In this article, we look at the key points (20) that need to be considered when buying and selling a property.

1. Urban planning regulations

1.1 Land Register and Cadastre – A PARADOX

Caution: The fact that a house is registered in the land register does not mean that it is actually legal. A property registered in the Land Registry may very well be totally or partially non-compliant with the current and applicable urban planning regulations, as Article 52, b of Royal Decree 1093/1997 of 4 July stipulates that even non-legal buildings can be registered in the Land Registry with a certificate (such as from an architect) confirming that these infringements are already time-barred. These are the so-called “Declaración de obra nueva antigua” (new declaration of old building). Paradoxically, this contradicts the widespread perception of security that the land registry as an official authority falsely suggests to the consumer.

The land registry may also convey such a distorted picture of reality, as it only provides information on possible square metres of land and buildings – solely for the purpose of determining the property tax to be paid.

If the information in the land register and cadastre is not checked prior to a property transfer, this can have far-reaching consequences for the future owner: no building permit, no possibility of registering electricity, gas, water and sewage, etc.).

We would also like to point out that the municipality’s all-promising certificate of non-existence of an urban planning infringement procedure is not sufficient, as this only states whether the municipality is already taking action against any non-compliant construction measures, but does not make any statement about the legality of the property.

The same applies to the certificate of habitability (Spanish: “cedula de habitabilidad”). This also does not allow any conclusions to be drawn about the legality of the property (according to the ninth additional provision of Law 12/2017 on Town Planning of the Balearic Islands).

It is therefore essential to have the property thoroughly checked by a specialist before purchasing it in order to avoid a rude awakening later on.

Conditions are even more difficult for properties that are not located within towns and villages, but on so-called “suelos rústicos”, i.e. rural plots.

In principle, these are plots of land used for agricultural purposes, which is why additional checks with the respective municipality and the island council are mandatory when planning to purchase these properties in order to ensure that the relevant permits and licences for residential use have been obtained. Failure to do so may have unpleasant consequences.

1.2. CAUTION – Seller in danger as well

The Royal Legislative Decree 7/2015, of 30 October, establishes an obligation for the seller that must undoubtedly be taken into consideration at the time of the sale:

Article 27. Transfer of properties and urban development duties.

2. In the transfer of land, the following must be stated in the corresponding title deed:

a) The urban planning situation of the land, when it is not susceptible to private use or building, has buildings that are out of planning or is destined for the construction of housing subject to a public protection regime that allows the maximum price for sale, rental or other forms of access to housing to be appraised.

b) The legal duties and obligations pending fulfilment, when the land is subject to one of the actions referred to in paragraph 1 of Article 7.

3. Breach of any of the provisions of the previous paragraph entitles the purchaser to terminate the contract within a period of four years and to claim the appropriate compensation in accordance with civil legislation.

Therefore, in order to avoid serious future problems (compensation and even rescission of the sale and purchase contract), it will be necessary for the seller to record the out-of-plan buildings. And it is worth noting that certain (even minor) urban planning illegalities can qualify an entire property as out-of-plan. Therefore, it is highly advisable to take this obligation into account and even commission an urban planning report from an architect in order to identify these buildings and, if necessary, to include them in the purchase contract.

2. Land register

The first step in a planned property purchase is to check the entry in the land register.

Two documents can be obtained from the land register for this purpose: firstly, the inexpensive and very quickly available land register extract (“nota registral”), which only contains the most essential information, or the much more informative, but also more cost-intensive certificate (“certificación registral”), which provides information on

– ownership structure

– Encumbrances and charges on the property (mortgages, easements, rights of way, seizures, etc.)

– Registered tenancies (these give the tenant special protection)

– Status of the property as social housing, in which case special rules apply to the sale

Attention: The land registry does not confirm the property boundaries or the number of square metres, unless the land register entry is coordinated with the cadastre (in this case, this fact must be noted in the land register).

Make sure that the property is registered in your name after the purchase. This process can take between 30 and 60 days. It is advisable to arrange for the transfer of ownership in the land register as soon as possible after the purchase. The notary will usually transmit the public deed of sale electronically (similar to the German priority notice of conveyance), although this should be clarified explicitly. However, the electronic transmission of the deed by the notary does not in any way replace the submission of the original to the relevant land registry office.

3. Cadastre

The cadastre is mainly used for the collection of local taxes in particular.

Therefore, the cadastre does not provide reliable information about property boundaries or the actual square metres of the land or property.

However, it is important to check what use the property is intended for in the cadastre. If this information does not correspond to reality, this can quickly lead to problems, as a change of use is often not possible, e.g. if it is a shop that is to be used for residential purposes. Furthermore, a change of use often requires additional documents and official authorisations, which can be associated with high additional costs.

4. The so-called “coastal law”

If the property to be purchased is close to the coastline, special care must be taken. It must be ensured that the property is not affected by the 1988 Coastal Act, especially if it is located in the so-called Maritime Zone (10 metres from the coastline), otherwise there is a risk of expropriation or the prohibition of any maintenance, repair or other construction measures.

5. Authorisation from the Ministry of Defence

If the buyer of a property located on a rural plot is a citizen or institution of a country that does not belong to the EU or the EEA, permission must be obtained from the Ministry of Defence BEFORE signing the notarial deed of sale.

The same applies for any notary deed about new or old construction declarations.

Swiss citizens are exempt from this obligation. Swiss institutions, on the other hand, must have this approval according to the unanimous opinion of local lawyers, although the Ministry of Defence has recently issued statements to the contrary.

For natural persons who are nationals of the United Kingdom of Great Britain and Northern Ireland, who were resident in some European Union states at the time of the UK’s withdrawal from the European Union (31.12.20) and continue to reside there, it is not necessary to obtain prior authorisation from the Ministry of Defence. However, other citizens of the United Kingdom of Great Britain and Northern Ireland who do not fulfil these conditions will require this authorisation.

If a purchaser does not require a licence under the above rules but is married to a person in community of property who is required to obtain such a licence, this must also be obtained, even if the licence-exempt person becomes the sole future owner.

6. Necessary documents for the transmission of the property

a.- Certificate of habitability

b.- Energy performance certificate.

c.- If it is a property within a community of owners:

1. certificate that there are no outstanding payments to the community of owners

2. certificate that no agreement on extraordinary costs has been reached. This certificate is important and must be obtained independently of the first one, as it may happen that an extraordinary payment has been agreed before the purchase/sale, but this has to be made later.

d.- Certificate of payment of the last municipal taxes (4 years)

7. Notes on tax charges in the land register

Be careful with notes on tax charges in the land register. If a tax return submitted in the last 4 years concerning the property or a transfer of the same has been submitted incorrectly and a higher tax amount than previously paid is due, the (new) owner of the property would be responsible or liable for this additional payment.

8. Purchase and sale of properties on rural land 

A possible right of first refusal of the directly adjoining neighbours and the consequences of non-observance of this right must be taken into account (see our post on this topic).

9. Rights of a tenant

When buying a rented property, it is advisable to check whether the tenant has waived his right of cancellation in the tenancy agreement.

10. Purchase of business premises

An engineer must check whether the activity that is to be carried out in the premises after the purchase is permitted under town planning regulations and thus whether a licence for the activity can be obtained. Appropriate work may then have to be carried out on the property in order to adapt the premises to the legal requirements (size, equipment, security, etc.).

11. Sale of the family home

If the property to be sold is the family home, the consent of the spouse must be obtained, even if he/she is NOT a co-owner and the marriage was concluded in separation of property.  (Art. 4.3 of the Compilació de dret civil de les Illes Balears).

12. Measurements of neighbour plots

It should be checked whether the neighbouring properties have already been surveyed and the coordinates entered in the land register. In this case, these registered coordinates are binding, even if they do not correspond to reality. It may therefore happen that the plot you have bought is actually smaller than you thought (and possibly marked by walls or fences).

13. Tourist rental

If a tourist rental licence is also the subject of the transfer, it must be checked that it has been registered in the Register of Tourist Companies, Activities and Establishments of the Consell de Mallorca and that it has been used in the last three years. Otherwise, the licence may not be valid (anymore).

The seller must ensure that the licence’s name change takes place in order to avoid any future liability.

14 – 10- years insurance for structural building defects

This 10-year insurance is mandatory for new builds to cover any structural defects in the property.

If the property is built for your own residential purposes, this insurance is not initially necessary. However, it becomes problematic if the property is to be sold before the 10-year period has expired.  In this case, the buyer must expressly waive the insurance and provide proof that the seller has actually lived there.

15. Marketing by a real estate agency

The sole purpose of the sales order placed with a real estate agency is to mediate, i.e. to establish contact between the buyer and seller. However, the purpose of mediation is not to provide legal advice in relation to the purchase/sale, neither for the buyer nor for the seller. It is important to point this out, as neither the estate agent nor the real estate agency is liable in the event of subsequent problems, especially as many brokerage contracts generally exclude such liability.

Caution should also be exercised with exclusive sales contracts, as it may not be possible to sell the property to another party during the term of the contract (e.g. through another estate agent or a private sale). In the case of non-exclusive sales contracts, it is advisable to ask the estate agency to provide feedback on the viewing and to keep a register of which clients have viewed the property with which agency in order to be able to nip any claims by several agencies for payment of the agency commission in the bud.

An important point is the agreed date of payment of the brokerage fee. Since it has recently become common practice to conclude private purchase contracts with a down payment instead of the previously common so-called option contracts (which mean a tax disadvantage in the event of non-fulfilment), it is quite possible that the brokerage fee for the full purchase price may already have to be paid to the broker when this private purchase contract has been concluded, although the down payment, usually amounting to 10 %, has only been made. It must therefore be expressly stipulated that the brokerage fee will only be charged after the notarised purchase contract has been signed and the purchase contract has been paid in full.

16. Hidden defects

In the sale of second-hand properties, the seller is liable for hidden defects for six months (Art. 1.484 et seq. of the Spanish Civil Code). A possible exclusion of liability in the purchase contract is possible.

17. Purchase of planned real estates

The property developer must have liability insurance (also known as ten-year liability insurance) to cover any construction defects in the building. This insurance must be included in the building book, which the property developer must hand over when the property is handed over.

In addition, the property developer must have taken out an insurance policy that covers partial payments to be offset against the total purchase price during the construction phase. In the case of apartment blocks in particular, it is important to ensure that this guarantee applies separately to each individual residential unit and not just to the entire complex.  You should also make sure that the instalment payments are transferred to a special account that can only be used for the construction of the specific project.

The property must also have a final building licence signed by the architect in charge and be registered in the land register.

18. Communities of owners

When buying flats in an apartment building (technically a community of owners), it is advisable to check the statutes of this community of owners and the internal rules or regulations (not all communities have them) to avoid future surprises with neighbours. These internal rules or bylaws may regulate aspects such as the use of swimming pools, terraces, pets, etc.

It is particularly important to check whether they authorise the use of flats for tourist rentals.

19. Taxes

The taxes to be paid depend on whether a new home is purchased directly from the developer or a second-hand property.

If a new property is purchased, VAT of 10% of the purchase price must be paid to the seller. In addition, the so-called stamp duty (tax on notarised legal transactions // AJD), in the Balearic Islands amounting to 1.5 % of the purchase price, must be paid.

The purchase of a second-hand property is taxed with real estate transfer tax (Impuestos sobre transmisiones // ITP between 8 and 10 %).  This tax must be paid to the tax authorities of the respective autonomous region within 30 days of the purchase.

20. Caution with option to purchase contracts

The normal procedure for buying a house is as follows:

– Signature of a private deed of sale drawn up by the buyer’s lawyer and verified by the seller’s lawyer, with a deposit (usually 10% of the purchase price)

– Notarisation of the purchase within a period agreed in the private purchase agreement

Be careful with so-called option to purchase contracts. These may have unpleasant tax consequences. This is because it is assumed that the granting of an option to purchase and the subsequent purchase only on the public deed of sale before a notary are two different legal transactions, each to be taxed separately. Thus, the amount paid for the granting of the option (generally 10% of the purchase or, if the amount is not specified in the contract, 5% of the tax base applicable to the purchase contract) is taxed at ITP. If the option right is actually exercised and the purchase is not finalised until the notarial deed of sale is signed, property transfer tax (ITP) must be paid again on the TOTAL purchase price. This means that 10% of the purchase price is taxed twice.

To avoid these tax implications, it is advisable to sign a private purchase contract with a deposit. However, there are also pitfalls with this type of contract. As this is already a purchase of the property, it is essential to ensure that the handover of the keys, and therefore the handover of the property, is linked to the full payment of the purchase price and may NEVER TAKE PLACE. Otherwise, under Spanish law, the sale will be considered finalised, the buyer will be the new owner and the seller will only have the rights of a creditor.

In any case, any transfer of real estate is a highly complex legal transaction and should always be supervised by a specially appointed lawyer.