Buying property in Spain

If you are planning to buy a property in Spain or have already found your dream property, a number of legal questions arise relatively quickly: starting with the brokerage contract, through a possible privately written (not notarized) purchase contract, to the notarial certification of the purchase contract and its processing , there is a lot to think about and pay attention to.

A lot of things are fundamentally different when buying property in Spain than in German-speaking countries. In real estate transactions, the law of the country in which the property is located usually applies. If real estate is bought or sold in Spain, Spanish law or the law of the respective autonomous community in which the property is located applies. In Spain, several local authorities (Catalonia, the Balearic Islands, Galicia, Aragon, the Basque Country and Navarre) have their own private law (so-called “foral law”), which often differs significantly from Spanish law. This means that Catalan sales contract and real estate law applies when purchasing an apartment in Barcelona.

In Spain, it is common practice for the parties to first sign a privately written purchase contract, which is usually drawn up as a “sales contract with Arras agreement” (“Arras contract” for short) or as an option contract. The Arras Agreement can have different functions and purposes under Spanish law. However, it always consists in the buyer's obligation to pay an amount of money (the arras) amounting to usually 10% of the purchase price when signing the contract and before the notarial certification. Depending on the design of the “arras”, this amount serves as a down payment on the purchase price, as a payment agreement or as a contractual penalty in the event of non-fulfillment. This means that sometimes large down payments on the purchase price are quite common in Spain before the purchase contract is notarized.

Another important difference to German-speaking countries is that in Spain a real estate purchase contract does not have to be notarized to be valid. This means that a private written and even an oral real estate purchase contract can also be legally valid.

Another difference, which is also important for investors, is that Spanish real estate law does not recognize any reservations or mortgages. And finally, it should be noted the different effect of the entry in the land register, which in Spain (unlike in Germany) is not a legal basis for the acquisition of ownership when purchasing real estate.

For all of the reasons mentioned, we are happy to be your contact if you need support in connection with the purchase of a holiday apartment or holiday home in Spain, or if you are planning investments in residential or commercial property in Spain: We are familiar with the regulations for buying property in Spain .

We know the differences to Germany, Austria and Switzerland that need to be taken into account. Last but not least, we are familiar with the legal systems of German-speaking countries and local customs. We have been supporting German-speaking clients when purchasing property in Spain for years.

Our consulting services:  

• Examination of brokerage contract

• Legal checks in advance of the property purchase (e.g. ownership, cadastral entries, freedom from encumbrances, rights of first refusal, etc.)

• Advice on all tax aspects (real estate transfer tax, VAT on new properties, taxation of rental income, income tax even for personal use, etc.)

• Advice on acquisition costs (notary fees, land register, property transfer tax, etc.)

• Advice and mediation on real estate financing (loan agreements, mortgages, etc.)

• Support in applying for a Spanish tax number (NIE)

• Review/negotiation of contracts for property developers, architects, etc.

• Preparation/review, negotiation, processing of real estate purchase contracts including privately written Arras contracts or option contracts

• Supervision of the property purchase, e.g. accompaniment to the notary appointment

• Entry of purchase contract in the land register, change of ownership structure, land registry office, etc.

• Representation at owners' meetings

• Enforcement of claims for defects, if necessary, reversal, compensation, etc.

Selling Real Estate In Spain

Basically, when selling real estate - regardless of whether an individual or a community of heirs is selling a property - similar legal questions arise as when buying real estate. This applies, for example, with regard to agreements with brokers, the drafting and/or review of powers of attorney, arras contracts, option contracts and also with regard to the (notarial) purchase contract.

When selling a property, the seller/owner must particularly keep the following special features of Spanish real estate law in mind:

• In Spain, a real estate purchase contract can also be concluded verbally or in private writing. Spontaneous “commitments” can therefore be legally binding and enforceable!

• In Spain, when selling real estate, privately written (not notarized) purchase contracts (Arras contracts) are common, which usually require a deposit of 10% of the purchase price. If the buyer does not fulfill the contract or withdraws, he usually loses - depending on the contract structure deposit paid (refundable payment agreement). The same usually applies to the seller: If the sale does not take place for reasons for which the seller is responsible (e.g. withdrawal), he may be contractually obliged to pay double the down payment to the buyer.

• The transfer of ownership when selling real estate takes place when ownership of the item is acquired - according to a legal presumption, at the latest when the purchase contract is notarized! An entry in the land register is therefore not necessary for the acquisition of property. The purchase price should therefore be paid when the purchase contract is notarized in order to minimize the risk of default on the purchase price claim, since the seller basically loses ownership upon certification.

• The sale of a property in Spain regularly leads to a tax liability. In Spain, unlike in Germany, there is no longer a speculation period for private sales transactions. And the profit from the sale of inherited real estate is also taxed. In addition, the municipalities also tax the increase in the value of the land (Plusvalía).

If you want to sell a property in Spain, we will support you in organizing and carrying out the sale in an optimal legal and tax manner. If you have questions about inheritance law that need to be clarified in advance, we are also your reliable contact.

Our consulting services:

• Examination of brokerage contract

• Clarification/examination of ownership situation according to Spanish inheritance law if necessary

• Advice on all tax aspects (tax burden on sales, etc.)

• Creation / review, negotiation, processing of purchase contracts, if necessary including private written contracts (Arras contract/option contract) up to the notarial certification of the purchase contract

• Supervision of real estate sales, e.g. accompaniment to notary appointments

• Entry of purchase contract in the land register, change of ownership structure, land registry office, etc.

• Enforcement of purchase price claims, reversal of the purchase contract, compensation for damages, etc.

Problems surrounding real estate in Spain

Property owners in Spain can face a variety of legal issues. These can result from mistakes being made when purchasing the property and, for example, not being entered correctly in the land register or cadastre. In some cases, property owners only discover years after the purchase that they were never entered in the land register after the purchase.

It often happens, especially in rural areas, that the description of buildings, property boundaries or the size of the property in the land register and cadastre are inaccurate or incorrect or that the information in the land register and cadastre does not match. Problems with registration in the land register arise, for example, because – unlike in Germany, in Spain – new buildings, extensions and other conversions can and should be registered in the land register. The registration of buildings in the land register is carried out on the basis of a new building declaration (declaración de obra nueva) which must be submitted to a notary and recorded by him in a public document. This declaration contains a precise description of the construction work carried out and the resulting new description of the property and the buildings built on it in the land register.

If, when purchasing the property, you overlooked the fact that buildings, property boundaries or property size were not properly entered in the land register or cadastre, you should ensure that they are correctly entered in the land register or cadastre. This also applies if you convert or build a new property.

We are happy to help with this – and with other questions relating to real estate in Spain.

Our consulting services:  

• New construction declarations or their additions

• Entries in the land register or cadastre of old buildings

• Correction of the area of land in the land register and cadastre

• Disputes with neighbors, for example over property boundaries or buildings

• Preparation/design/review of contracts with architects or construction companies

• Disputes with architects or construction companies regarding construction defects

(Holiday) Rental In Spain

Renting property in Spain involves a variety of legal and tax issues. For the standards applicable to the rental agreement - and thus, among other things, for the term of a rental agreement or the taxation of rental income - the decisive factor is whether it is a matter of renting residential or commercial premises, for what purpose the property is rented or whether the landlord is a natural or legal person.

If a property is rented and used as the tenant's main residence, the tenant in Spain has the right to unilaterally extend the term of the rental agreement up to five years (seven years if the property is owned by a legal entity). From a tax perspective, such tenancies in Spain are attractive for the landlord, as only 60% of the rental income minus business expenses is subject to income tax. A shorter contract term is possible for rental agreements if the property is not used as a main residence, but only temporarily. This can be the case, for example, during a temporary, longer professional stay in a city (freelancer), during a semester abroad or for the duration of a fixed-term employment relationship. This is referred to as a temporary tenancy (arrendamiento de temporada), which is often concluded for furnished apartments.  

Owners of holiday properties mostly rent out their properties in Spain to tourists. In many regions and cities in Spain, official approval is now required for this, which is difficult or impossible to obtain, especially in larger cities such as Barcelona. In addition, in many regions (e.g. Catalonia), there is a risk of severe fines if renting to holiday guests without permission.  

When it comes to taxing rental income, it is relevant whether the landlord has unlimited or limited tax liability in Spain. If the owner is resident abroad, the rental income often has to be taken into account for tax purposes both in Spain and in the country of residence, depending on the double taxation agreement. According to the double taxation agreement between Spain and Germany, rental income from a property in Spain is taxable in both Spain and Germany for those with unlimited tax liability in Germany. However, the owner can offset the amount in Germany against the income tax due there that he previously paid in Spain.

We will be happy to answer your questions about renting holiday properties in Barcelona and on the Costa Brava, among other places, and will also support you with the necessary (tax) declarations.

Our consulting services:    

• Applying for permits for short-term rentals to tourists

• Creating/checking rental agreements (short-term rental, long-term rental)

• Disputes regarding damage to the property and the return of the deposit

• Tax regulation of rental income

• Tax returns to be submitted

Real estate law in Spain also for companies

In addition to private individuals, we are of course also the contact person for investors and companies for all questions regarding Spanish real estate law: We support companies that want to purchase property in Spain, as do companies that need support in the area of Spanish tenancy law / commercial tenancy law, e.g. when renting office space , production facilities, storage areas or the lease of entire properties (hotels, etc.)

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