Investor Guide to Europe 2014
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Spanish land legislation provides a highly developed legal system
that affords several protection mechanisms. This has proved attrac-
tive for real estate investors in search of business opportunities
while enjoying sound protection and legal security for their invest-
ments.
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 transac-
tions
aCQuISITIon PRoCESS:
KEY STaGES
Î
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 depen-
ding 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.
Î
Registration of property
•
The Spanish Property Registry provides information on the sta-
tus 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 regis-
tered at the Property Registry. There are only two exceptions to
this general rule: surface rights and mortgages must be registe-
red at the Property Registry for them to be valid.
•
Although not mandatory, registration is nevertheless highly advi-
sable. 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 informa-
tion contained at the Property Registry and the assets’ actual
status.
Î
Structure of sale and purchase transactions
•
Spanish law allows any individual or legal entity to acquire pro-
perty 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 tran-
saction 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 exe-
cuted, 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.
CoMMERCIaL LEaSES
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Legal regime
•
Lease agreements signed over real estate properties as from
1 January 1995 are governed by the Spanish Urban Leases Act
of 1994, currently in force, with the latest modifications arise
from the Law 4/2013, 4 June. This Act distinguishes between two
different kinds of leases: leases for residential use –signed over a
habitable construction the fundamental use of which is to act as
the lessee’s permanent home– and leases for non-residential use
–when the construction is to be used other than for residential
uses-.
•
Lease agreements for non-residential use are governed by
the provisions of the agreements reached between the parties
(completely valid unless they are unlawful, immoral or contrary
to public policy); in the absence of an agreement, the provisions
of the Spanish Urban Leases Act will apply and, subsequently, the
provisions of the Spanish Civil Code.
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form
•
Leases can be signed between parties in a private document and
in a public deed executed before a notary public. As there is no
obligation to register leases at the Property Registry –for which it
is necessary to execute a public deed before a notary– and due to
the cost of executing the public deed –which triggers Stamp Duty
which varies in each autonomous region ranging between 0.25%
and 1.5% of the total rent accruing during the entire lease– par-
ties tend only to sign private agreements.
Î
Term
•
Spanish legislation offers the parties freedom to agree the dura-
tion of a non-residential lease and the terms and conditions of
any extensions to the agreement.
•
It should be taken into account that, since the entry into force of
the Urban Leases Act (1 January 1995), mandatory extensions
are not established by law. Therefore, once the agreed term of
