The compromise in Spain, as in Belgium, is a binding agreement. It seals the purchase-sale. However, you are not aware of the legal situation of the property when you sign the compromise, nor does the notary in Spain inform you. Entering into a binding agreement without knowing what you are buying is therefore not a good idea. Based on a recent (anonymised) file, this article will explain why it is best not to rush into signing the compromise in Spain.
The different agreements when buying a Spanish property
Before going to the practical example, we will give you an overview of the three common agreements when buying a Spanish property.
The first similarity is the reservation contract. This allows you to take the property off the market for a certain period of time. After all, several estate agents can offer the same property in Spain at the same time. It is customary to pay a deposit of a magnitude between 2,000 and 3,000 euros upon signing. Importantly, the reservation contract is not a purchase/sale agreement. It does not buy the property.
Read more about the reservation contract.
The second similarity is the compromise in Spain. Unlike the reservation contract, this is a binding contract of sale and purchase. So here there is basically no turning back. The buyer also pays a deposit of 10% of the purchase price.
Finally, the third agreement is the notarial act either the escritura. This document definitively seals the buy-sell. The remaining balance is transferred and the keys are handed over. With the escritura you can go to the land registry to register your property titles.
Read more about the different possible deals in Spain.
To the case study
The client, a retired couple, comes to our office for guidance. They have their eye on a property in the interior of Alicante province.
The couple agrees a sales price of €150,000 with the estate agent. Following this, the estate agent submits a compromise for signature requiring them to deposit 15,000 euros of the purchase price as a deposit within 10 days.
This way of doing things is not necessarily unusual, but it is disadvantageous for the buyer. The notary in Spain after all, does not do any investigations on the property, so that way the buyer has no guarantees about the legal condition of the property. Since the compromise is binding in Spain, you cannot abandon the purchase or you lose the advance from 10%.
At first sight, however, no problems seem to arise: this is a villa with a swimming pool in a quiet area. However, at the back of the house, adjacent to the rear garden, there is a vacant industrial warehouse. Since this warehouse is behind the fence, there is no problem, right?
The negotiation phase
We agreed with the estate agent to sign a reservation contract first. This meant that the property would not be available for sale to other parties for a month. Within that month, we examined the legal situation of the property.
To provide security for the seller as well, the client paid a deposit/first deposit of 2,200 euros to the broker upon signing. Important: in the reservation contract, we stipulated that if the legal situation of the property is negative, the client is entitled to a refund of the 2,200 euros.
In addition, the timeline was set: within a month, the signing of the binding compromise will take place and the following advance will be paid: 10% of the purchase price, less the 2,200 euros already paid.
However, before the reservation contract was signed, we discovered in cooperation with the estate agent that the industrial warehouse will be rented out to a furniture company. It would serve for furniture storage. As no noise or odour nuisance was expected, the client decided to go ahead with the sale.
The results: not good news
After a few weeks, we finalised the study. What emerged?
The villa is in fact an executive house. The house and the industrial warehouse belong to the same plot. Not only were both structures built illegally, the house and the warehouse would become a co-ownership through the sale, with common parts and a board of co-owners. In this case, the division of co-ownership turned out to be 35% for the executive house and 65% for the warehouse. Among other things, the swimming pool would become common.
The fact that both constructions additionally were built illegally, meant that the client would face a number of restrictions in the exercise of its property rights. Consider, for example, the prohibition on changing existing structures. Or possible costs if the municipality decided to demolish certain parts.
All's well that ends well
Based on our informative report, the client decided not to proceed with the sale. Thanks to the provisions in the reservation contract, the broker refunded the reservation amount of 2,200 euros. The broker understood the situation and acted correctly.
To make it concrete: it reservation contract limited the client's risk from 15,000 euros to 2,200 euro, and ensured that the client was finally refunded the reservation amount.
And of course, the client's dream remained unchanged: to buy a property in the Spanish interior to live there permanently. The couple can now search (with the same) estate agent for another, more suitable property.
Read more about how to avoid a mis-selling.
Conclusion: why not immediately sign the compromise in Spain?
Buying a property in Spain is completely different from buying in Belgium or the Netherlands. The role of the notary in Spain is limited, so you have no guarantees about the legal state of your property. Therefore, before signing the binding compromise in Spain, it is better to have the property inspected.
The above case shows that it is crucial to seek legal advice before signing anything. After all, guidance in the early stages of the buying process can make the difference between buying a dream home or being left with a mis-sale.
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