Why is Independent Due Diligence essential when buying on the Costa del Sol?

Gecko Towers

In recent months a number of real estate agencies in the Marbella area have added an “in house Lawyer” to their team. This is excellent news as it will enable them to analyze the properties that they are seeking to sell, to collate the all-important seller’s pack (an up to date nota simple, energy performance certificate, cedula de habitalidad, etc.) and to ensure that they are in a saleable condition.

A Buyer will, however, usually want significantly more than this.

We anticipate the Buyer will want to retain their own independent and highly-experienced legal advisor (a Spanish Abogado) to provide granular Due Diligence as to the precise legal status of the property they wish to purchase.

Marbella over the years has had conflicting parties in power in the Town Hall such that for a long time its General Urban Plan (PGOU), that sets out in detail the precise denomination of most plots of land across the municipality (rustic, urbanisable etc) became a political football that caused confusion in the market and was the source of much uncertainty.

The current PGOU dates from 1986 but all this is about to change with the announcement from the Town Hall that they have now approved the preliminary new detailed town plan. Now called the POU (Plan de Ordinacion Urbanistica) when passed it will replace the 1986 version. The Mayor has recently confirmed that the three cornerstones of the new plan will embrace sustainability, housing opportunities and job creation.

The new form of urban planning process comprises two elements, the POU and a PGOM (the outline or headline plan). The latter has already entered the final stages of approval. The combined plans are hoped to be completed by 2025.

If you would like your Abogado to conduct many of the activities that you may be asked to attend to when purchasing a Marbella property, a Power of Attorney (Poder) can be entered into. This will effectively mean that your Abogado will represent you in Spain, in your stead. It is here where your faith, trust and confidence in your selected Abogado needs to be key. Above all the your Abogado needs to be independent of the sales process in order to properly represent your best interests.

Powers of Attorney may be specific in nature allowing your Abogado to attend to very narrowly defined activities, including the signing of the Private Purchase Contract and the Deeds (more below), the raising of a Mortgage, opening of a bank account or similar. Conversely, they may also be more General allowing your Abogado to attend to a broad range of matters in place of you.

One important element that you may ask your Abogado to include in the Power of Attorney is handling the application for your NIE (Número de identidad de extranjero). It is essential for each party comprising the buyer, to obtain an NIE and no purchase can be completed without it. It does not imply any Spanish tax residency or similar and should not cause any such apprehension.

The Power of Attorney, the granting of which should take place early in this buying process, will also require you and your Abogado to visit a Notary.

Golf Valley

After selecting your chosen property the first document you will be presented with is the Reservation Contract – its effect is to take your chosen property off the market. With its signature and the paying – subject to your Abogado agreeing to the management of this sum – of an agreed reservation deposit (usually circa €6,000-€10,000) the buying process starts and leads, initially, within a window of a few weeks, to the signing of a Private Purchase Contract (PPC). At this point, with a couple of exceptions the buyer and seller are bound to conclude the sale of the property and the PPC usually sets a date for the completion of the sale.

As a result, if you are familiar with the English and Welsh system of property purchase, the PPC stage is effectively the “exchange of contracts” which binds the parties and sets a date for the completion of the purchase.

Starting prior to signing the PPC and in the weeks up to formal legal completion of your property purchase the role of your Abogado is vital. Primarily, there is a necessity to initiate a Due Diligence review regarding the relevant planning arrangements to make sure the property and its boundaries comply in full with local planning details and ordinances and to study any License of First Occupation (for newer properties).

All Spanish properties must be registered in the name of the owner(s) at the local Registro de la Propiedad (Property Register). The only party(ies) able to legally transfer full ownership of a property to the buyer are those who are registered on the Registry as the legal owners. Therefore, an investigation at the Property Register by your Abogado will show who the legal owners are, and it is their names that must appear in the PPC and Deed of Sale (see below). The only exception to this is where the sellers are properly appointed agents for the legal owners, such as a sale following a death.

Your Abogado will obtain an updated extract from the Property Register showing the current owners on a Nota Simple (Extract of Title). This should also disclose any charges, mortgages and similar secured against the property.

It is hugely important in the process of undertaking this Due Diligence that your Abogado, in addition to the Nota Simple, obtains from the seller’s lawyer a clear understanding of what debts, if any, are secured on or affect the property. To avoid, you, as the new owner, from becoming liable for your predecessor’s debt, full disclosure by the seller is required.

It is not at all unusual that at formal completion cheques for local community rates (IBI), refuse collection (Basura), unpaid community fees or other property taxes, are prepared, against a buyer and seller agreed schedule, and these are deducted from the final purchase price and paid to the relevant parties.

In their Due Diligence, your Abogado should also make certain that following the legal completion of your purchase that utilities, particularly electricity and water, are connected to the property, that there is satisfactory provision for disposal of sewage, and that there are no outstanding contributions to the costs of installing the infrastructure, roads etc. Further your Abogado, having obtained copies of previous Minutes of Community of Owner’s meeting and of previous year’s utility costs, should be able to advise you on likely annual running costs of your ownership including utilities, community fee costs (if any) and any issues arising.

In Spain, the role of a Notary Public is that of a Public Official and an important part of the Spanish state, key to the legal system. Their essential role is to ensure not only that the contract they are being asked to formally witness is entirely legal but also that the parties to it clearly understand their mutual obligations under the agreement.

The Notary carries a vital role in the property purchase process as without the benefit of a Notary witnessed the final document between a seller and a buyer, the Deed of Sale (Escritura Publica de Compraventa) it would be impossible for your Abogado to register your interest in a purchased property, following Completion, on the Property Register.

Following a successful mortgage application, if any, a date will be agreed when the Completion will occur at the office of a Notary. However, the Notary will call you (or your Abogado acting under a Power of Attorney) to meet at least ten (10) working days clear of Completion (“a cooling off period”) to ensure that you fully understand the terms of the Mortgage Deed you are entering into.

At the formal Completion, the Notary will sign in witness of the Mortgage Deed making it a Public Deed that can then be added to the Land Register as “notice to the World” that there is a Mortgage bearing your name registered by way of a legal charge against your property.

The Notary’s ancillary role, which has the interests of the Spanish Tax Office (“Hacienda”) at heart, is to ensure that the correct taxes are being levied as a result of the contract being entered into and that they are being paid by the correct party.

Serenity – what else could you want?

You will be notified that you will need to be at the Notary’s office at a particular time for the formal Completion. Meetings tend to run over as pieces of paper that should be in place are often elsewhere on another desk and need to be located. Your Abogado will spend time ensuring that the administrative staff of the Notary have all they need and there may be a little delay before the event you have come for gets underway.

Once underway the Notary will read aloud in Spanish the various pages that form the document you have gathered to sign. He/she will establish that all required are present and that your original Passports have been seen and photocopied. It is usually your Abogado’s job to act as translator, so you understand the Spanish text being signed, even though the Notary will often speak good English acquired over many years of dealing with English-speaking clients.

Having completed your property purchase, your Abogado then organises for the property to be registered in your name as the new owner. At this stage a number of property transfer taxes will have to be paid, together with the property register fees including the Notary’s and Abogado’s fees. The Spanish government fixes the Notary’s fees. A copy of the Escritura will be returned to you, often via your Abogado, by the Property Register within a couple of months bearing the official stamps that confirm the property is yours and that your ownership is protected by law.

As can be seen the guiding hand or your independent and trusted Abogado is key to the confidence that you, as the Buyer, will gain while entering the sometime hugely alien Spanish legal system, that you have chosen to buy into. I cannot overstate just how vital the role of your Abogado is and would counsel you to choose your selected Abogado very wisely.

Should you be interested in discussing the legal process involved in buying a property in the Marbella region, we would be delighted to assist you. Our multi-disciplinary team of bi-lingual, highly experienced and wholly independent Abogados (Spanish Lawyers) and Asesores Fiscales (Tax Accountants) are ready to help you.

We are not estate agents, but we know some hard-working and reputable ones, if needed.

Please call me, Mark FR Wilkins, during usual business hours on +34 600 343 917 or, if you prefer, or e-mail me at mark@biznagapartners.com

You may also be interested to subscribe to my interactive FaceBook Group “Costa del Sol – The Best Place to Live in Europe” – please click this link – Costa del Sol – The Best Place To Live In Europe

Please note that our posts are for general interest. There is no substitute for proper legal advice tailored to your specific circumstances as provided by a qualified Abogado who is experienced in the application of the Spanish Law.

Nothing contained in this article should be seen or taken as the writer or the publisher providing legal, tax or financial advice.

All details have been reasonably fact-checked and all efforts have been taken to ensure that facts are accurate as at the date of publication.

© Mark FR Wilkins 2024. All rights reserved.


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