EDITION: February - April 2021

From preliminary contracts to the closing at the notary

By Armin Gutschick & Anja Sämann-Gutschick
When buyers find their dream home in Ibiza they often want to close the deal as quickly as possible by signing a purchase agreement with the seller. This is generally done by following two steps: both sides sign a private contract, and then they have it notarized. Under Spanish law these private contracts are legally valid. There are two different types of contracts that are normally used: an Option to Buy (“opción de compra”) or a Deposit Agreement (“contrato de arras”).

With the Option to Buy contract, the seller gives the buyer the right to exercise this option within a determined time frame and obliges him/herself to pass on the property according to the terms that have been defined in the contract. The buyer may include in the contract all the terms that s/he considers important for the purchase. This may include the legal status of the property, that it must be free of liens and encumbrances, that it is up to date with tax payments, and is without any town planning issues. The seller will be bound by the contract until the deadline is up and cannot sell the property to anyone else during that time. As compensation for this s/he will receive the amount agreed in the contract.

If the buyer exercises the right to purchase, but the seller does not sign the purchase deed, then s/he would be obliged to return double the amount of the contract deposit to compensate for damages. However, the buyer could still demand that the contract be executed. On the other hand, if the buyer does not pay the agreed price, in spite of the seller having complied with all the agreed terms, s/he would lose all of the amount paid for this option.

If both parties sign a Deposit Agreement, the buyer will make a down payment and a timeframe will be established for payment of the remaining price of purchase. This type of contract can also include terms similar to those of the option to buy contract. The buyer can get out ofthe obligation to buy the property, but in that case will lose the deposit. On the other hand, the seller can avoid his/her obligation to sellby reimbursing the buyer with double the amount placed as deposit, and the latter cannot then demand that the contract be executed. If the seller puts forward all of the documentation requested by the buyer, both parties will sign the purchase deed before a notary within the time frame established by the pre-contract. The deposit will be subtracted from the total price of the property.

The notary only authorizes the purchase contract and does not deal with paying applicable taxes, nor with notifying the Property Registry. When the notary authorizes the purchase deed, s/he will request a number of documents, including the most recent property tax (“IBI”) receipt and the energy efficiency certificate (“CEE”), but these documents do not affect the main transaction. The notary is not responsible for the status of the property at the Registry at the time when the deed is drawn. Generally, the enquiry before the Property Registry is carried out the day before, and the resulting document is added to the deed.

The notary is also not responsible for managing the purchase amount as a trustee. Spanish civil law is governed by the principle that every transaction must have a legitimate legal basis, and a payment to the notary’s trust account does not concern the notary personally - it only concerns the contracting parties. Most notaries in Ibiza offer the alternative of receiving the purchase amount as a deposit, validating it with a so-called “acta de depósito” (Deposit Act).

In summary, we can say that a purchase that has been previously agreed with the preliminary contract is perfected before the notary (“perfeccionar la compraventa”). The terms of purchase are usually set in the option to buy contract or the deposit agreement, while the transaction with the payment of the remaining amount will be performed before the notary. Preparation and follow-through of the purchase contract will be the responsibility of the lawyers hired by each party.