Due Diligence – Legal and tax review of a property

After a long search have you finally found your dream house? The seller urges you to go to the notary as soon as possible to get everything cut and dried, as there are other prospective buyers, who he can only refuse, if the deal is really in the bag. Everything goes according to plan and the notary does his job well! Often quick decisions are needed. When the market becomes aware that a property is about to be sold, and perhaps at a reduced purchase price, some agents become aware and try to beat the price offered for their clients. Occasionally other owners are willing to offer their property for sale once again and perhaps at a reduced price. Every real estate purchase is a high investment that needs a great deal of consideration and of course triggers the need for verifying property details. The expert calls this DUE DILIGENCE, a conscientious and thorough examination of the property in technical, legal and tax terms. The bigger the investment, the more questions are left unanswered, and it becomes advisable to hire an experienced real estate lawyer. Below I will give you the essential points to consider with reference to legal and tax DUE DILIGENCE.

These documents should be presented by the seller when buying a house:

1. Extract from the property register – extract from the land registry. This document supplies the following information: that the seller really is the entitled owner; that the property is described is as you find it (otherwise this could be an indication of illegal building); whether the property is burdened with mortgages, easements or seizure and whether pre-emption rights or other rights of third parties exist.

2. Sales contract of the seller: Many sellers are reluctant to hand over a copy of their purchase contract, so that the buyer doesn’t see what purchase price he paid at the time of signing the deeds (which is usually not very productive, as the owner may also have been paid amounts not included in the deeds or he has made significant alterations to the property and so has made a return on the investment of his capital).

3. Cadaster: Often the data of the cadaster deviates from those of the land register with regards to the size of the land and buildings and so it is necessary to examine the information and clarify matters.

4. Documentation referring to property tax (rates) and rubbish collection: As the property is liable for property taxes (IBI) and rubbish collection costs for a period of four years, the corresponding documentation and proof of payment must be presented.

5. Energy certificate: Each seller must present an energy certificate without which the notary may not certify. If it is not available, it is quick and easy for the seller to obtain one at this expense.

6. Habitability certificate: This is a certificate that the building in question is approved and accepted for residential purposes. The certificate is valid for 10 years, but can be renewed. If it does not exist, an architect must apply for a one to the island council. Since he has to make findings on site and inspect the documents with the building authorities, this may take two to four weeks.

7. Certification that there are no pending procedures for construction infringements: This certificate (Certificado de no-infracción urbanística) is particularly important. Imagine, the seller has built illegally and is already threatened with having to demolish the property!

8. You also need confirmation of payment of the last invoices of the utility providers (electricity, water, gas, etc.), as normally speaking the providers will cut the supply if old debts have not been paid.

9. and and and: Points 1. – 8. are only the most important items regarding due diligence when buying a house. When buying an apartment necessary documentation includes the divisional declaration (possibly omitted because the part concerning the specific apartment is in the land register), the constitution of the complex, the community rules, the last minutes of the owners’ meetings and a certificate that the sellers do not have any ending community debts.

You can see from my remarks that the preparation of the notary’s appointment should only be tackled with the help of a professional real estate agent or an experienced lawyer.