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PROPERTY LAW
• Spanish land legislation provides a highly developed legal
system that affords several protection mechanisms. This
has proved attractive for real estate investors in search of
business opportunities while enjoying sound protection and
legal security for their investments.
• This section offers a brief overview of the legal framework
for investing in the Spanish real estate market and covers the
main that should be taken into account in the context of real
estate transactions
THE ACQUISITION PROCESS
Ownership of property in Spain
• In Spain, the most common way of acquiring ownership over
a real estate asset is by acquiring «full domain», or complete
ownership, over the asset. This form of ownership interest
is not limited in time, held in perpetuity. The owner owns
the land itself, the subsoil below it, the airspace above it and
any buildings constructed on it (with the exception of the
surface rights). Therefore, «full domain» provides the owner
with total control over the land. As a result, the owner is able
to grant leases or easements and can sell the land and its
constructions to a third party. The concept of «full domain» is
similar to «freehold» in Anglo-Saxon law.
• Nevertheless, there are other ways in which rights can be
acquired over land, such as surface rights and administrative
concessions. However, these rights are limited in time: surface
rights cannot extend beyond 99 years, whereas administrative
concessions are limited to a period of time which varies
depending on the kind of concession granted. In addition, at
expiration of either of these rights, ownership of the asset in
question will revert to the previous owner.
Registration of property
• The Spanish Property Registry provides information on the
status of ownership and charges over real estate assets.
Information held at the Property Registry is public and is thus
accessible to third parties.
• Registration of property in Spain is discretionary, which
means that the effectiveness and validity of transactions over
real estate assets is not conditional on a record of transaction
being registered at the Property Registry. There are only two
exceptions to this general rule: surface rights and mortgages
must be registered at the Property Registry for them to be
valid.
• Although not mandatory, registration is nevertheless highly
advisable. Once registration has been completed, it provides
evidence of the owner’s title to the land and/or charges and
encumbrances to which the property is subject; protection
is therefore afforded against third parties. It should be borne
in mind that discretionary registration may well result in
differences between the information contained at the Property
Registry and the assets’ actual status.
Structure of sale and purchase transactions
• Spanish law allows any individual or legal entity to acquire
property in Spain. There are no investment restrictions in this
regard.
• Acquisitions tend to be preceded by some form of preliminary
documents, in which the parties establish an initial
commitment and, occasionally, certain terms and conditions
for the future sale. These documents could include teasers,
letters of intent and offers to purchase issued by the potential
buyer.
• After signing some or all of these documents, if at all, the
buyer will normally conduct a legal due diligence and, in some
cases, a technical due diligence, of the property.
• Once the due diligence process has been completed, and
unless important contingencies are found, the parties usually
negotiate a private sale and purchase agreement. This private
agreement will include all the terms and conditions applicable
to the transaction including the seller’s obligation to sell the
property to the buyer and the mutual obligation of the latter
to buy the property. The agreement will also include any
issues detected in the course of the due diligence process.
The private contract agreement is normally conditional on the
prior fulfilment of certain conditions precedent or the buyer
obtaining financing for the transaction. A deposit is typically
paid at this moment against the purchase price.
• The transaction will be completed with the execution of the
public deed of sale and purchase. When this document is
executed, ownership of the property passes from the seller to
the buyer, unless otherwise expressly indicated in the public
deed. The balance of the purchase price is paid on completion
unless the parties have agreed a deferred payment structure.
TAX
Asset deal
• Spanish law distinguishes between transfers made by persons
or companies that are subject to Value Added Tax («VAT»)
and transfers by persons or companies that are not.
1. Transfers of real estate assets by persons or entities
which are not VAT payers: In this case, Transfer Tax is
applicable. This tax is non-recoverable and depends on
the autonomous region where the asset is located. This
tax could be up to as much as 11% of the total amount of
the transaction.
2. Transfers of real estate assets (other than residential
properties) by VAT payers:
a. When the asset constitutes urban land, a plot that
is being developed, or land that is to be built upon:
the acquisition is subject to VAT (21%) and to Stamp
Duty (between 0.5% and 1.5% of the purchase price,
depending on the location of the asset).
b. As a general rule, when the asset does not constitute
developable land or if the transaction entails a second
or subsequent transfer of a building, the transaction
will be subject to but exempt from VAT. If so, the
transaction is subject to Transfer Tax (and the transfer
would be subject to Transfer Tax at rates which range
between 2% and 11%, depending on the location of
the real estate asset). This Transfer Tax is a final cost.
• Nevertheless, if the purchaser is entitled to a full deduction
of VAT borne on the acquisition (i.e. this should be the case
if it carries out VATable activities –e.g. activities subject to
and not exempt from VAT such as leasing of commercial/
industrial properties), it may be possible to waive the VAT
exemption; if so, the acquisition would be subject to VAT at
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Investors Guide to Europe 2015