The property buying process in Mallorca

Here are the key steps that you should be aware of when buying a property in Mallorca. We have also detailed the various costs you should allow for.

As this is a lengthy and detailed document uyou may perfer to download / print it from this PDF document.

1) Choose a lawyer

We recommend that you have a lawyer on-board before any offer is made. It shows the vendor you are serious and makes the offer sound more substantial and tempting. Depending on the property, your lawyer may also raise points that will be pertinent to the offer and they may on occasion advise getting further information before an offer is made (e.g. if there are concerns over boundaries or the like).

We strongly recommend you choose an independent local practice as they have the right contacts and are there to deal with matters at first-hand. Our preferred legal partners are Bufete Morell who are one of the most well-reputed legal firms in Mallorca.

2) Agree price / initial checks / confirm offer

Once a price is agreed your lawyer should complete the appropriate searches in the Land Register and other checks on the property to ensure it is unencumbered e.g. possible charges, debts etc. The next step is usually to confirm the terms of the purchase in writing and this would usually be processed between your lawyer and the vendor's lawyer.

3) Reservation Payment (this is an optional step)

The reservation payment is a gesture of intent, usually non-refundable if the purchaser withdraws from the sale.

It used to be commonplace to include a down payment to reserve the property until the completion of the Option Contract (see below). A reservation payment is usually between Euro 5.000 and Euros 25.000 depending on the price of the property. The reservation period is usually 1 to 4 weeks while the Option Contract is prepared.

However, contrary to what some might say, the reservation payment is not essential. They were more common when buying new properties off-plan and in practice are of less use with resale purchases as they are not a 100% guarantee that the vendor will not sell to someone else.

The need for a reservation payment should therefore be discussed and agreed as part of the offer negotiations. E.g. if there is another seriously interested party it might be sensible to agree a reservation payment. This is something that we would advise on in more detail according to the individual situation.

4) Exchange of private contracts – the "Option Contract"

The first formal legal step is for your lawyer to prepare the Option Contract. This usually takes 2 to 3 weeks but may take longer depending on the complexity of the sale. The Option Contract details all the agreed terms of the offer and sale and states the date for final completion at the Notary.

It is usual practice at this stage to pay 10% of the purchase price which is non-refundable should the purchaser not complete (unless the reason for non completion is that the vendor has not fulfilled their obligations as per the Option Contract). Should the vendor not complete or properly fulfil the contract he has to pay the 10% back plus another 10% in compensation.

If a reservation payment has been made this will be off-set against the Option Contract payment.

The following is a checklist of points to discuss with your lawyers prior to signing the option contract. NB. Not all of these points will have necessarily been confirmed / finalised at this stage. Any outstanding checks, certificates, permissions or other information required would be detailed in the Option Contract as being required prior to completion at the notary.

• The original or complete copy of the deed of sale (escritura pública) in the property register.
• Extract from the property register showing the situation of the property, charges and encumbrances (Nota Informativa Simple)
• Contracts with the water, electricity and gas companies as well as confirmation that payments are up-to-date
• Presentation of receipts for payment of land tax (IBI) for the last five years.
• Application for calculation of Municipal Tax of Plusvalia (Impuesto Municipal sobre el Incremento del Valor de los Terrenos Urbanos de Naturaleza Urbana) at the local authority offices. NB. Plusvalia is a local property tax normally payable by the vendor.
• Statutes of the owners' association. NB. this is only if the property is part of a community. It should include: a) the Statement of the payment of common costs and proportional payments of the present owner; b) a written statement that the owners' association has no debts to third parties.
• If relevant, presentation of an accurate inventory, signed by the vendor, of the furniture, equipment, fittings.

5) Final completion at the Notary

A sale is formally completed in Spain when the public title deeds of purchase are signed in front of a Notary, the final payment has been made, and possession is given to the buyer. The title deeds are called the "Escritura" and specify the name of the owner as well as giving a detailed description of the property.

Under Spanish law it is necessary for the "Escritura" to be signed in the presence of a Spanish Public Notary. The purchaser may attend the signing of the deed in the presence of the Notary or grant a Power of Attorney to a representative to attend on their behalf (normally your lawyer).

6) Registration

Once signed, the Notary will fax a note of the title deed to local Land Register, and your Lawyer should arrange:

• Payment of the relevant transfer taxes associated with the purchase
• Registration of your title deeds (which may take up to 3 or 4 months)
• Transfer of accounts with the local utility suppliers and arranging payments through your bank account

7) Other important points

• NIE number: As a foreign national you will require an NIE number; this is similar to an NI number in the UK and takes about 2 weeks to obtain. It can be done more quickly but it is best to process this at an early stage. There is a small administration charge, please click here for further information: More about NIE numbers.
• Local bank account: You will need a local bank account for payment of bills, as utilities and the like must be paid via direct debit. Your lawyer should advise on this and some practices offer "Gestorial" services (administrative services) to process this and other matters on your behalf.

Purchasing costs associated with buying a property in Mallorca

As a rule-of thumb it is sensible to allow 10% for resale properties to 12% for properties bought from a developer. This is on top of the asking price of the property for purchase costs. These are detailed below.

Legal costs

1. Notary fees: They vary depending on the value of the property and various other factors.
2. Land Registry Fees: These vary according to the locality, type and value of the property. These are basically administrative fees and are not significant but worth mentioning for the sake of completeness.
3. Lawyers fees: Your lawyer's fees will also be covered within this 10% allowance unless it is an unusually complex conveyance.

Taxes

Depending on whether it is the first sale of the property or a resale, the taxes are either ...

Impuesto sobre transmisiones patrimoniales (ITP): Transfer tax payable when you purchase land, house, apartment or a building plot from a private owner. This tax is 7% of the declared value of the property as expressed in the "Escritura de Compraventa" (Deed of conveyance).

Or ...

Impuesto sobre el valor anadido (IVA): This is the Spanish equivalent of VAT. It is paid instead of I.T.P. when you buy a new property from a developer rather than a resale from a private individual. It is charged at the rate of 8% on the construction of a house and any associated buildings. It is also charged at the rate of 8% on both the plot and the house if you purchase an off-plan property and the plot as a finished package.

Purchases of new properties also require payment of JD (Stamp Duty), a document tax or stamp duty which can be up to 1% of the purchase price.

(NB. Currently the IVA rate has been revised to 4% as a temporary measure to help stimulate the property market in Spain. This measure is in force until 31.12.11. This is relevant only to new properties. I.e. properties that are for sale off plan or new from the developer.)

Mortgage arrangement costs

If you are taking a mortgage you should allow for the arrangement costs which are higher than in the UK. They vary but you should allow a total of 3% of the amount you are borrowing to cover the bank valuation fee, the banks arrangement fee and other associated costs. The bank should confirm the mortgage arrangement costs prior to agreeing the mortgage.