Hugo Navarrete is a Barcelona based lawyer specialising in property law (including house purchases, rental agreements, business lease transfers, litigation) and employment law.
Calle Princesa 34, 2º1; 08003 Barcelona (+34) 661886587 hugo.navarrete@gmail.com
What is your main advice to anyone thinking of buying a property in Spain?
Don’t rush! Take the time to understand what you are doing and to get the right advice in order to buy the right place at the right price. In Spain it is also wise to get legal advice so as to avoid potential problems. Ask around for recommendations to ensure you find an independent property lawyer. As the British Embassy rightly says here, that means they work on your behalf only and are not also looking after the interests of the agent or developer.
It’s also important you feel comfortable speaking with your real estate lawyer. If you don’t have a good rapport with them and the feeling that your case matters to them, then best not to hire them. The lawyer has to adapt to you. After all, they are providing a service and are there to help you, not make you feel like they are doing you a favour. If you feel bad or uncomfortable about asking questions, or simply don’t understand what they tell you, then it’s time to move on before it goes any further.
Ideally, your lawyer should also be knowledgeable across a range of disciplines. They don’t need to be an architect, but it’s an asset if they have an understanding of construction and are able to talk and work with an architect. It’s also a big plus if they are willing to get off their chair and visit a property to see if the reality matches what is stated in the paperwork, something that too often is not the case in Spain.
What is the process of buying a property in Spain and some of the traps to avoid?
The process is the same across Spain. Once the negotiations between the seller and buyer reach an agreement on the price, that’s when the legal work starts. In some cases, buyer and seller agree to put a deposit to keep the property out of the market so during that time the lawyer can conduct searches and negotiate the terms and conditions of the private contract (also called the arras contract). I advise not paying “arras” until a lawyer has looked at the property and given their approval.
Once the arras contract is signed, the seller can only pull out by paying double, and the buyer loses the deposit if pulling out unless there are unknown legal reasons or constructive reasons. Of course, if there’s a problem and what was agreed is not what you get, then there are grounds for getting your deposit back.
When buying a house in Spain, it’s particularly important to get as much information as possible. A survey report is not compulsory but highly advisable. Though the law protects good faith buyers, the fact is that if you have to go to court to defend your good faith, you are going to have sleepless nights, so it’s better to avoid getting to that point. Forewarned is forearmed. Information is power, information enables prevention and information reduces risks.
Most of a property lawyer’s work is during this period. They must ensure the money goes to the right place and the right people and that all legal aspects of the purchase are in order. This is where an experienced local lawyer really proves their worth.
I’ve seen cases of houses for sale with debts that the owners genuinely did not know about, usually because they did not use a lawyer themselves when buying the property. I have also seen cases where people buy a property only to discover later that the sellers had carried out illegal work on it and the Council has opened a file on it. What is meant to be an apartment ready to move into can instead turn into a year of negotiation over architect drawings, licences, works, etc.
I have even seen clients lose money because a lawyer gave the green light to a purchase without the right documentation in place, under the premise that it would arrive shortly. And in other cases, people have ended up with less land than they thought they were buying – another reason to get a property lawyer to pore over the paperwork beforehand.
Another essential element on a property transaction is the financing. Most buyers need a mortgage. If that is the case, please make sure you know that you can get that money before you commit, or insert a clause allowing you to pull out if you don’t get the finances in place. I have seen people paying a deposit, and then the bank rejects the application at the last minute…, or changes the terms and conditions for higher interest. No compensation is given for putting the client in such situations. Their argument will be that they never put it in writing; they never gave a formal offer…
Once the sale is at its final stages you will need to go to a notary in order to sign an agreement between two parties. On completion please note that the Escritura de Compraventa does not guarantee your title to the property until it is registered at the Property Registry (making it an Escritura Publica, a public document). If you need a copy you can request one from the Notary who will produce an authorised copy. The deed should be registered within a few months. If you are a cash buyer, make sure that you or your lawyer do it. If you buy with a mortgage, the bank would do it for you, as they also want to assure that the charge is registered.
What are some of the hidden costs when buying a property in Spain?
Depending on where you buy a property within Spain because there’s no uniformity on taxation rate; but worse scenario currently you should allow 12% which will be calculated on the selling price. On top of that, you have the notary fees and the land registry, which leads to which could be less or more depending on the situation, which breaks down in the following way.
If there’s a mortgage also can have opening commissions.
Notary fees: The Notary fees for the execution of the Escritura are fixed by a sliding scale established by law. You will be charged a standard fee (about 0.4% of the first 6010 euros, going down to 0.02% for over 6,010,121 euros).
Land Registry fees – For the registration of the Escritura at the Land Registry, again a sliding scale is applicable dependant on the purchase price.
Agent’s fees: The seller will have an agreement with an agent or agents to pay them a commission upon completion of a sale to a client that agent has introduced, the commission the vendor has to pay will always be reflected in the final negotiated purchase price. Despite that, lately, some real estate agencies also charge buyers for finding them a property, it is what it is called buyers agent.
Stamp duty: Stamp duty is for second-hand homes, and it varies in different regions and goes from 4% up to 10%.
VAT: is for new builds, and currently a fix 10%
For reference: Stamp duty tax around Spain is called impuesto de transmisiones patrimoniales, ITP:
Bear in mind that if the house purchased is financed by a mortgage -Impuesto de actos jurídicos documentados -, the mortgage contracts will also have to pay stamp duty, notary fees and registration. Stamp duty varies depending were in Spain is the property bought, but generally is in between 1% and 1.5% of the mortgage.
Taxes on the sale
Plusvalia Tax (Impuesto sobre el Incremento Del Valor de los Terrenos de Naturaleza Urbana): This is a municipal tax on the increase in urban land value; The Plusvalia is based on the assessed increase in the official value of the property from the date of the previous sale to the date of the current sale. The amount payable varies widely since it is based upon the assessed increase in the lands value and the lapse of time since the prior transaction. The amount payable also depends on the location of the property and the applicable scale. In accordance with Spanish law, the Plusvalia Tax must be paid by the seller.
Capital Gains Tax: This must not be confused with the above-mentioned Plusvalia Tax, as it is not based on the official value of the property like the Plusvalia Tax, but on the real value. The Capital Gains Tax is based on the increase in the purchase price and the sales price. Currently is 19%. When a non-resident sells there ´s a withholding of 3% done by the seller, by law.
Exceptions to the capital gains costs for residents and non-residents?
In addition, the Personal Income Tax bill establishes that Capital Gains tax arising from the sale or transfer of property in Spain by persons over the age of 65 and persons who are considered to be in a situation of dependence shall be exempt totally from capital gains tax. However, it should be noted that this only applies to residents in Spain and therefore does not apply to non-residents, meaning non-residents aged over 65 will still be liable to pay capital gains tax on the profit of selling their home in Spain
Can you explain the different roles performed by a lawyer and also a notary?
Do not confuse the Notario with a lawyer. Many people think that the notary is enough for them and gives them the legal protection they need. That is wrong. The Notario is a public notary and an official of the State who ensures that contracts are legal. He does not verify or guarantee the accuracy of the statements made in the contract. You still need a lawyer representing your best interests. The Notary does his job but gets involved at the end of the process, when it could be too late and 10% of the money has already been transferred. The notary doesn’t control anything, for instance in the case of illegal works, it would not be the Notary’s job to check this. The notary is neither involved when in the arras contract, payment of the 10% deposit, or keeping the deposit. No checks either if there’s the difference between the real dimension of the property, and what is documented, – thinking on the new build without building license, therefore can be knocked down as part of it is legalised. Neither will tell you if your house is on municipal planning permission that is destined for a different use on public interest, therefore, can be repossessed.
What would your advice be if the seller wants the declared price to be less than what a potential buyer actually wants to pay?
Not interested, walk away. It is illegal. Every time there’s less of that.
If buying a property in Spain can you save on taxes by creating a company?
It depends on the circumstances. Most people who do that buy the assets in the name of the company and they put those expenses towards the income. It needs to be seen on a case by case basis, but I ‘d say that in most of the cases it doesn’t apply. Remember that setting up a company involves having an accountant, quarterly tax declarations and so on. Is it worth the hassle?
A different matter is if you are a professional trader and then there’s a way of buying and selling under a company which allows paying reduced stamp duty, but also involves selling in a maximum of 3 years.
Are Spanish estate agents regulated? How do potential buyers know when they are reputable?
There ´s a professional association called the Colegio de Agentes de la Propiedad Inmobiliaria; but to be an agent you don’t need to belong to it, you don’t need to be registered, despite the fact that there are rumours that one day this will change. At present, anyone can go and sell the property without any qualification or passing any knowledge test. So, it is not only that what the real estate agents want to do is selling, but it is also that sometimes they don’t have the knowledge to know better. They know the commercial side of it, but not necessarily the legal details.
What documents does a potential buyer need before they can proceed with the purchase?
As a buyer, to be ready to start the purchase process you need to have an NIE (Spanish tax file number) and finances in place. The NIE can be obtained in the Spanish consulates once there’s a private document that shows commitment on both sides.
Where is the best place to start when looking for a mortgage in Spain?
Those days most of the bank branches have someone who can speak a bit of English, so communication is not always great and fluent with the bank but it is getting better. If communication is a problem there are mortgage brokers that will help you, I can suggest one if needed.
I recommend going to different banks and trying to get the best deal for you. Don’t be shy about comparing prices and offers. The evaluation is a cost, but certain companies’ work for different banks so the same survey report works for several ones. The survey report is yours, not that of the bank, that’s why you pay it.
How do you think Brexit could affect Britons abroad?
This is one of the most asked questions but is still rather unknown territory. What I can see is that while the UK is in the EU, Britons are EU members, therefore can get their residency cards with all the rights. If the UK leaves the EU without a deal, Brits who are already legal residents in Spain will continue to be legal residents. However, if they are not working and paying social security, such as if they are pensioners, their health care status could be affected. On the other hand, to calm the sizeable British community, it has been publicly said and put on record that it is in the best interests of both countries to maintain the same rights for Britons living in Spain and the UK will keep paying the health care check of their nationals living in Spain as currently.
You’ve been working as a property lawyer for a long time, how do you see your profession?
I see my profession as a multidisciplinary one. A good property lawyer needs to know the legal terms but also understand and be able to work with other professionals and with the bureaucracy.
It also really helps if you enjoy what you do, and I happen to love it. I get a kick out of helping people and see it as a privilege to be able to earn my living doing so. Being a good communicator is important for any lawyer but especially so if you specialise as an English speaking one.
Finally, is taking pride, and commitment with the clients, every client is different, is unique, and deserves my very best. It is not a factory, it is quality; it is empathy, it is understanding, it is guiding, it is transmitting calm and control. It is knowing what you are doing, being professional and taking the stress and pressure, freeing the clients of the stress, and transmitting confidence to them . In the end, happy clients are going to recommend you, and that’s how you build your name and reputation.
As an example of that, one of my clients was interviewed by The Telegraph about building a property in Spain. The article, called Going native, is worth a read as it shares insights into real experiences.
“To get exactly what we want we had to go bespoke,” says Rebecca. “It also seems so much more cost effective. We chose our constructor first because we liked the work he had done for others, then we found a smashing lawyer, Hugo Navarrete, who helps us tremendously.”