SIGNING THE CONTRACT

Reservation Contract

This document, sometimes referred to as a Pre-Contract, represents the first step in the buying process for a new property – a property bought off plan. It will usually necessitate the payment of a non-returnable reservation fee, which is included in the initial deposit. It is an outline agreement to reserve the property and should contain as minimum the following details.

• Name, address and passport number of the purchaser.
• Name, address and the business or personal identification of the agent or developer or both.
• House type, plot number and address of the property.
• The price in euros. This should clearly state if IVA (Value Added Tax) is included in the price.
• The reservation deposit and payment formulae.
• Signature of both parties and date.

Purchase Contract

To repeat – a Purchase Contract is the most important document in the Spanish property buying process. It will repeat information in a Pre-Contract, adding greater detail. Signing a Contract signifies the following:

• The plan of the house and location of the plot are satisfactory.
• The Nota Simple has been checked, is in order and the person selling has the right to do so.
• The Contract has been read and understood.
• Signing the Contract triggers the release of a normally non-returnable cash deposit.
• The purchaser has the necessary monies, or mortgage, available to complete the transaction.

A contract should be well written and comprehensive. It is normally in Spanish but on some occasions can be set out paragraph by paragraph in Spanish and the mother tongue of the purchaser, ensuring no ambiguity. The key points are:

• It reconfirms all previous details, namely the parties to the agreement; the ownership of the land, its registration and freedom from debts; details of the plot; the size and description of the property. The seller is the owner of the property, not an estate agent handling the deal.
• It sets out in detail the method, dates, currency, price and payment schedule; financial penalties for failing to complete and any charges for connecting water and electricity.
• Where appropriate, it confirms that a purchaser respects the obligations of law surrounding the Community of Owners and gives details of a nominated district court should things go wrong.
• It sets out any special clauses such as ‘Subject to obtaining a mortgage’.

Two types of Purchase Contract

A Full Preliminary Contract (Contrato Privado de Compraventa) is the most common type of document. It is called a private contract because it is freely agreed between the buyer and seller in the presence of an abogado. It is an agreement to commit both parties. The seller must sell and the buyer must buy subject to the conditions they agree.

An Option Contract should be avoided. This is a written document in which the seller agrees to take a stated property off the market for a fixed period and to sell it at a stated price to a stated person at anytime within a stated period. It lacks definition, is a standard form completed by an agent and not checked by an abogado.

PRE-ESCRITURA – FOR NEW PROPERTIES

Certificado Final de la Direccion de la Obra

Translated this simply means Certificate of the Termination of the Building. It does not mean the building is falling down, quite the opposite in fact. It is a Certificate produced by the architect when a new house is finally complete. It enables a declaration of a new building to be made at the notary’s office and is used to obtain the Licencia de Primera Ocupacion detailed below.

Licencia de Primera Ocupacion

The Licence of First Occupation is obtained from the town hall on production of the Cerificado Final de la Direccion de la Obra. It is a licence to inhabit the property, and registers it for the purpose of local taxes and the connection of services. The electrical supply company will not connect to an unregistered property.

On new developments the initial supply of water from external pipes and electricity without meters is often obtained from a builder’s supply point. The reason for this is simple. The completion and occupation of property is faster than the ability of utility companies to connect their supplies.

Building insurance

A new property will be insured by a builder during construction and at a low nominal value for 12 months from the date of occupation. A copy of this policy should be available, stating the insured value and what exactly it covers. When a house is occupied, a top up building policy is all that is required for the first year. It is obviously sound practice to have an additional household insurance protecting against damage or theft and against claims by others. This is important if absent from a property for a long period – such as with holiday homes.