Once you have identified your property, it is the responsibility of your lawyer to undertake some necessary legal searches to ensure the property belongs to the vendor and is free of any charges* and encumbrances. The appropriate level of due diligence will vary according to the property type, age and location.
*In Spain this includes mortgages, unpaid taxes and other debt obligations, which are ascribed to property rather than individuals.
The first five searches are essential for all types of property transaction.
Property Registry Report: this is an abbreviated report, know as a Nota Simple in Spanish, which lists the owner(s) and details any outstanding debts against the property such as mortgages and unpaid taxes.
Title Deeds: this is the long form title to the property and is known as an Escritura in Spanish, and is usually provided by the vendor or their lawyer. It is important that your lawyer checks the property is accurately and fully described in the deeds.
Planning Permission: When buying a resale property, this should not normally be a concern. However, if an extension has been added to the property this will have required planning permission and for the title deeds to be updated to be fully legal. When buying an off-plan property, whether from a developer or a resale before the property has been completed, it is necessary to check that the property (and development) has planning permission. If the property is on a new development it is important to check that the number and type of units being built corresponds with the relevant planning permission.
Tax Payments: the payment receipts for local taxes (IBI) should be up to date; otherwise these will become the liability of the new owner. The town hall (or Ayuntamiento in Spanish) can also issue a certificate stating that all rates from previous years have been paid. Resale properties require the seller to pay local capital gains tax (Plusvalia in Spanish), but in some cases the buyer agrees to pay this. Your lawyer should tell you how much this is (it will vary according to the municipality), and who will be paying it.
Licence of First Occupancy: this is usually only relevant when buying from a developer, or a resale before completion on the property. Your lawyer should ensure that the LFO has been granted by the town hall before completing. Utility companies will not supply properties that do not have this licence, which is why it is vital not to complete without it. If a property has water and electricity this does not necessarily mean that it has the LFO. The prudent buyer may also choose to undertake the searches listed below.
Utilities: all utility bills can be presented by the vendor to ensure they are up to date. A clause may also be included in the private (deposit) contract stating this.
Community fees and bylaws: when buying a property that is part of a community of owners, obtaining the community bylaws and financial obligations from the land registry or secretary of the community will ensure you know what you commitments will be. It may also be prudent to ask the president of the community to confirm that the vendor is up to date with all community payments.
Bank Guarantees / Developer’s Insurance: this is relevant when buying off-plan from a developer. A bank guarantee will protect all stage payments made to the developer before construction is completed – never buy off-plan without this. By law all developers are required to hold an insurance policy guaranteeing for 10 years any damage resulting from structural defects in construction.
Property Survey: If you suspect the property you want to buy is in some way defective, a chartered surveyor can check the property and report back to you before you buy.
