Phoenix Magazine 05.03

The Phoenix Magazine,
27th May 2003

By: Tom Mc Grath, Solicitor and Rocco Caira, Solicitor

Tom McGrath is Principal of the Solicitors Firm Tom McGrath & Associates. Tom is a fluent Spanish speaker and a keen enthusiast of all Hispanic related matters. Dublin born solicitor Rocco Caira, who is a partner in the firm of Bartell Abogados in Bilbao is an associate of Tom McGrath & Associates.

With his longstanding experience of dealing with business transactions with Spain, and as a former President of the Ireland Spain Economic Association (ISEA), Tom is ideally positioned to service the legal requirements of both the Irish house purchaser and Irish businessman wishing to do business in Spain, or, indeed, their Spanish equivalent in Ireland. He also provides legal advice to the Spanish community in Ireland and to the increasing number of students and tourists who visit us each year.

The Firm has associate offices in Marbella, Bilbao and Madrid and is now planning another associate venture in Barcelona.

The Irish purchaser of Spanish property from now on can call into Tom McGrath & Associates’ offices in Dublin and have most of the necessary Spanish conveyancing documentation signed. This will be forwarded to Tom’s colleagues in Spain who will efficiently deal with all the local requirements.

There are a number of recurrent questions that potential purchasers of Spanish property need to have answered before venturing into the property market over there. These are some of those questions:

1. A lot of people are purchasing property overseas and, in particular in Spain. Is it wise that they should instruct a lawyer to act on their behalf?

I would consider it to be essential. Potential buyers are often advised by local estate agents that this is not necessary, and that the developer or seller’s lawyer and the notary will take care of everything, with the resulting savings on fees. This may be the case, or on the contrary, may result in financial loss for the buyer as a result of not having been independently advised with respect to what he was acquiring.

2. Is the conveyancing system very different in Spain to Ireland?

In reality, there is no established conveyancing system as such in Spain, as Spaniards normally make their own investigations as regards the property they are acquiring, and relying on the knowledge that the notary will ensure that they acquire a proper title. However, the notary will not investigate such issues as planning and development in the area or other such issues which might affect the property, and accordingly doesn’t offer any safeguards in this respect. Furthermore, the notary only comes on the scene after the contract has been signed and deposit paid, at which stage the buyer has already paid part of the purchase price and committed himself to complying with the contract, which may include waivers of rights the buyer may otherwise have had at law, such as the payment of certain taxes by the seller. Spanish buyers might be familiar with such issues, but it is certainly not to be recommended that a foreign buyer should take chances in this regard.

3. What is the function of the Notary Public?

The notario or notary is a public official before whom documents to be lodged in public registries (such as transfers of property) must be signed. As stated above, the notary limits himself to ensuring that proper title is transferred and that certain outgoings are paid up to date. Apart from the issues already referred to, the notary does not investigate the question of physical boundaries, and limits himself to the description of the property as it appears in the deeds. In other words, he ensures that the buyer acquires the property described in the deeds.

4. What are the tax implications of a purchaser buying property in Spain?

An individual purchasing property in Spain must from that moment pay all local taxes, rates and levies which fall due on the property. There is also the possibility of a liability to income tax arising, which would have to be investigated on a case-by-case basis. When selling the property, he will also be liable to discharge the plusvalía and taxes calculated on the capital gain to the property during the period of ownership. The buyer would also on buying a second-hand property be liable to pay a tax similar to stamp duty currently at a rate of 6%, while on the purchase of a new property he would be obliged to pay VAT (currently at 7%).

5. What are the usual fees involved when purchasing property in Spain?

Despite the fact that there is no standardised system of conveyancing, local lawyers have become aware of the fact that British and Irish buyers are accustomed to having access to this service, and offer something similar. They are also aware of the fees charged to such clients back home, and accordingly tend to charge fees at a figure of around 1% to 1.5% of the purchase price. In addition, the buyer of a property will have to pay the notary’s fees, registration fees and stamp duty or VAT. Approximately 10% of the purchase price should be budgeted for.

6. Assuming a potential buyer decides to use a lawyer, when should he contact same?

As in Ireland, the lawyer should be contacted before signing any contract or paying any deposit. As already stated above, once the contract is signed and deposit paid, certain commitments may have been assumed which cannot later be avoided or changed. Furthermore, in certain cases, it may be advisable to purchase the property through an Irish company, either for tax reasons or because of the fact that on the death of the owner, the estate would not consist of a Spanish asset (the real property itself) but rather the shares of the Irish company, which may make the administration easier or may be useful for tax planning. A decision in this respect must be taken before signing the contract.

7. Should a Spanish will be made on acquiring a Spanish property?

Yes, as it will greatly simplify the administration of the Spanish estate and reduce costs substantially on the death of the owner.

8. Should the above precautions also be taken on the purchase of a timeshare?

The issue here of course is whether the cost of consulting a lawyer and making a will are justified in the event of purchasing a timeshare, which would be a relatively modest investment when compared with buying a property. However, if the buyer wants to make sure he is protected, then he will have to assume the expense involved. This is particularly the case if one bears in mind that there have been numerous reported cases of fraud with respect to timeshares. These have been made possible precisely because legal advisers are generally not involved because of the amount of the investment. Furthermore, Spanish law is very explicit as to the form timeshare agreements or transfers should take, and anything else may be of no value. Finally, the absence of a Spanish will in such cases can result in the cost of administering the Spanish asset on the death of the owner disproportionate with respect to its value.

9. Is it safe to assume that no problems will arise on buying a property which already has planning permission?

No. Apart from the necessity to investigate fully the cost of carrying out the development, further complications may arise as a result of the fact that in Spain there is a hierarchy of local authorities with different levels of powers and competence with respect to issues concerning planning and construction. For example, planning permissions themselves are granted by municipal authorities (the ayuntamientos), environmental issues are normally the competence of regional authorities (the comunidades autónomas), while the competence for the protection of coasts is reserved to the state. There have been cases where properties built with planning permission from the local authorities have had to be demolished because they did not comply with state laws on the protection of the coastline. There are also state provisions which could have a similar effect in other areas including in particular where construction is to take place near a river or stream