Contracts
The contracts from the reservation to the Escritura
If you are thinking of buying Mallorca real estate, you should inform yourself thoroughly about the peculiarities of buying real estate in Mallorca.
Unlike in German law, the purchase contract does not require written form or notarization. However, notarization is a prerequisite for entry in the land register. The land register entry, in turn, is indispensable for the acquirer, as otherwise he does not acquire a stable legal position and, for example, is defenceless against the risk of an unjustified further disposal by the still registered previous owner. For this reason, every property purchase in Spain must be notarized - regardless of whether it is a villa, apartment or finca.
Although the parties could basically go to the notary immediately, in practice other contracts are used in the run-up to the notary contract (Escritura de compravento) for various reasons.Once the prospective buyer has found his dream property, there are often still a lot of questions to be answered: An architect or expert should look at the property, financing must be negotiated with the bank, the contract must be clarified with the tax advisor or lawyer, and the seller must obtain various papers of the property. Therefore, it usually takes a few weeks before the notarial contract is signed, but the parties want to bind themselves provisionally or definitively in some way before that. The most common forms of contract for this are the reservation contract, the option contract and the privately written purchase contract, which we present in detail below.
The forms of contract
The reservation contract: If the buyer only has an increased interest in buying, the reservation contract comes into consideration. With it, the seller undertakes to keep the property free for the prospective buyer for a few days for a usually small reservation fee. If the interested party decides to buy within the deadline, the reservation fee is usually offset against the option fee or the purchase price. If he decides against a purchase, the reservation fee is usually lost.
The option contract: The option contract causes a much more intensive bond. In this case, the seller (option giver) usually grants the buyer (option holder) the right to purchase the property at a certain purchase price within an option period against payment of an option fee. The seller may not sell to a third party within this period. As a rule, the option fee is 10% of the purchase price, which is offset against the purchase price in the event of a purchase and otherwise remains with the seller. If the buyer exercises his option right and the seller is unable to fulfill his obligation to transfer ownership, for example because he sold the property to a third party at a higher price, it is usually agreed that the seller must repay the buyer the option fee and an amount of the same amount as liquidated damages. Whether the buyer has the right to perform the contract in addition or alternatively depends on the wording of the option contract. While the option contract was previously the most common form of (pre-)contractual agreements, the trend today is towards concluding so-called down payment or arras contracts. The reason for this is that the option contract is a separate legal transaction that is not directly related to the purchase contract for the property. Therefore, according to the Spanish tax authorities, the option price is subject to VAT of 21%. This VAT cannot be deducted from the VAT or real estate transfer tax due on the notarized purchase price, so it is "lost". In the past, this problem was "concealed", as the option contract was usually not made public and was not brought to the attention of the tax office. In order to avoid these tax issues, experts today usually opt for a down payment or arras contract.
The down payment or arras contract: The privately written down payment or arras contract contains the essential agreements that are later set out in the notarial deed of sale. It regulates an obligation to pay a down payment and the due date of the remaining purchase price. The down payment contract usually contains an agreement on what happens to the down payment if one of the contracting parties no longer wants to adhere to the contract. In most cases, this is the agreement of an "arras penitenciales": If the buyer wants to withdraw from the contract, he loses his deposit. If the seller wants to withdraw from the contract (e.g. because he has found a buyer who offers a higher purchase price), the deposit must be repaid and a penalty payment in the amount of the deposit. This corresponds to the "equality of arms" and also to the provision of Art. 1545 CC). There are also other forms of arras in which the fulfilment of the contract can be sued in addition to the penalty payment.
The private purchase contract: Once you have agreed on all the necessary parts of the contract, you can also transfer a property by means of a private purchase contract, pay the purchase price and hand over the property. Such a contract is effective under Spanish law. However, it cannot be entered in the land register, which is why the good faith protection of the land register is not activated. In the past, privately written purchase contracts were often concluded within the family circle: people had confidence in each other and saved the annoying real estate transfer taxes. Others used this model to fix a higher purchase price, higher than the one that ultimately appeared in the notarial deed of sale.
As you can see, the privately written purchase contract involves a variety of risks, especially for the buyer. It is also a discontinued model today.
The notarial purchase contract: As mentioned, the notarial purchase contract, commonly called "escritura", is a prerequisite for the new owner to be entered in the land register. In addition to the personal data of the parties, the notary deed essentially contains the exact description of the property with any encumbrances that may exist, the purchase price and the payment modalities. The Spanish notary has a limited list of duties when drafting land purchase contracts. He must satisfy himself of the identity of the parties and, on the basis of a previously requested current extract from the land register, check whether the information provided by the parties corresponds to the data in the property register. He makes sure that the last receipt of the local municipal tax, the certificate of habitability, the energy certificate and, in the case of the sale of a property in a community complex, the certificate of the administrator and president of the payment of the community costs is available. Within 24 hours of signing the notary deed at the latest, the notary must inform the land registry office of the notarization that has taken place.
The land register and the buyer's reservation
The Spanish Property Registry, the Land Registry: At the same time as the notary notifies the notary of the sale, a pre-registration is made in the Land Registry, which blocks another entry for 10 days. If the buyer submits the deed of sale to the land registry office within this period, the reservation will be extended by a further 60 working days. After the real estate transfer tax has been paid at the tax office, the new owner can be registered in the land registry.
Our service: Extracts from the Property and Commercial Register
In inheritance and matrimonial disputes as well as in foreclosure and insolvency proceedings, we are increasingly asked for assistance with regard to information from the property register or the commercial register. We have therefore decided to include the collection of such information in our service program. We can guarantee the transmission of the requested extract within a few hours. If you have any further questions about the purchase – we will be happy to help.