If you are an American citizen considering buying a property in Spain, you may find this article particularly useful. We explain the main differences between the property purchase process in Spain and the United States, together with some practical considerations you should be aware of before proceeding with your purchase.
Spain and the United States have different legal systems. Spain follows a civil law system, with certain regional variations, rather than the common law system used in the United States.
Due Diligence
In Spain, it is particularly important to obtain independent legal advice and carry out thorough due diligence on the property before committing to the purchase. The process differs from that in the United States, where buyers may rely on title companies, property inspections and other professionals.
A Spanish lawyer will verify not only the ownership of the property and the information recorded at the Land Registry, but also its current legal status, planning and licensing situation, outstanding taxes or charges, mortgages, liens and other encumbrances.
Depending on the property, it may also be advisable to instruct a qualified surveyor or architect to carry out a technical inspection, as certain structural or technical matters fall outside the scope of a lawyer’s role.
Deposit and Contract
In the United States, buyers may be more familiar with transactions where a third party holds funds in an escrow account. In Spain, however, reservation fees and deposits may be paid directly to the seller, the seller’s representative or, depending on the circumstances, another party involved in the transaction.
American buyers may also be more familiar with making an offer followed by a purchase agreement setting out the terms and conditions of the transaction.
In Spain, the process can vary. In some cases, the parties first sign a reservation agreement, followed by a purchase deposit agreement known as a contrato de arras. In other cases, the parties proceed directly to signing the contrato de arras.
It is essential to understand the legal significance of the contrato de arras, as it can establish important obligations and the consequences of withdrawing from the transaction.
A reservation fee may typically range from €3,000 to €6,000, depending on the property and the terms agreed. The deposit under an arras agreement is commonly around 10% of the purchase price, although the amount can vary.
Completion (Closing)
In Spain, completion takes place through the execution of a public deed of sale (escritura pública de compraventa) before a Spanish notary.
The signing of the escritura pública de compraventa, together with payment of the purchase price and compliance with the agreed completion conditions, is the key stage of the transaction at which ownership is transferred to the buyer.
Following completion, the relevant purchase taxes must be paid, and the deed can then be submitted to the Land Registry to register the buyer’s ownership.
Spanish Notary
The role of a Spanish notary is significantly different from that of a notary public in the United States.
Real estate transactions are generally formalised through a public deed (escritura pública) before a Spanish notary. The notary verifies the identity and legal capacity of the parties and ensures that the transaction complies with the applicable formal and legal requirements.
However, it is important to understand that the notary does not act as the buyer’s lawyer. The notary is an impartial public official and does not represent either party. For this reason, obtaining independent legal advice is particularly important when buying property in Spain.
Taxes and Other Costs
Spain is divided into different autonomous regions, each of which may have its own legislation and tax regulations. You should therefore be aware of the specific rules applicable in the region where you intend to purchase, particularly if you are buying a holiday home or an investment property.
For example, in Andalusia, the general rate of Transfer Tax (Impuesto sobre Transmisiones Patrimoniales – ITP) applicable to second-hand residential properties is currently 7%. Other Spanish regions may apply different rates.
For new-build properties, the applicable taxes generally include VAT (IVA), currently 10% for residential properties, together with Stamp Duty (Actos Jurídicos Documentados – AJD). In Andalusia, the general AJD rate is currently 1.2%.
Mortgage
If you are financing your purchase with a mortgage, you should also be aware that Spanish banks have different lending requirements and property valuation procedures.
You should also consider exchange rate fluctuations and any bank or currency transfer fees associated with transferring funds to Spain.
The Spanish Land Registry
The Spanish Land Registry (Registro de la Propiedad) is a public institution that records information relating to registered properties and property rights.
As part of the legal due diligence process, your lawyer can obtain information from the Land Registry to verify the registered ownership of the property and identify registered rights, mortgages, liens and other encumbrances.
This differs from the system commonly used in the United States, where title searches and title insurance play an important role in identifying and protecting against certain title defects.
Conclusion
Buying a property in Spain can be a straightforward process when the correct legal and tax advice is obtained from the outset. Understanding the differences between the Spanish and US legal systems can help you avoid unexpected issues and make informed decisions throughout the transaction.
If you purchase property in Spain, it is also worth considering preparing a Spanish will that specifically covers your Spanish assets. Having an appropriate Spanish will can help simplify the administration of your Spanish estate and make the succession process more straightforward for your beneficiaries. It can also help avoid unnecessary delays and additional costs.