Legal Audit – Due Diligence – for Property Purchase in Spain

Our Law Firm specialises in Real Estate and Banking Law. This includes various branches of Law: Land Registry Law, Mortgage Law, Town Planning Law, Horizontal Property Law, in addition to General Criminal and Civil Law. Our office is located in Ronda and Málaga city.

Purchasing a property in Spain is a significant commitment, and foreign buyers should be aware that Spanish property law broadly follows the principle of caveat emptor (buyer beware). Engaging a specialist property lawyer from the outset is the most effective way to ensure legal certainty throughout the entire transaction.

What Is Real Estate Due Diligence?

In the real estate legal sector, it is essential to carry out these types of transactions with the maximum guarantee for all parties.

The objective of Due Diligence —also referred to as a legal audit or property conveyancing investigation— is to clarify the legal situation of the property, as well as the tax, registry, town planning and any other aspects that may generate uncertainty in the purchase process.

This comprehensive legal and technical review enables the buyer to fully understand the condition of the property before committing to the transaction, thereby avoiding issues such as hidden encumbrances, planning irregularities or outstanding debts.

Before You Start: NIE Number and Bank Account

Before initiating any property purchase in Spain, foreign buyers must obtain two essential prerequisites:

• NIE (Número de Identidad de Extranjero) — A tax identification number required for any financial or legal transaction in Spain. It can be obtained at the Oficina de Extranjería in Spain or at a Spanish consulate abroad. If you are unable to attend in person, your lawyer can apply on your behalf using a power of attorney (poder notarial).
• Spanish bank account — Required for completing the purchase, paying taxes and managing standing orders for utilities. Non-resident accounts are readily available at most Spanish banks.

The 5 Phases of the Purchase Process

The property purchase process in Spain consists of 5 phases:

1st Selection and Negotiation

Once the property the buyer is interested in has been selected, the purchase price and other ancillary matters are determined in this first phase. It is advisable to engage a property lawyer from this stage to negotiate the most favourable conditions.

2nd Reservation Contract

The buyer hands over a sum to the seller (usually 5% or 10% of the total price) to retain the property whilst the process is finalised through the execution of a contract known as a «contrato de arras» (deposit agreement).

This document establishes the price, the deadline to complete the process, the allocation of costs and other circumstances. Should the process not be completed due to reasons attributable to the buyer, the Spanish Civil Code establishes that they will lose the deposit. If the process is not completed due to reasons attributable to the seller, they must return double the deposit.

3rd Legal Investigation and Preparation for the Purchase

In this phase, the registry investigation (before the Land Registry), town planning investigation (before the local Town Hall), cadastral checks at the Catastro, etc., must be carried out. Furthermore, if necessary, steps are taken to obtain bank financing, property valuation, etc.

This is the core phase of the Due Diligence, where potential encumbrances and charges are verified, an updated nota simple is obtained from the Land Registry, and all necessary certificates are requested to ensure the security of the transaction.

4th Title Deed of Purchase

Appearance at the notary’s office to formalise the purchase through the escritura pública (public deed), acquire possession (handover of keys) and pay the remainder of the price. The notary certifies the identities of the parties and the legality of the document.

5th Post-Completion Management

In the final phase, the deed must be presented to various bodies: registration at the Land Registry, filing at the Cadastre and the Town Hall. In addition, taxes must be settled with the Tax Agency (Agencia Tributaria).

Our Legal Services for Each Phase

For these 5 phases, the services of our Law Firm are available at different levels, from basic review through to comprehensive management of the entire transaction:

* Representation: for signing on behalf of the client, the lawyer will require a Power of Attorney (poder notarial). If the Power of Attorney is signed outside of Spain, it can be executed in two ways: before the Spanish Consulate or before a foreign notary (with a Spanish translation and an Apostille from the Hague).

Essential Documents for Property Due Diligence

A thorough legal audit requires obtaining and reviewing the following key documents:

• Nota simple (Land Registry extract) — Issued by the Registro de la Propiedad, this document confirms ownership, provides a description of the property, and lists all registered encumbrances (mortgages, seizures, easements, fiscal charges). This is the first document that should be requested.
• Energy Performance Certificate (certificado de eficiencia energética) — Legally required for the sale of any property. It classifies the dwelling on a scale from A to G based on energy consumption.
• First Occupation Licence (licencia de primera ocupación) — Confirms that the property meets the minimum habitability standards required by current regulations. Essential for connecting utilities.
• Urban Planning Certificate (certificado urbanístico) — Issued by the Town Hall, this report details the land classification (urban, developable or non-developable), any planning infringements, and conformity with the PGOU (General Urban Development Plan).
• Cadastral reference and descriptive report — Enables verification of the actual surface area, exact location and the cadastral reference value, which since 2022 constitutes the minimum tax base for ITP calculation.
• Latest IBI receipt — Confirms that the annual property tax (Impuesto sobre Bienes Inmuebles) is up to date and provides the cadastral value of the property.

Encumbrances and Charges: What to Verify Before Buying

One of the most critical aspects of property Due Diligence is detecting encumbrances and charges (cargas y gravámenes) that may affect the property:

• Mortgages (hipotecas) — The most common charge. The outstanding balance must be verified and the registry cancellation arranged before or at the time of signing the deed.
• Judicial seizures (embargos) — Preventive annotations arising from judicial or administrative proceedings against the owner.
• Easements (servidumbres) — Third-party rights over the property (rights of way, light, views). These limit full use of the property.
• Community debts (deudas comunitarias) — The buyer is liable for the current year’s and three preceding years’ community debts. A debt certificate must be obtained from the property administrator, including any approved or pending special assessments (derramas).
• Fiscal charges (afecciones fiscales) — Marginal notes indicating potential tax liabilities linked to the property that may transfer to the new owner.

Purchase Costs in Andalusia

Regarding the purchase costs of a property between private individuals in Andalusia, the following must be considered:

• ITP — Property Transfer Tax (Impuesto de Transmisiones Patrimoniales). Currently in Andalusia it is 7% of the total price, although there are various reductions depending on the circumstances. The tax is calculated on the higher of the agreed price or the cadastral reference value. Payment: corresponds to the buyer.
• Land Registry. Approximately 0.5% of the total price. Payment: corresponds to the buyer.
• Notary. Approximately 0.8% of the total price. Notarial fees are regulated by law. Payment: to be negotiated between buyer and seller.
• IIVTNU — Tax on the Increase in Value of Urban Land (colloquially known as municipal plusvalía). The cost depends on many factors. Payment: corresponds to the seller.
• Capital gain in IRPF — Personal Income Tax. It depends on the difference between the previous acquisition and the sale. Payment: corresponds to the seller.
• Energy Performance Certificate. Approximately 100 euros. Payment: to be negotiated between buyer and seller.

Additional Considerations for Non-Resident Buyers

Foreign and non-resident buyers should be aware of certain additional obligations:

• 3% retention on non-resident sellers — When buying from a non-resident seller, the buyer must withhold 3% of the purchase price and pay it directly to the Tax Agency on behalf of the seller.
• IRNR (Non-Resident Income Tax) — Non-residents who own property in Spain must file an annual tax return (Modelo 210) declaring imputed rental income, even if the property is not rented out.
• Fiscal representative — Non-residents may need to appoint a fiscal representative in Spain for tax purposes.
• Power of Attorney (poder notarial) — If you are unable to be present in Spain for all phases of the purchase, a power of attorney can be granted to your lawyer to act on your behalf. Documents signed abroad must bear a Hague Apostille and an official Spanish translation.

Frequently Asked Questions About Property Due Diligence in Spain