Buying a Property in Spain - The Private Contract

Published on 22/04/2007 in Buying Process

When buying a house, it is often that before the granting of the public deed, a private contract is signed between the seller and the buyer.  This contract is not obligatory, but in those cases when the seller is a Developer, this step is taken in most cases. This is the time to check that a fair, balanced contract, without abusive clauses is being signed.

Take into account that the Law considers the Private Contract as a perfectly valid way to make a transaction, which means that once  you sign a private contract, you will be legally obliged regarding the full content of the document and you will have to fulfil every agreement contained thereby, provided of course, they are not against the Law. But the party won’t get exempted from the fulfilment of the contract by alleging that what was agreed is not of interest anymore.

Of course every abusive clause, as it against Law, is null and void and if the abusive clause is regarding one of the essential features of the contract, the whole contract can be declared null and void by a Judge, with the correspondent return of money deposited, including legal interests and compensation.

Therefore it is very important to have good advice before signing a document like this. A good lawyer can direct you to balanced and fair clauses in the private contract, especially in the field of real estate where developers usually have a status of superiority.  You must understand all you are signing and do not sign on anything you are not sure enough about.
Here are some important aspects of the private sales contract:

1) If you don’t master Spanish sufficiently, ask the developer or agent to give to you an English version of the contract.

2) Date and place of contract.

3) Check who is signing on behalf of the selling party: When the seller is a developer, the signatory is usually an administrator or a legal representative, which is not problematic, but the details of the deed where he was nominated need to be mentioned in the contract and he needs to show the deed itself to you. The contract will contain the CIF (taxes identification number of the company) and domicile. That will be the valid domicile for notices regarding the contract if no other is mentioned to these effects. 

If the transaction is between two individual parties, the document must be signed by all the owners, themselves or through sufficient proxies.  If a house is part of a marital pair, the document must be signed by both husband and wife; they will both have to sign too if even not being part of the marital pair (being an exclusive good of one of them). The most practical and useful thing is to ask the Land Registry for an updated “Nota Simple” of the property to check the current owners and any speciality involved.

If the seller gives power of attorney to another person to sign the private contract, the authorised person will have to present the authorised notary copy. It means, the original document signed by the Notary, not just a photocopy, and the power of attorney will grant enough power for the sale, so it is very important to check, by reading the power of attorney deed, that the authorised person can sign for the sale (these mentions are among the faculties stated in the deed). If the sellers are the heirs of the owner, it is important to make sure that they have got all the Inheritance documents in order and they are the only heirs who hold rights on the property. Again, better to have the most updated “Nota Simple” of the house from the Land Registry. There is an online, English versioned service at www.registradores.org (9,01 € a nota simple)

4) If you are buying off plan, the deed must contain the details of the deed for ownership over the plot, land reference (referencia catastral) new work declaration and horizontal division deeds. If the horizontal division has been made, your house must be described in the deed, with its borders, and land registry information.

5) Check the Work Licence obtained from the Local Town and ask for a copy of that.

6) Charges on the house:  It is very important to verify which charges exist on the house, and check out if it is free of charges, loans and encumbrances.  In order to check that out, again, the most useful instrument is a Nota Simple http://www.costaluzlawyers.es/eng/?p=31 from the Land Registry Very often, a mortgage will be found, in these cases, the buyer will have to subrogate that mortgage, which means that he will have to accept it and become the debtor of the remaining debt against the Bank which has granted the mortgage.  It is necessary then to know interests’ rates, recovery time, and commissions and of course the amount still owed. It will be convenient to ask in the bank as the Nota simple doesn’t reflect all these details.

7) Verification that the house is not VPO (state subsidized house). Can be checked mentioned in the Nota Simple, New Work deed or horizontal division deed.

8) Building stage of the house.

9) Name and details of both architect and project.

10) Name and identification details of the builder.

11) Community of owners’ shares. When buying off plan, the community charges won’t be determined in the first or second meeting of the community of owners. Horizontal division deeds contain the precise share or percentage of ownership of your apartment within the whole building. The charges (monthly instalments) will be determined according to this proportion.  If it is a resale house, you need to have information on the situation of the house regarding payments to the Community. Ask the Property Manager or the President, get  copies of the Statutes or internal rules of the building too. 

12) Price, deposit and payment method: The contract will specify the price of the house and the payment method. Specifying amounts corresponding to VAT too.  There are certain kinds of houses which have official value, the Treasury Department of the Autonomous Community has this information.

13) Mention of the specific Bank account where your Money will be deposited, and receipt of Aval Bancario  (Bank Guarantee) or Insurance Policy, at the moment of the signing of the contract at no cost to the buyer. It is a legal obligation under Law 57/68. It usually has an expiration date. Developer needs to renew it and extend the deadlines if completion date arrives, work is not finished and you decide to grant an extension. Free.

14) Completion date: Very important to have determined, clear completion date, at least the quarter and the year when this will be finished.  If any extensions are agreed, the contract needs to clearly establish the terms of these extensions which need to be always  justified by the Developer, communicated to the buyer and formally accepted by him. Also pay attention not to sign indefinite extension clauses. Anyhow, if that were signed, it could be invoked as null and void as abusive (against the most essential bilateral character of contract, producing a lacking of object in the contract which turns it as null and void).

If the house is finished beforehand, the buyer will have the right to decide if paying all the due amounts and complete then or at the date initially agreed in the contract.  Therefore, is not obligatory to complete in anticipation.

15)  Related expenses:  Need to be mentioned and how, who will pay them:  
 
- Plusvalía (a tax over the value rise of the property from one to the next transmission)
- Notary Deed.
- Registration in Land Registry.
- Transfer taxes

If nothing is specifically mentioned or if it is agreed that expenses will be paid “according to Law”, the seller will pay Plusvalía, and the most of the Notary Deed and the buyer will pay the copies of the Notary deeds, the registration of the Property in the Land Registry and the transfer tax.

It is against consumer law, abusive, to have the buyer paying the Plusvalía, so even if it is agreed in the contract, will be considered as a non existent agreement, null and void.
It is also against Law to have the buyer paying titling expenses which corresponds to the Developer:  new work declaration deed, horizontal division deed and mortgage cancellation deed.

16) Choice of Notary: The buyer has a right to free election of Notary for the signing of the future, required purchase deed.

17)  The private contract is sufficient to link the two parties over the object according to what is agreed in the contract clauses but it is not sufficient in order to register the property in the Land Registry or to ask for a mortgage. You need a public deed for these two.

I will write on Notary deeds in a future article.

18) Cancellation clauses and penalties for delay (equilibrium) http://www.costaluzlawyers.es/eng/?p=25. The contract needs to have equivalent penalty clauses for delays (to both parties) which need to be agreed by the contracting parties and not imposed by any of them. It also needs to put the parties in balanced conditions for the cancellation of the contract and establish equivalent compensation in these cases. 

19) Transmission before completion. Even when developers usually agree on that at a commission rate (around 2-3 % of the price with a minimum fee), this possibility is getting  more and more difficult due to new taxes regulations which try to stop the avoidance of transfer taxes in these cases.

20) Authorization, name and price of management services (gestoria) to have the house duly registered and taxes duly paid.

21) Agreement on jurisdiction or submission to arbitration.

Written by: Maria de Castro

About the author:

Maria de Castro is a Spanish Lawyer and the Director of the Law Firm www.costaluzlawyers.es.

Costa Luz Lawyers are contract and consumer real estate law specialists covering all parts of Spain. You can contact Maria at mldecastro@costaluzlawyers.es




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Comments:

normansands said:
28 April 2007 @ 19:52

Unfortunately you have left out the biggest abuse of all with off-plan purchases.
Where in the contract is the sales particulars showing all the facilities of the site without which the property has little or no value to the unfortunate purchaser. Without it the contract is irrelevant and insanely stupid. Ehat lawyer in his/her right mind would recommend such a contract to his/her client?
Why would a sensible court uphold it?
Norman



normansands said:
24 April 2007 @ 10:53

Why no mention of the infamous off-plan contract which makes no mention of the missing complex facilities nor proper building standards, only the discredited "habitation certificate". Also the missing "guaranteed 70% low cost Spanish mortgage already in place and available to every purchaser". Both agents and lawyers are guilty of hiding these unpleasant facts on a forfeit contract.

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