Guest blog from Peter Esders
As the market for properties in Spain starts to pick up and sales start again, we have seen a shift in the type of properties that people are buying. Gone are those buyers who buy any new property that they are offered and back in have come lifestyle purchasers who are looking at completed properties.
When you talk to people buying completed properties, they often believe that there are fewer legal issues than buying a new property as the property is finished. Those of us who have been in the market for a long time remember that it wasn’t so long ago that people were buying new properties because they thought that there were fewer legal problems with them than older properties. It is interesting how attitudes change, when in reality the situation is that the potential legal issues are simply different in each case, rather than being safer in one situation than the other. Using an independent lawyer to help you buy should identify any issues, no matter what type of property you are buying.
As lifestyle buyers return, we have seen an increase in the number of people buying rural properties in Spain. Prices at the moment are rock bottom and there are some real bargains to be had in the more rural areas where prices were already lower than properties right on the coast. However, there are some issues that need to be thought about when buying a rural property in Spain.
The first question is “who is the seller?” You might think that this is obvious, but this may not necessarily be the case. Because of the inheritance rules in Spain you will often find a property being owned by several different people. Normally these different people are siblings. You often find that one of them is keen to sell the property and makes arrangements to find a buyer and drive the sale through. While they are the driving force, it is also vital to check that all the registered owners do in fact want to buy and are fully engaged in the process. What you don’t want to do is to sign a contract, pay a deposit and move towards completion, only to find that not all the registered owners want to sell.
Talking about registered owners and inheritance issues brings us to the next potential issue – are the owners of the property registered as such at the Land Registry? In Spain, the requirement to pay inheritance tax expires after a number of years. There is also a custom of trying to find ways of avoiding tax. Therefore you may find that a property is registered in the name of somebody who died some time ago and the inheritance has never been completed.
The rightful owner may be selling the property but they don’t have their name registered at the Land Registry, as to do this would involve paying fees and taxes. This custom is particularly prevalent in rural areas as a property will be passed down the generations and everybody knows that it now belongs to, for example, the children. I have dealt with purchases in the past where the seller had to arrange the inheritance of the property with two separate generations before getting the property into the name of the current owner and then proceed with the sale to my client. Obviously in these cases there is lots of potential for things to go wrong (somebody pretending to be the rightful owner but not actually being so, a challenge to the inheritance arising, a problem with getting the property into the name of the rightful owner etc) and therefore these cases can always be tricky to protect the buyer.
The third potential issue is properties that have been divided into separate plots but this has never been registered with the Land Registry. Again, this is sometimes done in more rural areas in order to save costs and taxes. When you divide a property up and sell off part of it there are legal costs, Land Registry fees, notary fees and taxes associated with this. Some people put off these costs by simply not registering the change. Obviously, when the new buyer comes along and they carry out a search, they find that the reality doesn’t match up with what is registered. In fact, in some cases the division is illegal, as it falls below the minimum plot size set out by the local authorities.
This neatly brings me on to the next potential issue – size. How big is the property? How big is the plot? Where are the boundaries? There can be several different answers as the actual size can differ from what is being advertised, which in turn can be different from that which is registered in the Land Registry, which in turn can be different from what is registered in the Catastral Registry. It is therefore absolutely vital that not only are searches carried out to identify what is registered, but also that a surveyor is employed to identify the boundaries and what is actually included.
From that information you and your legal adviser can then make sure that this matches up with what is going to be registered. It is also important to make sure that all parties understand where the boundaries to the property are and that these match up with what is registered, as this avoids neighbour disputes in the future.
Increasingly rare is the situation where a property has never been registered. It has been a long time since I dealt with a property that has never been registered at the Land Registry in Spain, but it wouldn’t surprise me if these do crop up from time to time. Obviously unless the property is registered in the Land Registry it is difficult to identify what the boundaries are and who actually owns the property. This is unlikely to crop up but is still a potential issue.
Of course, it may be that just part of the property is unregistered. Another property may have been built on the land of the existing property, and this property never registered. An extension may have been put on and that extension not registered. There may be an illegal swimming pool. In rural areas it is more common to have properties that are built without planning permission as there is less chance of you getting caught. I have even seen properties that are painted in the same colour as the ground in an attempt to camouflage them and avoid the authorities spotting them. Then the day after the authorities lose their right to order that the property is demolished, the property is painted white or whatever colour the owner actually wants it in.
The next issue relates to planning permission. Just because a building or structure has planning permission, it doesn’t mean that it is legal. I know of a property that had planning permission to build a water reservoir for their rural property. This is the nicest water reservoir that you could imagine. It is lined in tiles, has a ladder going down into it and a diving board. The water is kept so clean that the owners swim in it. Yes, you guessed it – they were able to get planning permission for a water reservoir and not a pool so they built a pool anyway but registered it as a water reservoir.
A related issue is use of buildings. Just because an outbuilding exists, it doesn’t mean that you can use it for whatever you want. I am currently dealing with a purchase where the purchaser wants to convert an outbuilding into a living area. Unfortunately, he cannot do this as there is a planning restriction which means that he can only use that building for housing animals. Many people would simply ignore that restriction, and therefore if you are buying a rural property, it is crucial that careful attention is made to the exact description of what is registered and cross referenced to what is actually built.
Obviously in the more rural properties, the question of utilities raises its head. Are the utilities connected or is there some other system? For example, the property may not be connected to mains sewerage and may require a septic tank. It is important to look into these issues as they can affect the day to day enjoyment of your property if you are not used to being slightly off the grid. Lack of water can be an issue in Spain, especially during the summer and therefore if you aren’t on mains water then this can cause problems. It may even be that the property doesn’t have a permanent connection to the electricity grid and relies on a generator to provide electricity.
Another issue is that rights of way may have accumulated on the property. These can be difficult to identify if they are not registered and therefore it is important to make local enquiries to establish whether there are any rights over your property. Such rights of way can range from the sort that you may have heard of (right to walk across your land etc) to some that you may not have heard of (rights to hunt or right to extract water).
Of course, in addition to the above your legal team should also carry out all the usual checks on the property to make sure that the seller owns the property, that there are no charges, mortgages, charges or the like registered against the property. It is also important as usual to understand the tax implications of buying a property just like any other property in Spain.
All of this shouldn’t put you off buying a rural property. There are many advantages to buying a more rural property. The prices are generally lower; you are generally getting a bigger property with more space than buying on the coast; the views can be equally spectacular and it is certainly quieter. Similarly, there can also be issues with buying more urban properties. The important thing is to get an independent lawyer to help you buy your dream home and to solve any issues that may arise, rather than avoiding a particular type of property because of potential issues.
Peter Esders is a solicitor at Judicare Legal Services Ltd and is a Board Member of the Association of International Property Professionals (www.aipp.org.uk). He can be contacted on 01438 840258 or [email protected] www.judicaregroup.com