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BUYING A NEW PROPERTY IN SPAIN (Off-Plan)

The process to buy a new Spanish property is very similar than to buy a resale, but there are important differences to consider.

For example:

- Buying off-plan: In the majority of the cases, the first agreement for the purchase of the property is done when the construction is projected, and the works are almost not started yet.

It creates insecurity in the investor, since they are invited to depositing some money, and to assume obligations towards a property which is only a "project", and they do not know in a high number of cases, who is the builder, what is the reputation and the economic situation of the construction company, and, the most important, how many guaranties the investor has to protect the payments required.

- Legal and Administrative construction documents: When buying a new property, there are determinate documents which must be studied, and properly checked, in order to control the legal situation and the proper development of the construction.

This is a work which is done in every steps of the evolution of the construction till the end. So, any time that the building advance, there are documents which must be studied by the purchasers, in order to guaranty that all the legal and administrative requirements are fulfilled properly.

- Expenses, taxes, and other costs: Although, in general, the process is almost the same than a resale, there are determinate costs, taxes and expenses which have a different concept and treatment.

ASPECTS TO CONSIDER WHEN YOU ARE BUYING A SPANISH PROPERTY:

1.- CHECK YOUR PROMOTER/DEVELOPER

One of the most important decisions when buy off plan is to pay the deposit and the initial payments of the purchase over a property which is not built yet.

In the majority of the cases, the first agreement for the purchase of the property is done when the construction is projected, and the works are almost not started yet.

It creates insecurity in the investor, since they are invited to depositing some money, and to assume obligations towards a property which is only a "project", and they do not know in a high number of cases, who is the builder, what is the reputation and the economic situation of the construction company, and, the most important, how many guaranties the investor has to protect the payments required.

We will check that the developer is a legal company, duly inscribed in the Companies Legal Registry, and that they own the land in the right conditions.

2.- POINTS TO CHECK

Because you are buying from a developer, it is even more important to carry out the relevant pre-contract checks; in particular you need to:

1. Prove that the developer does own the land: you need to see his escritura.

2. Check that there are no loans outstanding: you need to obtain a nota simple.

3. Ensure that the developer has paid his Impuesto sobre Bienes Inmuebles (IBI): If unpaid, this tax is attached to the property so the new owner will become liable. You should ask to see the receipt for the last year, the period for which liability for unpaid taxes can be transferred to the new owner. If the current vendor can not produce this, you must ensure your lawyer obtains confirmation from Recaudación Provincial (the Provincial Rates Office).

4. Obtain a certificación catastral and check the plan parcial to ensure that the urbanización itself is registered and to check that the property is as described to you.

5. Check with the urbanismo, the town planning office, to ensure that the development is in an area zoned for building and that planning permission has been granted, and that there are no other developments planned nearby that could affect your new property.

6. Check that the builder has obtained a Licencia de Obra ( Building Permit)

If every point indicated above is right, you can proceed to the contrato de compraventa, you should ensure that this contains the following provisions:

1. The total price for he building, completed and ready for occupation, including obtaining the Licencia de Obra (Building Certificate), Garantía o Aval Bancario (Bank Guaranty), Declaración de Obra Nueva y Division Horizontal (Division) Seguro Decenal (Ten Years Insurance), Certificado de Fin de Obra (Certificate of the Building Completion), Licencia de Primera Ocupación (Licence for First Occupation): These documents are essential, as without them you will not be able to obtain and escritura or register for utilities. The builder or developer should be responsible for obtaining these and for paying for them.

2. Arrangements for payment of any deposit and advance payments: The contract should provide the advance payments, with the correspondent V.A.T.

3. The Bank Guarantee (certificado de garantía) that the deposit and any stage payments made are covered by an equivalent bank guarantee or insurance bond, and that in the event of non- completion, the buyer is entitled to the return of all money paid during construction plus legal interest .

4. Completion date for the building: Completion should be specified as when he whole building and infrastructure has been completed, and the necessary certificates obtained. A penalty should be provided for late completion. Equally, there will be a penalty clause to protect the builder or developer that if you fail to make the payments specified, the contract becomes null and void, and any rights or obligations provided by the contract will lapse.

5. A detailed plan of the property with dimensions and specifications (including quality standards) of the fixtures and fitting: this is often annexed to the contract and is called memoria de calidades.

6. The builder or developer is responsible for the installation of gas, electricity and water and sewage: The buyer should be responsible only for payments of the installation of any meters and for the actual gas cylinders, if mains gas supply is not available.

7. The cuota de participación (share of the total costs) in the comunidad de propietarios (Community of Owners): Even if this has not yet been formed, and no subscription has yet been calculated, your share will be determined by the size and facilities of your property and this will be known. If the comunidad has already been formed, the contract should specify either the current fees or the generally expected level of fees for next year.

8. The builder or developer is responsible for the payment of all debts on the land, especially the IBI, until the escritura is signed.

9. The buyer will only be responsible for the payment of the cost of the escritura de compraventa, nor for the segregación or division horizontal and the declaración de obra nueva. Both of these must also be notarised public deeds in order to legally valid, and before signing the escritura de compraventa, you should ask for proof that these have been registered. They should be paid for the builder or developer.

10. Seguro decenal: Serious defects affecting safety are covered for 10 years and the builder must have insurance cover for this. The policy must be given to the notary, and details of the policy must be included in the escritura, and without this the sale transaction can not be notarised. Other defects affecting the habitability of the property are covered for 3 years. Other minor defects are covered for 1 year. In the last two cases insurance cover is not required, but obviously if a builder can offer this as an additional guarantee, it will be better.

Once you have bought the property and had the escritura (Title Deed) notarised, you need the copia simple in order to register the property at the Recaudación Provincial for the payment of the IBI, in order the to be able to register for water and electricity supplies.

Do not forget bring with you, your original passport, your original Residency Card, or your original NIE at the Notary, under no respect you will be able to sign the escritura.

3.- DOCUMENTS INVOLVED
* Licencia de Obra (Building Certificate): It is an administrative certificate in order to guarantee the construction defined in the work project totally adapts to the effective city-planning norm.

* Garantía o Aval Bancario (Bank Guaranty): All payments made on account of the purchase price are covered by a guarantee, which the Developer Company will hand over a few days after each payment is carried out. The said guarantee is issued against the Developer's bank account, which means that all payments made on account of the purchase price remain blocked in said account until completion. In case that the Developer fails to terminate the construction for whatever the reason may be, the bank will reimburse all amounts paid on account plus a 6% annual interest as compensation.

* Declaración de Obra Nueva y Division Horizontal (Division): This is the certification which confirms that, in Land Registry, the construction is duly inscribed, with the different units which will form part of the construction, independently of the initial plot in which the building is projected.

* Seguro Decenal (Ten Years Insurance): For a period of ten years, the Developer is responsible before the purchasers for any material damage caused to the building through defects in the construction, which affect the foundations, supports, girders/beams, wrought iron works, main walls and whatsoever other structural elements and for a period of three years for any material damage caused by imperfections in the elements of construction or in the installations.

* Certificado o Acta Final de Obra (Certificate of the Building Completion): It is the document where the manager of the building and the manager of the building development declare that it is finished and adapts to the work project, by virtue of which they obtained the Building Certificate.

* Licencia de Primera Ocupación (Occupation License): This is a certification issued by the local gouverment,m in which they check that the ocnstruction is made following the building Project, and that the property has all the necessary security and health ítems to be occupied.

* NIE : Non-residents in Spain need to apply for an NIE number. This is necessary for the payment of the Stamp Duty after the Title Deeds have been signed (please see breakdown of costs), and also for the payment of your annual Wealth & Income Tax.

* Contrato de compraventa: This is the contract which has all the general and specific conditions which will regulates the purchase/sale transaction.

* Escritura: Is the contrato de compraventa formalised by the Notary in a document, which become the Title Deeds of the property. Once this document is signed, the Land Registry is able to authorize the change of the owners name over the property.

4.- EXPENSES FOR THE BUYER

- Notary Fees: For the formalisation of the title deeds

- Land Registry Fees: For the inscription of the deeds, making the change of owner's from the property.

- V.A.T. (IVA in Spanish): Currently, this is the 7% over the total price of the property.

- Stamp Duty: Usually is the 1 % over the total price of the building, in Murcia, Valencia Region, and Andalucía. This tax can be reduced substantially if the purchasers are buying with the intention to use the property as main residence.

- Others: Solicitor Fees, mortgage expenses, contracts of water, electric, and gas, Plusvalía, etc.

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