FIVE TIPS that should be taken into account before exchanging contracts when selling in Spain.
Some clients come to us when they have already exchanged contracts for their property in the sun, thinking that because they are not buying, it is all simple, straightforward and that they simply have to ensure they get the money they have agreed, which will be all dealt by an estate agent who will find the perfect buyer and will ensure all goes well… so we find quite often clients who think they do not need to seek legal advice before selling in Spain or sometimes they come too late.
The truth is that although, there are much more checks to do and steps to follow when buying, at the time of selling property in Spain there are also important aspects to take into account to avoid surprises and more importantly, to avoid finding that part of the money will be withheld without the clients understanding why.
Let’s list FIVE TIPS that should be taken into account before exchanging contracts when selling in Spain:
Estate agent’s fee agreement.
Is likely that you migth be using an estate agent who will get a commission over the price. Commissions normally are around 5% and the fees will be vatable at 21%. It is important that the seller’ Spanish lawyer carries out a quick check to the agent’s fee agreement before signing it.
When signing a private contract (in Spanish “contrato de arras”) the seller will be committing him or herself to sell the property to the buyer. 10% deposit should be paid to the seller (in Spanish “arras”) which is non-refundable. Should the buyer decide not to go ahead with the purchase or fails to complete, the most likely consequence is that he/she will lose the amount paid, which will be kept by the seller. In Spain, is quite common for the deposit to be transferred to the client’s personal account or to the estate agent’s bank account rather than going to their solicitor’s. There are obvious reasons that make more advisable for the seller to ask for the money to be sent to his/her lawyer’s client account but if an independent Spanish lawyer has not been engaged before exchanging contracts, you might be receiving money without the necessary AML and source of funds’ checks.
On the other hand, if it is you i.e. the seller, who does not honor the contract, you will have to refund the 10% deposit plus its double, as compensation to the buyer. Therefore, it is important that before the seller signs the private contract, he/she is 100% sure that he/she will be able to honor the contract and makes sure that all the necessary documents that are required at completion are in place, to avoid the buyer alleging a breach of contract.
Make sure that you have all the mandatory documents in place that should be provided to the buyer before completion.
Unfortunately, there is not only providing the seller’s passport and title deed to the buyer. A few other documents shall be gathered before completion and some of them might take some time to be obtained. Therefore, committing to a completion date before ensuring they are all in place could lead to an unnecessary breach of contract.
The seller shall have a NIE number (Spanish Tax Number) in place. If your clients bought/inherited the property long time ago it might be the case that they do not have an NIE number and without it, they will not be able to complete.
The property shall have an Energy Efficiency certificate in place and a habitation licence. These two documents should be obtained by a local architect.
Finally, the seller shall provide to the buyer with the title, IBI receipt (local tax similar to the English Council Tax) and also, a certificate from the Community of Owners of being up to date of payments.
Ensure that you are not selling under value or at least, be aware of the implications of doing so.
A Spanish lawyer will check the Minimum Taxable Value of your property, which is not the same than the selling price. In case that the price that has been agreed is lower than the MTV, there is a risk for the Spanish Tax Authorities considering that the seller is undervaluing the property and after paying the capital gain tax (explained below) is likely that you will receive a complementary tax return requesting them to pay the excess up to the 3% of the MTV. This is something that should be discussed with a Spanish lawyer who will guide the clients on the best way to avoid unpleasant tax inspections later on.
Make sure that before the price is agreed, you know the costs and taxes that should be paid by the seller.
When selling in Spain is the buyer who pays the majority of costs, such as Notary and Land Registry fees, and the main taxes i.e. Stamp Duty which is around 10% but it is also for the seller to consider some costs and taxes. Again, engaging a Spanish lawyer before accepting an offer for your client’s loved property in the sun will avoid disappointments before completion when they see that the price they have agreed does not go in full to their bank account.
Dual-qualified Solicitor & Spanish Lawyer