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Buying a property in Spain - The deposit

What it means when you're asked to make a "reserve payment"
Transcript: 

So, you've decided to buy a property in Spain. You may have found a few interesting houses on the internet and you may have spoken to two or three estate agents about coming over to Spain to have a look at the properties. As we all know, there's no substitute for doing plenty of research before you visit Spain to view potential purchases, but it's equally important to keep an open mind when you arrive.

You may find a lot of the estate agents online but equally you'll find a lot of estate agents on the main streets of the areas in which you hope to purchase. They'll have other properties on their books, so without seeing those you won't be able to get a good enough idea of the state of the market. Many estate agents are very professional and although all they're interested is that you buy a property through them, they have integrity and will not sell you something that they know is riddled with hidden problems, whether structural defects or legal irregularities, which may not come to life until some time after you've purchased. Unfortunately not all estate agents are the same. As a result and because you'll not know who the good ones are until you've spent some considerable time in the area, it's very important indeed that you don't make any payments to anyone regarding a property that you want to purchase until you're certain that you'd be prepared to complete the purchase if the funds were available and the seller was in a position to sell. 

A few years back during the property boom, it was often the case that more than one person would be trying to purchase the same property. Bidding wars were commonplace. Competition for properties in the market as it is at the moment almost only ever occurs where the selling price is very low indeed, way below market price. Strangely you may find that whichever property you decide to purchase, you'll be told that someone else is interested in it. It's a strategy employed by lots of estate agents to encourage prospective buyers to pay a reserve deposit. My recommendation is that you do not pay anything until you are ready to do so, no matter what you're told. If the property that you're after is purchased by someone else, there are thousands of others to choose from.

You may be told that people in Spain do not use lawyers to represent them when purchasing property. That is true. However, what you'll not be told is that Spanish people will only ever use a lawyer if they have to resolve a dispute. Spanish people understand their own market and from their own experience, and the experience of their family and friends, they know what the issues are that they need to consider. They have a more hard-nosed attitiude to business than a British national will have when buying Spanish property, even if the same Brit has plenty of commercial experience at home. Spanish people know very well what taxes they will have to pay and why. They can also speak with the local authorities directly in Spanish to make their own enquiries about issues, like planning permission. Spanish people will be in direct contact with the managing agents of a property to find out how much his owed by the seller in relation to service charges, and other issues relating to the cost of maintaining the common areas of a development.

If you are fluent in Spanish and have plenty of experience of living in Spain, you may be in a position to handle all of the above and more. If not, you may look for some guidance and perhaps someone to make the checks for you. When you find your property, the first thing that you need to do is to find out who owns it and whether the registered owner is the same person as the person who is looking to sell it to you. You'll also want to know that the property that you will purchase on paper is the same property as the one you visited. In Spain, the property register guarantees title so you'll be able to find out from the local property registry who owns the property that you want to purchase. However, there's no file plan on the property register so that the location of the property is only defined by the neighbouring plots, so that to the East is Paco Garcia's house, to the South is Pedro Gonzalez's house and so on. To see a plan, you need to obtain a document from the catastro which is a property register maintained by the Spanish equivalent of HMRC and used as a basis for taxation.

In order to find out whether the property was built lawfully, you can apply directly to the local town hall for information. If the property is an apartment forming part of a block of 15 apartments that were built say 20 years ago, it is very unlikely indeed that there'll be any problem with planning. If, on the other hand, you want to purchase a house in the countryside with a sweeping driveway, a pool and a tennis court, where your nearest neighbour is 500 metres away or more, it's very possible that planning permission was not obtained before the property was built or extended. So, supposing that you know who owns the property, that they're either the person who's going to receive your deposit payment or you've seen the document showing you that the seller has authorised someone to receive the deposit payment, that there are no planning issues with the property, that there are no problems with the supply of utilities to the property, that there are no charges on the register that will be difficult to remove when you sell the property, and that there are no issues with the payment of service charges, you may be in a position to pay a deposit. But only once you've negotiated a written agreement that sets out the basis on which you'll be completing the purchase, when the latest date for completion will be and what will happen if either you or the seller is unable to complete the purchase. You should only be paying a deposit, even a small one of say €2,000 Euros, if everything else has been agreed beforehand and is set out in written form and signed by you and the seller, or the seller's agent. The bottom line is that the time to take advice is before you leave for Spain, not once you've agreed to purchase a particular property. Surprisingly, a lot of people who'd be extremely cautious at home throw caution to the wind once they see a bit of blue sky and get the sand beneath their toes. Spain is different but not that different.

I'm Jonathan Eshkeri, E&G Solicitors in Spain.

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