Real estate terms you should be familiar with before buying a home in Spain

If you are already in the process of buying your new home in Spain, you may have encountered several terms that could be unfamiliar and whose meanings might cause some uncertainty. Understanding these concepts is essential for correctly interpreting the purchase contract and ensuring a smooth experience. This article will explain some of the key concepts we consider fundamental for you to gain a better understanding of the buying and selling process:

Reservation Agreement

The reservation agreement (contrato de arras) is a contract between the buyer and seller of a property, in which both parties commit to formalising the sale within a specified period. As part of this contract, the buyer pays a deposit or down payment to the seller. This agreement serves to secure the transaction and binds both parties until the final purchase contract is signed.

Purchase Agreement

A purchase agreement (contrato de compraventa) is a private contract between the buyer and seller that outlines the terms and conditions of the transaction. This document sets out the rights and obligations of both parties in the sale of the property. It typically includes details such as the price, a description of the property, and various clauses and conditions. While it is not mandatory to sign this agreement in the presence of a notary to formalise the sale, in order to register the property in your name, this private contract must be converted into a public deed before a notary.

Public Deed of Sale

The public deed of sale (escritura pública de compraventa) is an official document that formalises the transfer of a property’s ownership. In Spain, it serves as the legal certification of ownership for real estate. The deed is drawn up and signed by a public notary, and it contains key elements that ensure the validity and legality of the transaction. Among other things, it includes the details of the buyer and seller, the agreed price, and payment terms. Signing the deed before a notary is the final step in the buying process. Once signed and the relevant taxes are paid, the deed must be registered with the Land Registry.

Land Registry

The Land Registry (catastro) is an official register managed by Spanish public authorities. Its purpose is to identify and describe real estate within a given area, as well as to determine its cadastral value. It is a crucial tool for managing and administering land, providing detailed information about properties and their legal and fiscal status.

The Land Registry is overseen by specific public bodies, and its primary objectives are to ensure transparency, legal certainty, and a solid foundation for the collection of property-related taxes.

Cadastral Value

The cadastral value (valor catastral) is an official value assigned to real estate by the tax authorities of each country. It is primarily used for tax purposes, such as the property tax (Impuesto sobre Bienes Inmuebles – IBI) in Spain.

The cadastral value is determined by considering various factors, including the property's location, physical characteristics (such as floor area and type of construction), and reference market values. It is important to note that the cadastral value may differ from the market value of the property, as it is established for fiscal and administrative purposes.

Tax on Documented Legal Acts

The tax on documented legal acts (Impuesto sobre Actos Jurídicos Documentados – AJD) is a tax applied to notarial, administrative, and commercial documents. This tax is collected by the Autonomous Communities and comprises both a fixed and a variable component. In property transactions, the AJD is applied to the notarial deeds of the transaction, including the deed of sale and the mortgage deed.

Tax on Property Transfers

The tax on property transfers (Impuesto sobre Transmisiones Patrimoniales – ITP) is an indirect tax levied on the transfer of assets and rights, such as the purchase of second-hand (not new) real estate. In a property transaction, it is the buyer's responsibility to pay the ITP. The applicable rate varies depending on the Autonomous Community, as each one sets its own tax rates. For more details on ITP and AJD, see our article These Are the Taxes to Be Paid When Buying a Property.

Taxable Base

The taxable base (base imponible) is the amount used to calculate the tax due. In other words, it is the value on which a percentage is applied to determine how much tax you will need to pay. For real estate transactions, the taxable base is the value of the property used as a reference. This reference can be the cadastral value of the property, its market price, or the agreed sale price, depending on the type of tax.

In the case of ITP, for example, the taxable base is the price agreed between the buyer and the seller. The corresponding percentage is applied to this amount. For instance, if the agreed price is €200,000 and the ITP rate is 10%, then €20,000 in taxes will be due. For IBI, the taxable base is the cadastral value of the property, so the percentage is applied to this value instead.

Newly Built Housing

In general, newly built homes (viviendas de obra nueva) are those that are being handed over for the first time and have not been previously owned or lived in. However, some refurbished properties or those that have had previous tenants may also be considered new. Since the definition of newly built housing can be more complex and includes various specific situations, we recommend reading our article New or Second-Hand? Key Considerations for Choosing Which Property to Buy for more information.

Built Area and Usable Area

The terms ‘built area‘ (metros construidos) and ‘usable area‘ (metros útiles) refer to specific concepts related to the dimensions and layout of a property. Both terms are often used, so understanding the differences and meanings of each is essential for knowing the actual size of a home.

• Built area: Refers to the total surface area of a property, including all building elements. This encompasses both habitable areas (such as living rooms, bedrooms, kitchens) and non-habitable areas (such as walls, ceilings, and partitions).
• Usable area: This refers to the square metres that can actually be used and walked on within a dwelling, i.e., the living or functional space. It excludes areas occupied by walls or partitions.

Capital Gains

Capital gains (plusvalía) are a key concept in the Spanish real estate market. The term refers to the increase in the value of a property during the time it has been owned by its proprietor. In other words, it is the difference between the purchase price and the selling price, after deducting the costs associated with the sale.

Bare Ownership and Usufruct

The legal concepts of bare ownership (nuda propiedad) and usufruct (usufructo) together constitute full ownership of a property. They are used to divide the ownership rights of real estate between two different parties:

• Bare ownership: This refers to the right of ownership of a property without the right to use or enjoy it. In other words, the owner holds the title to the property but cannot utilise it or benefit from it.
• Usufruct: This is the right to use and enjoy a property without owning it. The usufructuary can live in the property, rent it out, and derive income from it, but cannot sell the bare ownership.

In some cases, bare ownership may be sold separately from the usufruct. In such situations, the usufructuary can continue to enjoy the property, while the buyer only acquires the bare ownership.

Encumbrances and Liens

Encumbrances (cargas) on a property are any obligations or liabilities that affect the property and may restrict its use, enjoyment, or free disposal. Encumbrances can include mortgages, usufructuary rights, or pending legal actions related to the property, such as inheritance disputes.

On the other hand, liens (gravámenes) refer to a specific type of encumbrance where the property is used as collateral to secure the fulfilment of an obligation, usually a debt. Liens include mortgages and court orders for property seizure, among others. A lien grants the creditor the right to reclaim the property if the debtor defaults.

Therefore, it is advisable to include a clause in your purchase contract stating that the property is free from liens and encumbrances.

‘Simple Note‘ and Land Registry

The ‘simple note‘ (nota simple) is a document issued by the Land Registry, providing essential information about a registered property. The Land Registry is a public institution responsible for the registration and certification of property rights over real estate in Spain.

The ‘simple note‘ is useful for understanding the legal and administrative status of a property before making a purchase, sale, or any other transaction. With this document, you can verify property ownership and check for any encumbrances that may affect the property. Read this article to learn how to apply for a simple note from the Land Registry.

Certificate of Habitability

The certificate of habitability (cédula de habitabilidad) is an official document that certifies a property meets the minimum habitability standards set by local regulations. This certificate is crucial to ensure that a property is safe, healthy, and suitable for occupation.

Energy Performance Certificate

The energy performance certificate (certificado de eficiencia energética) is an official document that assesses and classifies the energy efficiency of a building or dwelling. Its purpose is to provide clear information on the property's energy consumption and environmental impact.

The ’simple note’, the certificate of habitability, and the energy performance certificate are some of the documents the seller will need to provide during the buying and selling process. Learn more about these and other essential documents in our article 10 Documents You Should Request Before Buying Your New Home in Spain.