The contracts from the reservation to the escritura

 

If you are thinking of buying Mallorca property, you should thoroughly research the specifics of buying property in Mallorca.

In contrast to German law, the purchase contract requires neither the written form nor notarization. However, notarial certification is a prerequisite for entry in the land register. The entry in the land register, in turn, is essential for the purchaser, since otherwise he will not acquire a solid legal position and, for example, will be at the mercy of the risk of unauthorized further disposal by the previous owner who is still registered. 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 in principle go straight to the notary, in practice other contracts are used for various reasons prior to the notarial contract (Escritura de compravento).
Once the interested party has found their dream property, there are often a number of questions that need to be clarified: an architect or expert should look at the property, financing needs to be negotiated with the bank, the drafting of the contract needs to be clarified with a tax advisor or lawyer, and the The seller must obtain various papers for the property. It usually takes a few more weeks before the notarial contract is signed, although the parties want to commit themselves temporarily or permanently in some way beforehand. The most common forms of contract for this are the reservation contract, the option contract and the private written purchase contract, which we will present in detail below.

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The forms of contract

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The reservation contract:If the buyer only has an increased interest in buying, the reservation contract can be considered. With it, the seller undertakes to keep the property free for the prospective buyer for a few days for a mostly 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.

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The option contract: The option contract creates a much more intensive bond. In this case, the seller (option giver) grants the buyer (option taker), usually in return for payment of an option fee, the right to purchase the property within an option period at a specific purchase price. 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 credited to 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 has sold the property to a third party at a higher price, it is usually agreed that the seller must pay the buyer back the option fee and an amount in the same amount as liquidated damages. Whether the buyer also has the right to fulfill the contract or not, depends on the wording of the option contract.
While the option contract was the most common form of (pre)contractual agreement up until now, the trend today is towards closing so-called advance payment or arras contracts.

The reason 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 at a rate of 21%. This sales tax cannot be deducted from the value added tax or real estate transfer tax due on the certified purchase price, i.e. it is “lost”. In the past, this problem was "concealed" because the option contract was usually not made public and not brought to the attention of the tax office. In order to avoid these tax law issues, todays experts usually opt for a down payment or arras contract.

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The deposit or arras contract:The privately written down payment or Arras contract contains the essential agreements that are later recorded in the notarial deed of sale. It regulates an obligation to make 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 comply with the contract. Usually it is an agreement of an “arras penitenciales”: If the buyer wants to withdraw from the contract, he loses his down payment. If the seller wants to withdraw from the contract (eg because he has found a buyer who offers a higher price), he must return the deposit and pay a penalty payment equal to the deposit. This corresponds to the "equality of arms and also the regulation of Art. 1545 CC). There are also other forms of arras where, in addition to the penalty payment, the fulfillment of the contract can also be sued.

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The private purchase contract: Once you have agreed on all the necessary contract components, 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 will be 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: There was trust in one another and the annoying real estate transfer taxes were saved. Others used this model to tie in a higher purchase price, higher than what eventually appeared on the notarized deed of sale. As you can see, the private purchase contract involves a multitude of risks, especially for the buyer. Today it is also a discontinued model.

The notarial contract of sale: As mentioned, the notarial contract of sale, 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 notarial deed essentially contains the exact description of the property with any existing encumbrances, the purchase price and the payment modalities. The Spanish notary has a limited catalog of duties when drawing up property purchase contracts. He must be sure of the identity of the parties and, based on a previously requested current extract from the land register, check whether the information provided by the parties matches the data in the property register. He ensures that the latest receipt for the local council tax, the certificate of occupancy, the energy certificate and, if a property is sold in a community complex, the certificate from the manager and president of the payment of community costs is available. At the latest within 24 hours after signing the notarial deed, the notary must inform the land registry about the certification that has taken place.

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The land register and the buyer's notice

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The Spanish property register, the land register: Simultaneously with the notification of the sale by the notary, a priority notice is made in the land register, which blocks another entry for 10 days. If the buyer submits the deed of sale to the land registry within this period, the priority notice will be extended by a further 60 working days. After the land transfer tax has been paid to the tax office, the new owner can be entered in the land registry.

 

Our service: Excerpts from the property and commercial register

In inheritance and marital disputes as well as in foreclosure and insolvency proceedings, we are increasingly asked for assistance with information from the property or commercial register. We have therefore decided to include the collection of such information in our service program. We can guarantee that the requested extract will be sent within a few hours. You have further questions about the purchase - we are happy to help.