Home is where the heart is, and what better way to create a home in Spain than by sharing the property with friends and family from the outset? For this reason, it is not uncommon for a number of family members or a group of friends to buy property in Spain together. For most people this is an arrangement that works well for all involved, but there are risks involved and for that reason, it is important to consider the options before you proceed.
There are two main ways of owning property jointly in Spain. The most common way is for all of the parties to own separate shares in the property. For example, in a situation where two couples wish to purchase a villa in Spain, and each person contributes the same amount towards the purchase price and purchase expenses, they may decide that it works best for each individual to own an equal share of the property. That way each property owner owns 25% of the villa.
Buying property in joint names where the shares are unequal
It can become more complicated if, for example, one person contributes more towards the purchase price than the others. In that scenario it can be agreed that one person becomes the owner of a larger share of the property, whereas the others own shares that coincide with the amount that they contributed.
The main benefit of this approach is that each financial contribution is recognised equally. There can be no argument, when it comes to selling the property, that X paid more than Y, as the situation is made clear from the outset. All property owners have the same rights to use the property, and the same obligations in respect of covering the costs of maintenance. So as long as everybody gets along and can afford to cover the costs of owning the property, there ought to be no disagreements.
Selling a jointly owned property in Spain
When it comes to selling the property, it is necessary for all property owners to sign documentation to complete the sale. In theory, a share of the property can be sold to a third party, but the reality is that there will be very little interest in a part share of the property on the open market.
Problems can arise where, for example, a relationship breaks down, where one property owner dies, or when one or more property owner suffers financial difficulty. In our example, a problem could arise where one couple separates. Decisions will need to be made about whether the property ownership remains the same, or whether one party is obliged to buy out the other party. Clearly much depends upon the nature of the break-up.
In addition, If one party were to die or to be made bankrupt then their share of the property would be considered an asset for the purposes of the death estate or the bankruptcy estate. Depending upon the circumstances it may be necessary to buy out that share or to sell the property in order to realise the asset.
On a slightly different note, if there is a disagreement between the property owners to the extent that joint ownership is no longer viable, and no agreement can be reached, it may become necessary to take action to sever the joint ownership. This can be relatively time consuming and complex.
Buying property in Spain with family members
Another scenario entirely is where the purchasers are parents and children where, for example, the parents are funding the purchase but they wish for their children to be able to share use of the property and, eventually, to inherit it at a minimal cost. In this situation it may be beneficial for the family to consider having the children be the owners of the bare interest, and giving the parents a life interest. What this means is that the parents have the right to use the property for their lifetime. When the parents pass away, their life interest is extinguished, minimising the tax burden for the children. The children then own the property outright.
The main benefit to this approach is the reduced cost of administering the estate upon the death of the owner of the life interest.
The same risks apply as those set out above in relation to owning property in equal shares. There is an added drawback in that the property cannot be sold or transferred unless all parties agree. It is possible, therefore, that those who funded the purchase could end up in a position where they cannot sell the property.
In either scenario it will be sensible to avoid disagreement by preparing some sort of written agreement between all of the owners to govern who has the right to use the property, when each party can use it, and who is responsible for the payment of bills.
Clearly, owning property jointly in Spain, as in any other jurisdiction, comes with risks and benefits and much depends upon your specific circumstances. The key to finding the right approach for you is to take good quality independent legal advice at an early stage.
If you are affected by any of the points raised in this article, or if you have any questions relating to buying property in Spain with friends and family, please contact us using our contact form or by telephone on 020 3478 1420, or by email at email@example.com