Understanding Spanish Property Contracts: A Guide to Legal Terms
Buying a property in Spain is an amazing opportunity to invest in a growing market, experience a new culture and, of course, enjoy a bit of Spanish sun. But one of the most difficult things foreigners face when starting the search for their dream home is all the complicated terminology. Buying a house is difficult enough in your own country, let alone in a foreign one. Processes vary and there are lots of important steps and contracts to sign to protect yourself and the sale.
In this article, we’re going to talk you through the most important and common contracts you’re likely to come across in your Spanish property-buying journey so you know exactly what to expect.
The Most Important Spanish Property Contracts
Whether you’re buying property in Spain on your own or with the help of a Spanish legal advisor, it’s very important you’re aware of the different steps in the process, how you’re protected and any fees you’ll be expected to pay upfront.
#1: NIE (Número de Identidad de Extranjero)
OK, so this isn’t technically a contract but it is a very important legal document that anyone buying a home in Spain will need. The NIE is a foreign identification number and is given to any person wishing to buy somewhere in the country.
Various online companies can help you with the process or you can make an appointment yourself at the immigration office, police station or Directorate-General for the Police in the city or town where you wish to buy a property.
You’ll need to fill out the EX-15 Application form (note: the form must be filled out in Spanish but there is a helpful English guidelines form). You’ll also need a valid passport or ID card and if you go to the police station yourself, you’ll get the NIE in the same appointment. Whilst an important document, the NIE is only valid for 3 months (after that, you’ll need to renew it) and it doesn’t give you the right to residency.
#2: Offer Contract With The Estate Agency
If you find the property you want to put an offer on with an agency, then you’ll likely sign an Offer Contract. In principle, this is a fairly straightforward document in which it clearly states the details of the property, your information and your offer. You’ll also be asked to transfer a sum to the agency (usually around €2,000) to secure your offer.
If your offer is declined, the agency will transfer you the money back. At this stage of the process, you’re able to come back with a counteroffer and negotiate. If the offer is accepted, you can either ask for the money to be transferred back or put it towards the final estate agency fees (between 3-5% of the property's value). Who pays the estate agency fees really depends on the estate agency and the property. Whilst it's common for sellers to pay them, buyers can also be expected to – so make sure you’ve checked and budgeted for this in advance.
#3: The Arras Contract
Anyone looking and researching to buy property in Spain has probably come across the Contrato de Arras. This is a legal document that both parties sign once an offer has been accepted. Many estate agencies have a standard contract which they amend to include exact details of the property (as stated on the Nota Simple – a document you ask for from Spain’s Land Registry which lists the current owners of the property and any debts associated with it) plus some important clauses which safeguard both parties.
You’ll get the contract a couple of days before the agreed date to sign, which means you (or your legal representative) can go through it and request amendments if necessary. Some important things that need to be included in the Contrato de Arras are:
Description of the property. It’s vital that the description of the property is accurate, including the address, size and layout.
Property price. This should be clearly marked and checked.
Completion date. This is usually 2/3 months after signing the Contrato de Arras but make sure it’s enough time for you to get your documentation together and for the mortgage (if applicable).
Penalties/fines. The contract should clearly state what happens if either party pulls out of the agreement.
Specific agreements. This is the part in which you can detail specifics about the property, such as any furniture the sellers will be leaving, repairs or whether electrical appliances are included.
Deductions and information. If the seller has agreed to pay for repairs or organised for water/electricity to be turned on, this should be reflected in the contract.
When you sign the Contrato de Arras (it will probably be at the estate agency if you use one), you’ll also need to transfer 10% of the cost of the property. Depending on where you are in Spain and the conditions within your contract, you may be transferring the 10% directly to the owners. Although common, it’s best to transfer to a safeguarded account in a financial institution. For some foreigners, it can feel very strange to transfer such a large sum of money so early on in the process but it’s actually a great solution to common problems when buying property in other countries.
For instance, once both parties sign the contract, you’re legally bound to go through with it – or face the penalties. Buyers who pull out of the deal will lose their deposit (the 10% they transferred), whereas sellers who do the same will have to pay the buyer double the deposit. This means that both parties are protected in case the other pulls out – something which doesn’t happen in many other countries which can lead to a lot of frustration and disappointment.
If you’re buying a new-build property there may be some extra clauses worth including in your contract, such as date for completion. It’s also worth understanding bank guarantees for newly built properties in Spain to protect your money.
#4: FEIN (If You Get A Mortgage)
If you get a mortgage for your property, you’ll be asked to sign a FEIN (Ficha Europea de Información Normalizada, similar to a Lender’s Binding Offer). The FEIN lays out the terms and conditions of the mortgage and must be signed at least 10 days before signing the Mortgage Deed at the notary. These 10 days are a legal requirement and give the buyer time to ensure they fully understand the mortgage terms.
You may be asked to sign the FEIN online or at the bank. You must make an appointment with the notary at least 24 hours before your appointment to sign the Mortgage Deed, in which the notary will take you through the conditions of the mortgage to ensure you fully understand them. Depending on your level of Spanish (and whether you have an English-speaking notary) you may be asked to bring a translator or a Spanish-speaking legal advisor.
#5: Property Purchase Contract
If you’re not getting a mortgage for your property, you won’t need to sign a FEIN. But you will need to have a Purchase Contract drawn up (Contrato de Compraventa). This may be done by a legal representative or, sometimes, by the estate agency. It’s a relatively straightforward contract in which the seller signs that they’re obligated to sell the property and the buyer agrees to pay a certain amount for it. It contains the exact price and, similarly to the FEIN, ensures neither party is signing against their will or without understanding.
#6: Notary Property Purchase Contract (Escritura Pública)
Now for the exciting (and slightly scary) part – the deed of sale! This is the formal document that you sign to exchange ownership of the property. It’s prepared and overseen by the notary. Both the buyer and the seller, plus their legal representatives if using, will meet at the notary’s office. The notary will read out the deed of sale and make sure both parties fully understand it, again, the notary may require you to bring a translator, depending on your level of Spanish.
Once read out, both the buyer and the seller will sign the contract which finalises the sale. This part of the purchasing process must be done with a notary as they ensure the sale is legal and act as an impartial advisor to both parties. Buyers also have security knowing the transfer of ownership has been legally made.
So, Are Spanish Property Contracts As Scary As They First Look?
There’s a lot to think about when it comes to buying a property in Spain, and the contracts you sign are a massive part of the process. They can seem overwhelming, especially when they’re written in Spanish or you don’t fully understand their purpose. The good news is that the various contracts are in place to protect both buyers and sellers. You have opportunities throughout to amend the contracts to ensure you’re protected and, especially the Contrato de Arras, helps minimise the frustration and disappointment that so many others face in different countries when a sale falls through.
Understanding the contracts in advance means you’re financially prepared and know what to expect every step of the way. It also helps to ensure you’re protected, meaning you can enjoy your new Spanish property as quickly and securely as possible.
Note that this article is general and is shared as information. Property, tax, finance and other legal topics are personal and can vary not only from person to person but between the different regions of Spain. We recommend that you seek professional guidance if you need advice on matters covered in this article.