Real Estate Law in Spain

The basic legislation regulating real estate law is contained in the Royal Decree of 24 July 1889, which approved the Spanish Civil Code. Mortgage legislation was established in the Decree of 8 February 1946, which approved the Spanish Mortgage Law, and the Decree of 14 February 1947, which approved the Mortgage Regulations.

The legislation governing urban leaseholds is the Spanish Urban Leasehold Law 29/1994, of 24 November. Real estate law covers the main laws governing real estate ownership and letting in Spain. However, other related regulations should be considered, such as local regulations applicable in some regions (e.g., in Catalonia, where there are specific laws regulating real estate rights).

For planning and zoning law, the Royal Legislative Decree 7/2015, of 30 October, which approved the consolidated text of Land and Urban Redevelopment Law, should be considered.

The environmental regulations regarding polluted land are mainly foreseen in the Law 7/2022, of 8 April, about waste and polluted land.

The right of ownership is the most common right in real estate transactions, whereby the owner holds all the legal powers to be exercised over a given asset. However, Spanish law also includes other types of rights that, without covering such broad powers as the right of ownership, are usually taken into consideration by economic operators for certain commercial activities. These include surface rights regulated in State land legislation passed by Legislative Royal Decree 7/2015, of 30 October, by which the Consolidated Land and Urban Regeneration Law was approved. According to this law, surface rights are defined as rights in rem enabling buildings or structures to be constructed in the airspace above and the ground beneath another property, while the holder of the surface rights maintains temporary ownership of the buildings or structures built, notwithstanding the separate ownership of the land. For these surface rights to be valid, they must (i) be executed in a notarial deed and registered at the Property Registry, and (ii) establish a term for such surface rights not exceeding 99 years. Surface rights may only be created by the owner of the land, whether a public or private entity.

Another right generally used in Spain is the administrative concession, which is a legal transaction whereby the public authorities grant one or several rights over, or obligations in relation to, public property.

The administrative concession concept may be analyzed from two different perspectives: (i) the concession of public domain regulated in the Law 33/2003, of 3 November, of Property of the Public Administration; and (ii) the administrative concession contracts, regulated in Law 9/2017, of 8 November, of Public Procurement.

Lastly, a right that does not appear frequently in real estate transactions is usufruct, whereby the owner of an asset grants the use and enjoyment of it to a third party. Regarding the existing restrictions on real estate ownership, the right of ownership is defined in Article 348 of the Spanish Civil Code as the right to "enjoy, use and dispose of a thing, with no limitations other than those established by laws". This definition means that the right of ownership is not an absolute right and is limited by legal provisions.

There are limitations regulated in private law, such as the Spanish Civil Code, Spanish Mortgage Law, etc., whereby the right of ownership may be limited. For example, in accordance with Article 26 of the Spanish Mortgage Law, the following are considered to be prohibitions relating to disposition and alienation:

• Those established by the law which have full legal effect without an express court or administrative decision do not require separate and special registration and are effective as legal limitations on ownership;
• Those of which the immediate origin is a court or administrative decision which are subject to a provisional entry in the Property Registry; and
• Those imposed by the testator or donator in acts or dispositions of a will, marriage settlements, donations and other acts for no consideration may be registered provided that current legislation recognizes their validity.
  

In addition, other types of restriction on ownership involve those included in administrative law whereby reasons of public interest prevail over private ownership. This would be, for example, in the case of compulsory purchase, where the deprivation of ownership is due to reasons of public use entailing the recognition of a right to compensation for the owner of the property subject to compulsory purchase. Another instance would be where the building in question has a historic value, which would prevent it from being purchased by a private operator. In both cases, the right of ownership would be limited.

Another limitation on the right of ownership in real estate transactions in Spain lies in the urban planning legislation of each autonomous community and the urban planning rules of each municipality.

Urban planning legislation, both at autonomous community and municipality level, in the latter case implemented through municipal planning regulations, implies a limitation on the powers inherent to the right of ownership and on the building rights over a piece of land. This is due to the fact that it regulates the maximum buildable volume calculated by reference to the use, the free and green spaces per square meter to be granted as part of the planning obligations relating to the ownership, including limitations on uses and the establishment of technical and construction conditions relating to specific buildings.

In addition, there is the industry-specific legislation, which, together with the urban planning legislation, also limits the right to build (for example, where a residential area was to be built in an avigation or road easement zone). In these instances, despite having ownership of the land, it may not be built on or, where this is possible, there are limits to construction.

The Property Registry is a public registry that falls under the Spanish Ministry of Justice. Each registry is headed by a registrar and has a specific territorial scope.

Any acts affecting ownership or rights in rem over public or private real estate are registered at the registry.

Certain administrative concessions and public property can also be registered.

The Property Registry provides legal certainty regarding the rights registered and helps ensure that legal dealings are secure and run smoothly.

The principles governing the functioning of the Property Registry are as follows:

• Voluntariness: The entry of registrable events in the Property Register is voluntary, except in the case of mortgages, which must be registered in all cases as they do not exist if they are not entered;
• Principle of request: Whoever wishes to register a title must make a request to the registry;
• Priority: This means that where applicants wish to register two incompatible rights, the rights of the holder who arrives at the registry first is registered and if there are two rights registered in relation to the same property, the oldest right will have priority;
• Lawfulness: Registrars must classify under their responsibility the lawfulness of the extrinsic forms of all the types of documents whereby registration is requested, as well as the capacity of the executing parties and the validity of the acts with operative effect contained in the notarial deeds from which they originate and of the register entries;
• Specificity: In order for titles to be registered at the registry they must meet the requirements concerning form and content under the terms established by law; and
• Chain of title: In order for titles to be registered or entered, the right of the person who granted them must have been previously registered or entered.
  

In addition, registration at the Property Registry results in the following most significant effects:

• Registry legitimacy: Registered rights in rem are presumed to exist for all legal purposes and belong to their holder in the manner determined by the respective entry;
• Unenforceability: Titles or other rights in rem over real estate which have not been duly registered or filed at the Property Registry do not adversely affect a third party;
• Registry authentication: A person who, in good faith, acquires for valuable consideration a right from someone who appears in the register as having the powers to transfer it retains such acquisition, once the right has been registered, even though, subsequently, the transferor's right is shown to be invalid for reasons not stated in the register; and
• Presumption of truthfulness: Entries under which titles are registered in the Property Register are effective until they are declared to be inaccurate (iuris tantum presumption). In other words, entries in the Property Registry are presumed to be true unless proven otherwise.
  

Lastly, the Cadastral Registry is an administrative registry managed by the Ministry of Finance. The Cadastral Registry contains a description of the real estate properties for tax purposes.

Historically, there was usually no coordination between the Property Registry and the Cadastral Registry so that it was, and still is, possible for the surface area of a property registered at the Property Registry to be different from that registered at the Cadastral Registry.

Spanish Law currently establishes a system of coordination between the Property Registry and the Cadastral Registry to ensure that the first includes a graphical georeferenced description of the registered properties.

The notary plays an essential role in real estate transactions in Spain. In accordance with current legislation, only notarial documents may be registered at the Property Registry.

Although the sale and purchase of a property is usually first instrumented in a private document, in order for it to be registered and for its owner to be legally protected vis-a-vis third parties, it must be executed in a notarial deed.

The notary confirms that the transaction complies with all the legal requirements as the parties' ability, among others.

Before executing the sale and purchase of real estate, the following issues should be ascertained (preferably with the assistance of an attorney), among others:

• Ownership of and encumbrances on the property (request an extract from the registry);
• Municipal building permits if any have existed in relation to the property;
• Municipal opening or first occupancy permits;
• Surface area and boundaries of the property;
• Certificate attesting that the payment of taxes and levies is up to date;
• In the case of a property under the commonhold system, a certificate attesting that payment of the contributions relating to the common areas and services is up to date;
• In the case of a plot or piece of land, evidence of compliance with the urban planning legislation by means of a request to the corresponding local council for a planning use certificate and the planning classification and category thereof; and
• In the case of a plot or piece of land where it is on record that it has been used to carry out potentially polluting activities, an environmental study should be performed.
  

In accordance with the Civil Code (and without prejudice to other provisions under local regulations), the seller is liable to the buyer for the legal and peaceful possession of the item sold and any flaws or defects it may have and, therefore, the buyer may seek liability due to breach of the contractual terms of the sale and purchase and due to hidden flaws. As regards hidden flaws in buildings, reference should be made to Building Law 38/1999, of 5 November, and the timeframes it stipulates. The purpose of this law is to regulate essential aspects of the building process by establishing the obligations and responsibilities of the parties involved in the process (developer, architect/technical architect, and builder). Additionally, it also regulates the guarantees required to carry out the process correctly, to ensure quality through compliance with basic building requirements and sufficient protection of the users' interests.

In all other respects, whatever cannot be verified in this regard should be included in the representations and warranties; otherwise, unexpected losses could be caused for the buyer.

From the seller's perspective, as in the case of all representations and warranties, an attempt will be made to negotiate the price by restricting or broadening the related clauses of the representations and warranties.

In real estate sales and purchases, the seller undertakes to hand over the property and the buyer to pay a price. Although ownership is transferred merely by agreement between the parties, price may be deferred and so, while the buyer immediately becomes the owner, it may take time for the seller to receive the entire price.

There are various systems for securing payment of this deferred price, which most notably include personal guarantees and in rem guarantees (such as mortgages).

In personal guarantees, the price is secured by a third party.

A mortgage, used very frequently in Spain, is a security interest created directly in others' disposable real estate, enabling the mortgage creditor to realize the value of the real estate in the event of breach of the principal obligation, such as the sale and purchase of the real estate, whether it be the real estate on which the mortgage is created or another piece of real estate. The registration of the mortgage at the Property Registry renders it effective, as compared to other legal transactions. If the mortgage debtor stops paying the instalments, the mortgage creditor may realize the value of the real estate in order to receive the price.

In accordance with the Urban Leasehold Law, there are two types of property leases: (i) a residential housing lease, and (ii) a lease for other uses. The latter encompasses leases of urban properties entered into for periods and those executed to carry on an industrial, commercial, professional, or other activity at a property.

One of the main differences between the legal regime governing residential housing leases and leases for other uses is the protective nature of the regulations for housing leases. Leases for other uses are governed in general by free will.

In practice, leases entered into in real estate other than housing transactions mostly have the following characteristics:

• They are entered into for a long period in order to recover the investment made and may be renewed easily by means of successive extensions;
• Depending on the type of activity carried on in the property, the lessee is usually required to take out property damage and third party liability insurance;
• If the lessee changes due to the merger, alteration, or spin-off of the lessee company, it is not considered an assignment. As a result, the lessor is entitled to raise the rent unless an express waiver is agreed upon;
• Any repairs to be made, as well as authorizations, building or activity permits, are generally the lessee's obligation who must undertake them except, for example, in the event of damage caused by the owner of the property; and
• The lessee of a long-term lease is entitled to compensation at the end of the lease, but this compensation can be contractually waived.
  

In addition, there are some aspects that do not generally arise, but which are regulated in the Urban Leasehold Law, such as mortis causa transfer by subrogation to the heir or legatee who continues to carry on the activity or the lessee's right to indemnification for loss of customers.

Real estate leased for agriculture, farming or forestry are regulated separately in Law 49/2003, of 26 November.

Royal Legislative Decree 7/2015, of 30 October, establishes the basic regulations regarding urban planning to be developed by the autonomous communities and the municipalities on their own powers.

Law 38/1999, of 5 November, regarding Building Regulation establishes (i) the technical and administrative requirements applicable on building, (ii) the agents involved in the construction; and (iii) guaranties and responsibilities that should be taken by the agents.

Additionally, a series of authorizations and permits in Spain are required to carry out economic activities and to build the facilities needed to perform them.

Acts which require a planning permit include building and construction works, and the installation of all types of new facilities and extensions thereto. In this case, urban planning legislation is the determining legislation when it comes to the granting of these permits by the municipal authorities, as the planning rules included in the municipal plan determine the planning limits (permitted uses, permitted volume, etc.) and construction terms and conditions (facade, distances, etc.) of the facilities to be built.

Once the corresponding building permit has been obtained and the building work completed, a first occupancy permit must be obtained, which verifies that the work completed complies with the building permit granted by the municipal authorities.

In order to carry out the activity, it is also compulsory to obtain an activity permit and, according to the type of activity to be carried out, another type of authorization may be required, such as the integrated environmental authorization granted by the environmental departments of autonomous communities, besides other types of authorizations required by industry-specific legislation.

Having obtained the activity permit, an opening permit may be also necessary to verify that the activity will be carried out in suitable conditions of habitability and used for the particular activity in question.

There is a variety of legislation on pollution in Spain although, for the purposes of real estate transactions, of particular note is the following, notwithstanding applicable local laws:

• Royal Decree 9/2005, of 14 January, establishing the relationship between potentially polluting activities for land and the criteria and standards for declaring land to be contaminated. This Royal Decree defines the potentially polluting activities requiring those who carry them out to submit a preliminary report on the state of the land to the environmental department of the autonomous community within two years; and
• Law 7/2022, of 8 April, about waste and polluted land. This law sets out the order of those responsible for the decontamination and recovery of land and, as a result, for the associated economic cost.
  

On the other hand, the owner of a property who wishes to sell or rent must obtain an energy efficiency certificate to be issued by a professional with the suitable academic and professional qualifications (architect, technical architect, etc.). This requirement arises from European Directives.

The taxes which are generally the most significant in real estate transactions are:

• Value added tax/transfer tax: Depending on the characteristics of the transaction, the transfer of properties is subject to value added tax (VAT) or transfer tax (TPO);
• Stamp duty: Where a transfer of property has been taxed for VAT purposes, the notarial document executing the transfer is also subject to stamp duty (AJD); and
• Property tax: Lastly, although it is not an indirect tax, the property tax (IBI) is a compulsory municipal tax, paid annually on the value of the real estate.

Download: Handbook for Real Estate Transactions