Due to our daily professional experience as specialized property lawyers, we can´t emphasize enough the importance of proper legal advice during the buying process in the form of due diligence (legal investigation). After all, your foreign purchase requires a substantial financial investment, regardless of whether you are an individual, a company, whether the property will be used as a personal home or for rental investment purposes.
It’s not possible to provide appropriate legal advice to a property buyer or investor unless there is a process to study the legal/planning, physical and tax situation of the property. A process that should take place before the purchase private contract is signed. If this full study of the property and its total situation isn’t reflected in writing in a document usually called “property due diligence” or “property legal report”, it´s very difficult to rely on all the information that a buyer/investor needs to know before becoming contractually bound to the purchase of a property.
In this case, we aren’t only referring to buyers, as property owners or holders seeking to sell a property in Andalusia have been increasingly requesting property due diligence. So, as to know and solve any potential issues or deficiencies in the legal documentation of the property. This legal checklist prior to selling the property will help the owner maximize the profit that can be obtained from the sale and process it as quickly as possible.
What is the property due diligence report during property conveyancing?
The property due diligence report or legal report is a legal document that any lawyer specializing in property law should draw up and send a client. Whether he or she is buying or selling, detailing all the legal and planning situations of the property he or she intends to buy or sell. This document should include all the relevant legal, planning and tax information of the property, enabling a buyer to be in possession of all the appropriate information to make the most satisfactory investment decision in terms of said property. And for a buyer to have the greatest legal certainty possible in terms of that investment.
Likewise, from a legal standpoint, this document binds the lawyer to the client and allows for defining the legal work carried out. As well as providing certainty during the conveyancing process through the detailed information explained to the buyer in the legal due diligence report.
Why is a property legal investigation so important if I’m buying a property?
The answer is simple: because this document will give you as buyer legal certainty. It will contain all the relevant information about the property you are seeking to acquire in writing, making it easier to understand and comprehend, along with an explanation of everything studied in that process. Likewise, this document includes matters that have not been ascertained yet on the date the report is drawn up, those that are pending or those that cannot be ascertained for different reasons, as appropriate.
This report will prevent or reduce the possibility of the buyer finding problems during the conveyancing process and after it, once the private purchase contract or even the public deed of sale has been signed. These are often problems that, if known to the buyer in advance, would lead to a negotiation with the seller before signing the private contract or could even conclude in abandoning the buying process.
What should the property due diligence or legal report contain?
Property due diligence is like a tailored suit, which means that this document and its contents will depend on the client’s profile and the intended use of the property.
1. REGISTER STATUS
The general section of this document, regardless of the type of purpose of the purchase, will be to review the cadastral (Catastro) and registry (Registro de la Propiedad) description of the property and see how it matches its physical reality.
Likewise, reviewing potential registry charges or other encumbrances, such as the existence of mortgages, easements, liens or seizures. A good property lawyer also checks if there are no debts from the service provides (water, electricity, etc.), town hall taxes or te community of owners.
3. DETAILS TOWN HALL AND URBANISATION
It is also important to study any potential administrative easements, such as roads, coasts, the public water domain and the situation with the property owners’ association and potential debts or extraordinary assessments.
4. (COMMERCIAL) LICENCES
The study of the planning situation of the property is also very important and, in this case, the study will depend on the intended use of the property: a hotel, a holiday home, commercial premises, a residential home, industrial use, etc. At this point, a technician is usually called in to carry out a structural survey or checklist.
5. TAX IMPLICATIONS
Lastly, a tax audit during property purchases is very important, especially in purchases by investment companies and investment funds. These need to obtain a valuation of these assets, as well as engage in property tax planning for the acquisition of the property, in order to save on taxes and lower the tax impact.
When should a client receive the property due diligence?
The property due diligence should be drawn up before signing the private purchase contract, a document that generally entails having the buyer pay 10% of the selling price. In other words, the important thing is for the buyer to be aware of all the legal, planning and tax information of the property before paying a substantial amount of money during the process and signing the private contract. In the property field, property due diligence is usually prepared after signing the reservation contract with the payment of a small reservation deposit and before the private contract of sale is signed.
If the buyer receives all the relevant and important information about the property in advance, he or she will have much more legal certainty in the investment. And, if there are any issues or problems, these can be negotiated with the seller and the situation can be reflected in the private purchase contract. This will have a positive effect on the process, reducing stress and the chances of the process not ending satisfactorily for both parties.
Otherwise, signing a private contract and making a substantial payment to the seller, being unaware of the legal, planning and tax situation of the property, could lead to problems between the buyer and the seller. In this scenario if there are any problems with the property in question but the seller wasn’t made aware of anything when signing the contract, the contract may not protect the buyer sufficiently.
Or, it may lead to the seller feeling that having 10% of the price in his or her pocket and a signed contract gives him or her the upper hand when negotiating changes affecting the selling price or the obligations of the parties.
Who is the right professional to draw up a property due diligence?
Without a doubt, a lawyer specializing in property law is the right professional to draw up this important document when buying or selling a property in Spain. Making an investment of a certain significance in a property asset and trying to save on the cost of a lawyer is a textbook mistake and makes absolutely no sense, as the cost of a lawyer compared to all the costs of a property purchase is quite small.
Be wary of anyone who encourages you not to hire an independent lawyer during the purchase of a property in Spain, especially when this person has any interest in the transaction. Seek the lawyer you believe is best positioned to advise you in your purchase by experience and reviews. Compare the information available on the lawyer’s website regarding the services offered and the information you receive after you make the first contact with the lawyer. Make sure that this lawyer is an expert in property law and is familiar with the subject matter.
Why is a property´s legal investigation important when I’m selling a property?
Obtaining property due diligence for a property you seek to sell is highly recommended, as the owner will be able to detect any problems or issues with the property, as well as solve them, before selling. If the owner identifies, corrects and solves the potential problems that there may be with the property before it is sold, it’s very likely that the profit obtained from the sale can be maximized, as the buyer will be more satisfied with the legal situation of the property and the transaction will be faster.
Putting a property on the market when the vendor has previously made sure that all the documentation is correct and the necessary permits are in order, will lead to any buyer being faster in finalizing the sale and will reduce any arguments to reduce the price of the property.
Law firm specialized in due diligence of properties in Andalusia
At C&D Solicitors, we specialize in providing property advice to foreign clients, whether individuals seeking to buy a second home or an investment property in Spain, as well as investment companies or investment funds seeking to grow their asset portfolio and take advantage of the capital gains they can obtain in the property market and in property operation.
We offer “full service” advice throughout the process in your native language: English, Dutch, Swedish, French and German. You can call us at 0034 – 952 532 582, send us a WhatsApp message at 0034 – 639 54 16 02 or write to us at firstname.lastname@example.org. We’ll look into your case, we’ll send you information about the process and a cost estimate for this, with no commitment whatsoever.
Author: Gustavo Calero Monereo, CEO & lawyer at C&D Solicitors, Torrox/Malaga (Andalusia)