About Spain | Key Property Facts

Types of Tenure:

All property in Spain is bought on a freehold basis. (Unlike the English concept, “leaseholds” (censos) in Spain are land charges relating to aspects of the legal contract. For example, an owner pays land rents on the granting of capital (censo consignativo) or on the conveyance of the property (censo reservativo). However, there are many examples of old land rents which have expired recorded in the Ownership Registry that are immediately cancelled at the time of the first subsequent authorised amendment.)

Spain also has the unique concept of “horizontal property” (propriedad horizontal) which is governed by specific laws. Horizontal property is defined as property in a building where privately owned and communally owned elements exist side by side. The rules determining the ownership rights of the communal elements are normally drawn up by a “community of owners” (Comunidad de Propietarios).

NB. In the Valencia Autonomous Community (covering the provinces of Castellon, Valencia and Alicante) and, increasingly, in other parts of Spain, your land tenure rights can be severely curtailed by local legislation. Refer to the “issues and risks” section below.

Forms of Ownership:

It is possible to own property in Spain as a sole owner or as a co-owner where several people share ownership rights of real estate whilst at the same time being entitled to a share (pro indiviso) of the undivided real estate. (“Joint ownership” (pro diviso), whereby owners hold property jointly without any entitlement to a specific share of the whole, does not exist under Spanish law.)

A common form of co-ownership is purchasing property through a company which can provide tax benefits. Fractional ownership schemes such as timesharing exist in Spain. Condominiums are treated as “horizontal property” where communal and privately owned elements exist side by side (see above for details).

It's possible to set up a limited company (Sociedad Limitada, SL) or a public one (Sociedad Anonima, SA) in Spain to buy and own real estate. If the company is not trading according to certain requirements it is considered a property investment company (Sociedad de mera tenencia de bienes), subject to a special tax regime affecting the individual resident shareholders. The company can be registered in the UK or offshore with different tax implications.

Timeshare ownership is well established in Spain, with many well established and reputable agents in the market place. However, there are also many unscrupulous companies making false promises of future incentives once existing timeshare ownership is exchange or holiday clubs are joined. You should therefore treat such “unmissable” deals with caution.

Restrictions:

The right to own and use real estate in Spain is limited by easements (right to do or prevent something of third parties), respective rights of occupiers in neighbouring properties, rights of pre-emption of third parties or charges on the property (such as a mortgage). A “horizontal property” system of rules (where there are communally owned and privately owned elements of a building side by side as in a condominium) may stipulate restrictions affecting the how owners use their individual properties.

There are various restrictions on the sale and acquisition of real estate in Spain including restrictions under family law and the matrimonial property regime. In special circumstances, given parties have the right of pre-emption (i.e. the property must be sold to that party). In certain areas, there are also limitations aimed at protecting the environment, cultural heritage or setting land aside for military use.

There are no special restrictions for foreigners owning property in Spain.

Property Rights:

The right of ownership is guaranteed in Article 33 of the Spanish Constitution. Spain scores 70% in the Heritage Foundation's assessment of the security of its property rights. The Heritage Foundation states, “The judiciary is independent in practice, but bureaucratic obstacles at the national and state levels are significant. Contracts are secure, although the courts are very slow to enforce contracts when they are not honoured.” (See The Heritage Foundation for details.)

Valencia's controversial “land grab” law has received much media coverage. However, after intervention from the EU this is in the process of being reformed (see "Issues and Risks" section below for details).

Mortgage Finance:

The Spanish domestic mortgage market is well established and competitive. As a foreign investor, you have the option of either remortgaging your UK property to release equity in sterling or borrowing from a Spanish lender in euros secured on a mortgage against your Spanish property; as a third option you can borrow from an offshore lender in a range of currencies on a mortgage secured against your Spanish property. Normally, banks will finance - according to the financial standing of the borrower - between 60% and 80% of the assessed value of the real estate. The interest rate will be agreed between the lender and the borrower (euros tend to be subject to a lower base rate of interest than sterling). Loans normally have a term of 5 to 30 years with 25 years being the most common; most Spanish banks will assume that your mortgage will be repaid by the time your are 70. Spanish banks generally require additional forms of insurance and guarantees for foreign investors.

Local Practices:

Fractional ownership schemes such as timesharing are well established in Spain. There is a local practice of sellers proposing to accept a share of the sales price “under the table”, undisclosed in the escritura for tax avoidance reasons; this practice is illegal and there are severe penalties (see "Issues and Risks" section directly below for details).

Issues & Risks:

Spain is generally a safe place to buy property, with well developed property law. However, there are several issues worth mentioning here.

The Valencia Autonomous Community (which houses the Provinces of Castellon, Valencia and Alicante as well as the Costa Blanca) has been in the property press in recent years in relation to the controversial “Ley Reguladora de la Actividad Urbanistica” (LRAU) that operates there. This law was introduced by the Valencian government in south east Spain in 1994 to ensure there was sufficient land available for urban development. However, the law was abused by unscrupulous developers and councils resulting in some small landowners having their land expropriated and being charged huge sums for “urbanising” their land. The LRAU came to be known as the “land grab law” for this reason, and in 2006, it was replaced by the “Ley Urbanistica Valenciana” (LUV) in an attempt to address some of the criticisms. In reality, however, little changed and in October the European Commission stepped in giving Spain two months to rectify the situation or face action in the European Court of Justice. At the time of writing a European Parliament Committee are investigating the current situation. The NGO, Abusos Urbanisticos No, is currently campaigning against the “land grab” laws and their website contains lots of useful information: www.abusos-no.org/.

Marbella was in the headlines last year after it came to light that corruption in the council's planning department had resulted in several developments to be built illegally. This case is still going through the courts and is yet to be resolved.

There is a common local practice in Spain, where vendors accept part of the sales price “under the table”, undisclosed in the escritura. This is a tax avoidance scam and is illegal with strict penalties. Moreover, if you are buying in this way, you could end up having to pay a much higher capital gains tax bill on resale when a significant proportion of this should have been paid by the person from whom you bought your new home.

Regulations:

Various regulations apply to property transactions in Spain . Firstly, your lawyer – through searching the land register – must check that the seller is authorised to sell the property in the first instance. All parties must also be considered to have the capacity to conduct their own legal affairs independently under the law (e.g. they must not be minors under 18 years old or mentally infirm). In the case of companies owning property, capacity to act is established from the commercial register or from relevant documents (certificate of incorporation, certificate of good standing, etc.) Third-party claims on the real estate must be honoured (e.g. from creditors) and unpaid taxes must be paid before the transaction can be made. There are several provisions that protect the environment and cultural heritage in Spanish law which must be observed. There are no extra obligations for foreigners purchasing real estate in Spain.

Apartments and terrace houses are regulated under the horizontal property regime mentioned above.

Key Property Markets:

Spain is a mecca for sun worshippers and is the most popular country with Brits buying property abroad. The most popular area is the infamous Costa del Sol (“sun coast”) in the southern Andalucia region. This is arguably Spain 's main tourist destination for European visitors and is now home to a significant ex-pat community, particular in terms of Brits. The Costa del Sol includes the towns of Malaga, Torremolinos, Marbella and Estepona; in recent years the area has also been dubbed the “Costa del Golf” due to the vast number of high quality golf courses it now houses. Other key holiday home markets in Spain are the Costa Blanca (“white coast”), which contains the ever popular Benidorm, and the emerging markets of the Costa de Almeria and the Costa Calida (“warm coast”) on Spain 's south eastern coast. Cities such as Madrid and Valencia also have strong property markets.

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