefore does not constitute a preferential charge on the property. Although Spanish Law allows the re-mortgage of a property, however, the banks refuse to re-mortgage this because the guarantee corresponding to the first mortgage is preferential over the second one.
Novation and subrogation. You may find that the property of your dreams, that you are willing to purchase, is already mortgaged. You can do either of two operations: the subrogation and the novation of the mortgage. The novation entitles you to accept the existing mortgage and renegotiate with the lender better conditions. The subrogation entitles you to change the actual lender for another, and obtain a new mortgage loan on the property, with better interest rates. In the last few years, we have witnessed reductions in the interest rates in the Spanish market. Many persons found that their mortgages rates were too high, and decided to modify the terms, either negotiating lower rates with the banks or changing the lending bank. These operations are not subject to stamp duty although the Register and Notary costs shall be paid.
The mortgage interest rates
Fixed rate mortgage: the interest rate is fixed at the start of the mortgage. The periodic amount for the payment of principal and interest will not change during the term of the mortgage. Keep in mind that with this type of interest we are aware of the amounts we will be paying until the mortgage term is finished, however, we don't know whether the interest rate level will be reduced in the market or not.
Variable interest mortgage
The interest rate on your mortgage will be adjusted up or down according to current interest rate levels. The periodic amount for your principal and interest payment will go up or down with these rate changes depending on the index set chosen (such as MIBOR).
The initial interest will be initially lower. The banks normally use this tool to make the mortgage offer more attractive, later on this interest may convert into an excessively high interest.
Costs and legal fees
If you intend to mortgage a second hand property, be aware that you should face costs as follows:
Valuation of the property
Request of extract issued by the Spanish Property Registry, which shows the latest recorded details of any charges on the property.
Bank mortgage opening fee
It shall be paid when signing the deed. This fee varies depending on the lending bank you deal with. Theoretically this commission serves to cover the costs the bank has incurred for studying the concession of the loan to the borrower. Some banks do not collect this fee.
Stamp duty, 0.5%
It must be paid when a notary document is signed.
Notary and Registry
These fees vary depending on the guaranteed capital of the mortgage.
The banks normally require the borrower to contract, at least, a fire insurance to protect its interest until the loan is repaid. The bank will try you to contract the insurance to the company they have an agreement with, it is your right to contract the insurance with the company you wish. The insurance fee must be paid at the moment of the deed signature.
Management of the loan binding offer
Once you have decided which mortgage better suits you, the lender will analyze your current income and basic credit history situation in order to qualify you for a maximum loan amount. If the lender decides to give you the loan requested, he will issue an offer which includes the loan conditions. Normally you will be given a term of 10 days to accept or reject this offer. What does this offer must contain? Principal, interests rates, fees, payment term and interest for delayed payment. If you accept this offer, the mortgage has to be formalized in a public deed before a Public Notary who shall check whether there exist no difference between the financing conditions of the binding offer and the financing clauses of the contract.
Formalization of a mortgage
The mortgage shall be formalized on a public deed, which shall be signed before the Notary of your choice, though the bank will probably try that you choose the Notary they are used to work with. It is your right to examine the deed project with, at least 3 working days, before the final deed is to be titled. The parties must be present at the moment of the deed signature, and the Notary shall make sure that the borrowers understand everything they are signing. The borrowers should examine the mortgage conditions, especially when the mortgage interest is variable. The bank will keep a true copy of the deed to be filed before the court in case the borrower does not pay the mortgage. It is suggested that all technical and legal matters pertaining to mortgages be referred our lawyers for advice and guidance.
HAVING YOUR HOUSE BUILT
Checking the land where you want to build your house
If you are buying land to have a house built in Spain, first you should find out whether the land is located in an area where building is allowed or not. Land in Spain is classified as follows: Land for development. Green zones where no building can take place. Rural areas where no construction is permitted. Other details also come into the picture. There are rules limiting building size in relation to plot size.
The classification of the land
Is also important in order to mortgage this. It is possible to mortgage plots of land where building is allowed but if you want to mortgage land where building is not allowed the maximum mortgage amount you can raise will be 50 % of the value, and the maximum term will be 12 years. If your land is in the country, you should check at the Town Hall where the property is registered, whether there exist encumbrances over it or not. It is possible, for instance that a path crosses your land and you cant' build your house as the path would be cut.
Other steps to follow
Check at the Property registry whether the land you want to buy is free of charges or not. Next step should be the inspection of the Town Plan and the partial plan (if you are buying a plot located within an urbanization), in order to know the developments planned for the area where your land is located (roads, water supply), and if the urbanization is registered and legal. Once you have determined that you can buy the land and build your dream house over there, you shall sign the sales contract before a notary. You can design your house by yourself or get several models of houses. You will need the services of an architect, his drawings are needed to get your building permit, this license allows you to start the building of your house. Also you need to find a reliable builder whom you will sign a contract with. Your lawyer must check this contract. Its provisions shall estate the payment terms, completion date with penalty clause for late completion.
A clerk of works will supervise the building and ensure that it comply with the construction standards. He will issue the architect's certificates to obtain the certificate of completion of the building and the certificate of occupancy. Next step will be the registration of the house at the Spanish Property Registry, as your deed contains only the plot registration. You should make a declaration of new work in order that your house appears in the deed. The building permit, the certificate of building completion and the certificate of occupancy will be also required.
If you are non resident, you shall present a bank certificate to show that you have imported the money from abroad, in order to avoid that non- residents use black money earned in Spain to build his house. You will do well to contract the services of OUR FIRM skilled lawyers, as they know the ins and outs of the paperwork.
SELLING YOUR SPANISH PROPERTY
The seller's tax liability
The seller is responsible for the payment of the capital gains tax, though sometimes it is agreed that the buyer pays it. Seller shall also pay the fees for cancellation of encumbrances on the property such as mortgages otherwise is agreed between buyer and seller. The buyer shall pay these fees should he submit to the initial seller's mortgage. In the past, sellers used to declare the sale price much lower than the approximate market value, in order to save money on tax purposes. Things have changed since then, Tax inspectors could feel that the selling price is too low and sellers may be applied heavy penalties. Your lawyer should ask the tax office what is the market value of your property to avoid possible complications that could arise later.
Tax deposit on non-resident property sale
If you are non-resident willing to sell your property located in Spain, bear in mind that you will have a 5% of the declared sale price withheld by the buyer. This amount shall have deposited with the Spanish Tax Office, on account of the capital gains tax. Once your tax liability is assessed, you will either have to pay more to the Spanish Tax Office or will get a refund of the portion deposited, depending on your profit. This requirement has been implemented in Spain to prevent non-resident property sellers taking the money and running. We may advise you in detail on the circumstances arising from the deposit or refund of it, this will also save you time-consuming and bureaucratic proceedings.
RENTING & HOUSING
Legal provisions. The following provisions shall be contained in the rental contract: details of landlord and tenant. Description of the property. The contract term. Amount of rent and payment terms. Any other legal provisions that the parties agree. Rental contract may be made before a notary and recorded at the Spanish Property Registry.
The contract time period
Both parties agree the term for which the property will be rented. You may rent the property for a long or a short term. The distinction is very important as Spanish law provides with less rights to short-term tenants.
Short term rental contracts
Short-term rental contracts require that the tenant vacate the property when the contract ends. This type of contract is normally used for holiday letting. The short-term condition must be specified in the contract, which duration may run for up to 1 year. Long-term rental contracts. You can settle a long-term rental contract, which duration exceeds 1 year. If the contract does not exceed 5 years duration, it will be renewed automatically upon its expiration for periods of 1 up to a 5 years term, unless the tenant is not willing to renew it. The landlord is obliged to accept these renewals, except when he had previously stated in the contract that he needs to recover the property for his own use before running the 5-year period. After the 5 years' term, the owner may rescind the contract, provided that he had given the tenant 30 days' notice before the end of the contract, otherwise the contract will be automatically renewed for 3 years, unless the tenant refuse this renewal. When the contract does not provide its duration, rental contract will run for 1 year.
Upon signature of the rental contract, tenants are required to pay the landlord a deposit equal to 1 month rent payment, in order to guarantee that the property will be returned to the owner in the same state as before the occupation. This deposit cannot be used to pay the rent to the landlord. This deposit will be returned as the tenant moves out, assuming that the property is in good conditions. After 5 years of rental contract, rental increase will require an increase of the deposit.
The amount of rent is agreed between both parties. Normally rent is monthly paid 7 days before the end of the month. On no account must the landlord ask for more than 1 month rent to be paid in advance. Payments should be made as stated in the contract. Tenant shall receive a written receipt justifying that the rent has been paid, unless it is accredited by other means; e.g. proof of payment through bank transfer. Make sure you get these receipts or any proof of payment as these constitute an implicit contract.
During the first 5 years, rent will be increased or reduced according to the consumer price (inflation) index (IPC). After that period, rent will increase according to what both parties agreed when signing the contract.
About the expenses
Although expenses produced for daily use of the property, such as community fees, or real estate tax (IBI), must be paid by the landlord, tenants may be required to pay them when it had been expressly agreed by both parties in the rental contract. Tenants must pay gas, electricity and telephone bills, unless otherwise is agreed.
Tenants may be required to sign an inventory of the property contents (furnishing, fixtures and fittings and the state of them. It is important to check this carefully, as every item outlined on the list shall be returned when you move out in the same order as listed, otherwise you might lose your deposit.
Repairs in the house
The landlord must make all necessary repairs to keep the property in a fit and habitable condition; however landlord is not responsible for repairing any damage caused by the tenant. Tenant shall make those small repairs on account of the property daily use. Urgent maintenance repairs may be undertaken by the tenant in order to avoid serious and immediate damages in the property, these must be made previous notice to the landlord, repair costs will be returned to tenant. The landlord must give the tenant three-months notice of the landlord's intent to undertake repairs affecting to health, hygiene and comfort in the property. In this case tenant may renounce the rental contract within 1 month from the notice. If the tenant decides to stay, he may get a reduced rental rate in relation to the dwelling rooms that cannot be used because of the repairs.
Sale of the house rented
The tenant's right of pre-emption. If the landlord is willing to sell occupied property during the life of the rental contract, the tenant has the right of pre-emption, which means that he could buy the property in priority to other purchaser. Landlord must first offer the property' sale to tenant, who will have 30 days to reply. If the landlord does not make this offer, or the property is sold at a lower price than the offered one, the tenant could, within one month following completion, have the sale annulled and purchase the property for the price declared in the sales' document. Pre-emption rights' renunciation agreement will be valid only for rental contracts that exceed 5 years time period. No pre-emption right can be applied when the rented house is sold together along with the rest of properties that form part of the same building. If you buy an occupied property, you acquire the rights and obligations of the vendor, and therefore, not until 5-year validity period of the rental contract has been completed, may the rental be terminated.
Landlord/tenant's subrogation in favour of third parties
The parties of the rental contract may be substituted for another person, who will acquire all rights and obligations of the old tenant or landlord. The landlord may be substituted when he sells the rented property to a third party. The tenant may be substituted when he got divorced or died. In such a case his descendants or spouse could stay in the property up to the termination of the rental contract.
Can the tenant let the property to a third party? Previous notice to landlord, the tenant may sublet a portion of the rented property to another person for the same period he had contracted. Landlord must always give his written consent to tenant. The rent that the third person shall pay to the original tenant must be lower than that stated in the rental contract.
Landlord is liable to pay income tax at a rate of 25%, assuming that he is a non-resident whose Spanish property is rented. You can deduct maintenance expenses from your Spanish income tax.
Having the rental contract rescinded
The landlord may rescind the rental contract when the tenant: des not pay the rent or deposit. Rent the property to a third party without the landlord's consent. Deliberately causes damages to the property. Undertake repairs without landlords' consent. The Tenant may rescind the rental contract when the landlord: fails to make the necessary repairs to keep the property in a fit and habitable condition. Disturb the tenant's dwelling use.
Taking action before the Spanish courts
Many problems may arise when renting/letting a property. You may disagree with your rental contract duration, the rent increase, tenant refusing to move out, tenant failing to pay the rent. Normally, disputes regarding to rental are processed through ordinary civil proceeding. You should report your complaints to us, we will conduct your formal complaint, going to court when necessary.
THE COMMUNITY OF PROPERTY OWNERS
If you have bought an apartment or villa, which take part of a building complex, keep in mind that these will be subject to the Spanish Law of Horizontal Division. This law is applicable whether you are resident or not.
According to this law, every apartment or villa-owner has the co-property of the common elements of the building complex (stairs, lifts, swimming pool, cleaning services, drains, supply of water, electric wires etc.), together with the rest of owners of the block. All property owners of the block form the Community of Property Owners. They are responsible for their individual parts and common areas of the block. They shall maintain the common elements of the building. All of them participate in the expenses of the community on a pro-rata basis. Only those who buy an individual property standing on its own will not have to join a community of property owners. Every apartment of the block has a share in the common property, usually proportionate to the size of the owner's property. Therefore the owner of a large flat will have a larger share in the common property, this share determines the community charges and voting rights of the homeowner. The urbanizations are ruled by a different law (as they share elements with the outside world such as street lighting, refuse collection, roads); however, the Spanish Law of Horizontal Division may also be applied to them provided that they meet some specific requirements.
Finding out your community share before buying your property
If you are going to buy a Spanish property, which takes part of a block, it is advisable to check at the Spanish Property Registry the physical description of your apartment and the building that is attached to, in this way you will find out your property size and what is your common-area share. The Spanish Property Registry may also provide you with the rules about the use of the common facilities, general management and maintenance, which take part of the Statutes of the Community of Owners. Every new owner will be bound automatically by the Statutes and the decisions taken at previous meetings. You should also make sure the seller is current in his payments, otherwise the unpaid back community fees could be charged to the new owner. If you are purchasing in a new development the rules of the Community must be explained to you and approved on your behalf.
The Statutes and the internal rules of the community
Most communities have a wide set of rules which governs the property owners rights and standards of behaviour expected from the persons who reside on the complex. The Statutes of the community may only be modified by unanimity vote of the community owners, both present in person and by proxy. If Statutes need changing, this pertains to the annual general meeting. The Statutes must set out the private share which corresponds to each owner. If any member of the community violates the statutes, the community members can vote to ask the court to issue an injunction, which will forbid him from entering his property for a period of up to 2 years. Besides the Statutes, the owners may establish internal rules, providing standards of behaviour for the community members and use of the common services. The owners are also obliged to comply with these rules, which may be modified by their simple majority vote.
Performing repairs in your property-block
Every community owner can make repairs in their own property (flat, attached house) under the following conditions: previous notice to the Community owners. If the building general structure and facade was not modified. Avoid causing any damages to the rights of other community owners.
Performing repairs in the common areas
The Community of property owners shall make necessary repairs to keep the building in a fit and habitable condition. If any owner is to blame for delay in repairs ordered by the administrative Spanish authorities, he or she shall face the administrative penalties imposed for the delay to the community of owners. When repairs are needed in the common areas, this shall be notified to the administrator.
Performing forbidden activities either in the own property or in the common areas
Neither the property owner, nor the persons who reside temporarily or permanently in the property, are allowed to perform any activity that may damage the complex or that are contrary to the Statutes or community internal rules. If they did so, the President of the Community could require them to stop it and even claim before the court, previous authorization of the community members.
Main obligations of the community owners
The community owners are obliged to the following: they must let work be carried out in their own flat when it is necessary for proper maintenance of the building or the installation of new services. For that purpose, they shall permit workmen entering their property. Should any damage arise as a result of these works, must the community pay an indemnity.
They must respect the indivisible parts of the complex where the property is located: care of drains, electric wiring and any other installations, which serve other owners, they must also care their own installations. Maintain their property in good condition so that it does not cause any damage to the other owners. When causing damages to other owners, an indemnity shall be paid. They shall contribute, according to their community share, to the maintaining costs of the complex. On selling the property, the owner seller should provide a certificate showing either that he or she has no pending debts with the community, or those community debts which are still pending of payment. The secretary of the community must be informed about the address of the owners in Spain, in order to send them those notifications relating the community owners. If it is been impossible to send the notifications to the referred address, this will be placed in a visible place in the community complex. The Secretary of the Community shall be informed of the sale of the property; otherwise the seller will also be liable, together with the new owner, for the community debts of the property sold, although in this case the seller may claim the buyer for the payment of the back community fees unpaid.
Rights of the property owners
You have the right to attend the annual general meeting as well as any extraordinary meetings of the community. You are also entitled to be informed in advance of the dates and the order of business of any meeting called. If you are not correctly informed, you can protest and even have the results of the meeting annulled by a court. At the meeting you have the right to voice your opinion, the right to vote and to present motions for the vote of the other members. You may be elected president, the vice-president or the secretary of the community. You may check the documentation and records of the community.
No property owner may demand new services, facilities or unnecessary improvements on the complex. When the members have reached an agreement to make unnecessary repairs on the complex, which costs exceed of 3-month community fees, the member who did not vote in favour to this agreement is not obliged to pay for these repairs.
ANNUAL GENERAL MEETING
The community members shall meet at least once a year: to elect the President and the Administrator. To propose the budget for the coming year as well as other matters, such as the accounts and expenditures of the previous year. To approve the Statutes of the Community and determine the internal rules. To check other business arising for the better management of the community, etc. The President shall notice the meeting to the community members in advance, although the community members may decide to meet without the President call. The meeting shall be presided over by the president. Most of decisions are taken by majority vote of the community members.
ATTENDANCE TO THE MEETING
Community members may assist to the meeting in person, or by a representative, the appointee need not to even be a member of the community. This is commonly used in communities where the foreign owners are absent much of the time. An absent member may also delegate his vote to another member, or appoint a proxy to vote for him. Those members which community payments are not up-to-date, may participate in the meeting but cannot vote to elect neither the Secretary nor the Administrator.
The Book of Minutes. The details of the meeting and the voting of the community members must be recorded in the book of minutes, this shall also contain the dates and the order of business of any meeting called. The book of minutes can be used in Spanish court proceedings, e.g. when any community member is claiming before court that his or her interest has been seriously prejudiced by the decision taken at a meeting hold by the community members. This book must be stamped as authentic by the Property Registrar. The Secretary of the Community shall keep the book of minutes.
Contesting the decisions taken at the meeting. Any member feeling that the decision voted by the majority of the community members is illegal, contrary to the statutes of the community, or damage seriously their own interests, may ask the local court to have the decision annulled. They may also oblige the president to call an Extraordinary General Meeting. The owner may only contest the decisions taken at the meeting if he has his community payments up to date. The member may object the decision within 3 months from the date on which it was reached. Except when the decision is illegal or contrary to the Statutes, in which case it may be objected within 1 year. In this case legal assistance is strongly recommended.
President's election. The Spanish Law of Horizontal Division provides that every community of owners must have a President, who must be elected from among the members of the community, in turn or drawn by lottery for a time period of 1 year, unless otherwise is stated in the statutes of the Community. The president may be sued by the community members if they feel his actions have prejudiced their interests. It is mandatory for the elected president to perform the president duties for the community. Perhaps you have a property in Spain subject to this regime of horizontal division, which you only use during your holidays. Although the Spanish law provides that the member appointed may reject the election by asking it to the First Instance Judge and explaining him the main reasons to reject the election. However, if you are elected president and think that could not perform the president's corresponding duties, we advise you to explain it first to the former President.
In general terms, the President of the Community of Property Owners is charged with the following duties: the President is the Community's most important legal representative. Community members' claims should be filed to him. He can bring lawsuits in the name of the community when he is authorised by the vote of the general meeting. He may also perform the Secretary and Administrator duties, carrying out all administrative work if no other officers are elected, unless otherwise is stated in the Statutes. He shall inform the community members in advance of the date, hour and place of the meeting. He shall prepare the order of business of general meetings, the accounts of expenditures and the budget for the coming year. He presides the meeting and informs the absent members in writing of the decision taken. When the president acts as the sole officer of the community, among the duties he should perform are the following: oversee the management of the common elements of the property. Hear the complaints of the community owners. Collect the community fees charged to each owner. Have full responsibility for the operation of the community, subject to the approval of the annual general meeting.
The Community members may appoint a professional administrator to administer the daily operation of the community, and he is paid a regular fee for this service. The administrator shall manage the efficient running of the community's common elements he shall also carry out any other function conferred by the general meeting. He prepares a budget of estimated expenses for the coming year and presents this at the general meeting for the members' approval, they must vote to accept it or not. He must keep the records of the community and makes sure the minutes are properly written. All requests and needs of the owners will be directed to the Administrator. The president may terminate the services of the administrator at any time, if he feels that the administrator is not carrying out the duties specified in the contract. This decision must be previously submitted to the general meeting for approval. Any member of the community may apply to a judge to have an Administrator's action annulled when he feels that it is contradictory to any provision of the community laws. The administrator must keep the records and accounts of the community at the disposal of the members.
FAILURE TO PAY THE COMMUNITY FESS
Every owner must pay their community fees on the date established by the members at the Annual General Meeting. Fees may be paid on a monthly, quarterly or on annual basis. If any of the members fail to pay the community fees, the President or the Administrator may claim the debt, previous authorisation of the community members, in the Court of First Instance from the city where the block of flats is located, and even have the property sold at auction to recover unpaid charges. In this case is strongly recommended the assistance of your lawyer.
SPANISH TAX REFORMS
Significant changes to the Spanish tax system came into effect on 1 January 2007 to end discrimination between the tax treatment of non-residents and Spanish residents. Many of these will affect property in Spain and, in particular, foreign or non-resident owners of Spanish property.
On the plus side, following pressure from the European Commission, capital gains tax (CGT) has been reduced from 35% for non-residents to 18%, to bring it into line with the rate paid by Spanish residents.
Withholding tax, which a property purchaser must pay to the tax office on account of the potential CGT liability of a non-resident seller, is also reduced from the 5% of the purchase price to 3%, to take account of the reduction in CGT from 35% to 18%.
However, the new income tax does away with the special system regulating asset holding companies and replaces it with much higher tax rates. These were often property companies owned by at least one person with most of their assets not affected by "economic activities". The letting of property was not considered an economic activity unless the company had an employee and premises dedicated exclusively to carrying out business.
Under the former system any non-resident owner of real estate in this type of company would benefit from the same CGT tax rate as individual residents, currently 15%, if the company disposed of assets after one year. Under the new regime, companies with a net turnover of less than EUR8 million will be taxed at 25% up to EUR120,202 profit and the reminder at 30%.
There will be a transition period so that owners can opt to wind up the company and acquire the property in their individual names. The payment of Stamp Duty is exempted, CGT and the Plus-vali¬a Tax will be deferred up to the moment the individual transfers the property in future. Individual owners can benefit from the 18% CGT rate when they sell.
A new Tax Fraud Prevention Act also requires buyers and sellers of property to include their Fiscal Identification Number when registering property transactions. For the Land Registry to register a transaction, the title deed must include the Fiscal Identification Number (NIF or NIE in case of non-residents) and the means of payment for the purchase price.
This Act also includes important changes affecting offshore companies from a list of jurisdictions (the so-called black list), which were subject to an annual tax of 3% on the rateable value of the property. The new law enlarges the list to include all companies with which Spain does not have a tax treaty that provides for exchange of information.
The Law will treat offshore companies as resident in Spain if their main assets consist of real estate property situated in Spain. In respect of CGT, the existing Non-Resident Income Tax Act provides for the taxation in Spain of the share transfer from a company whose main assets are directly or indirectly (through a subsidiary holding) real estate assets in Spain.'
Under the new draft bill, if an offshore company is involved, the appraisal of these transactions will be based on the market value of the real estate, regardless of the property price declared and the real estate assets of the company will be affected by the payment of the tax.
Anyone affected by or concerned about these changes should seek advice immediately.
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