The three main legal stages of the Spanish purchase process

16/02/2009

MCGRENRA GONZALEZ LEGAL CONSULTING specialise in property conveyancing in Spain. In this article they discuss the first two legal stages of the Spanish purchase process i.e. the reservation contract and the private purchase contract.

1) The reservation contract (Contrato de Reserva)

The signing of a reservation contract is generally the first legal document to be signed in the purchase process here in Spain. Once this contract is signed and the reservation deposit paid (varying from €3000 to €12000) the vendor must take the property off the market and freeze the agreed purchase price.

We always advise any purchaser to consider and possibly negotiate several points prior to the signing of this reservation document:

  • Does the deadline stipulated in the reservation contract, for the signing of the next contract ( the private purchase contract ), allow the lawyer for the purchaser enough time to carry out all the necessary legal searches? N.B. a minimum of three to four weeks is needed.
  • Does the deadline stipulated in the reservation contract, for the signing of the private purchase contract, allow enough time for a surveyor’s report and/or mortgage approval?
  • Will the deposit be refunded to the prospective purchaser should the legal searches discover serious problems with the property?
  • What are the agreed methods of payment for the purchase?
  • Who will pay what taxes included in the property transaction eg. Plusvalía?

It is of course normal for the vendor to want to receive the deposit as soon as possible. If a purchaser feels very nervous about paying this prior to receiving the results from the legal searches then there is another option:- payment of the deposit into an escrow account, which is then released to the vendor once the legal searches have been received. In this way the purchaser is illustrating their intent to purchase, without risking their monies.

All of the aforementioned points are open to negotiation and very much depend upon what the individual vendor/purchaser are prepared to agree to.

2) Private Purchase Contract (Contrato Privado de Compraventa).

Once all the legal searches have been received by your lawyer, the negotiations for the the terms and conditions of the private purchase contract can be finalised. If the legal searches have revealed any outstanding debts or sanctions on the property, then your lawyer will act to ensure that these are cancelled prior to your purchase of the property. The private purchase contract will reflect these negotiations and all the important terms and conditions of the sale, including the date for completion of the sale before the Notary. If the property is being sold furnished, then an inventory detailing the items being left needs to be annexed to the contract.
In the unfortunate event that the legal searches reveal more serious problems with the property, your lawyer will need to discuss these results with you and advise you as to whether it remains a good idea to purchase the property.

It is your lawyer’s responsibility to ensure that your interests are protected by the private purchase contract and it is important to read through this contract and let your lawyer know if you have any queries. An important clause within the contract is that governing the consequences for vendor and purchaser if they do not complete the sale/purchase. In the event that the purchaser does not complete, it is usual that the vendor is allowed to retain the funds paid to him/her after the signing of the private purchase contract. The purchaser can expect to receive double the funds paid to the vendor should it be the vendor that reneges on the agreement. There are certain legal terms that although not specifically mentioned within the PPC are implied by Spanish law. Ask your lawyer to explain these to you.

Upon the signing of this private purchase contract a second payment is due. In the case of a resale property this is usually 10% of the purchase price minus the reservation already paid. In the case of an off-plan property, this payment can vary from between 20 to 40% of the purchase price plus 7% VAT. This payment is to illustrate that the purchaser is still intent on purchasing the property. This second stage payment should not be paid to the vendor until the private purchase contract has been signed by both vendor and purchaser.
In the next article we will discuss the completion of the sale at the Notary’s office and the registration of the deeds at the Land Registry.

3) Completion at the Notary’s office and registration of the tile deed.

Once the Private Purchase Contract has been signed by both vendors and purchasers, with the agreed amount having been paid to the vendors, the next stage is that of signing the public deed of sale/purchase ( la escritura ) at the Notary’s office. It is your lawyer’s responsibility to ensure that all the necessary paperwork is in order for this completion process. If the purchaser is taking a mortgage on the property, their mortgaging bank will need to be present at the Notary’s office to sign the mortgage deed. If the vendor has an existing mortgage on the property, then their mortgaging bank will need to be present to sign the cancellation of the mortgage. All vendors and purchasers should be present at the Notary’s office, with their respective lawyers. In the event that a vendor/purchaser cannot attend the Notary’s office on the day of completion, a Power of Attorney should be granted in advance of the completion date to their respective lawyer, enabling the lawyer to sign on their behalf.


On the day of completion, it is the lawyer’s responsibility to check through the final deed of sale/purchase and explain it to their respective clients. Once this deed has been agreed and all the necessary paperwork has been given to the Notary’s officials, the Notary will read through the deed for the vendors and purchasers. If the Notary does not speak a language that the vendors or purchasers understand, then a translator will need to be provided. Upon the signing of this deed, the vendors receive the remaining amount due to be paid to them and the purchasers receive legal possession and the keys to the property.

On the same day as completion, the Notary’s officials will provide the vendors and purchasers with a document called a COPIA SIMPLE. This document is a copy of the deed that they have just signed. This deed is then sent to the relevant Land Registry to be registered and this process takes approximately two to three months.

 



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