Potential property encumbrances when buying a home: key considerations for a secure purchase with no unpleasant surprises
Purchasing or selling a property is one of the most significant transactions an individual is likely to undertake during their lifetime. Although the process may appear straightforward, it is surrounded by a range of legal, financial and contractual risks which, if not properly identified and managed, may have serious consequences.
One of the most critical issues that every purchaser should consider is whether the property is affected by any charges or encumbrances. These represent obligations or restrictions capable of adversely affecting the investment, and overlooking them may lead to unpleasant surprises, including the loss of rights over the property or the assumption of liabilities incurred by another person.
In this article, we examine the principal types of charges and encumbrances that may affect a property and explain how to identify them in advance in order to avoid legal and financial complications.
1. Mortgages and charging orders when purchasing a property
A mortgage is one of the most common encumbrances encountered in residential property transactions. It constitutes a security interest over the property, created to secure repayment of a debt, usually a loan obtained by the current owner.
For a mortgage to be validly constituted under Spanish law, it must be executed by means of a public deed before a notary and registered at the relevant Land Registry (Article 1875 of the Spanish Civil Code and Articles 145 and 159 of the Spanish Mortgage Act). Consequently, only mortgages that have been registered at the Land Registry are legally effective against third parties. Accordingly, in order to verify whether a property is subject to a mortgage, it is generally sufficient to obtain a Land Registry Extract (nota simple).
Where the property is subject to an outstanding mortgage, there are two principal options available:
Assumption of the existing mortgage: in certain cases, the purchaser may elect to assume the existing mortgage by way of mortgage subrogation. Under this arrangement, the purchaser replaces the seller as borrower under the existing mortgage loan and continues making the mortgage repayments in accordance with the terms agreed with the lending institution.
Requiring the mortgage to be discharged: in practice, the most common solution is for the seller to redeem and discharge the mortgage either before completion of the sale or simultaneously with completion.To achieve this, the seller must repay the outstanding debt owed to the lender. Once the lender confirms that the loan has been redeemed, the cancellation of the mortgage registration is effected at the Land Registry.
If the mortgage is not properly discharged before completion, the purchaser may encounter significant difficulties in the future, including the risk of mortgage enforcement proceedings should the former owner default on the secured debt.
An attachment constitutes a judicial or administrative measure imposed over a property in order to secure payment of a debt or financial liability.
Such measures may restrict or prevent the sale of the property until the underlying debt has been settled or otherwise resolved. For this reason, purchasers should obtain specialist legal advice to assess both the scope of the attachment and its potential consequences, enabling any issues to be addressed before completion of the purchase.
2. Easements, planning restrictions and urban planning burdens when purchasing a property
When purchasing a property, another essential aspect to consider is whether it is affected by easements, planning restrictions or urban planning burdens. These may restrict the use of the property or adversely affect its value.
Easements are proprietary rights that restrict the use of one property for the benefit of another. Various types of easements may affect the manner in which a property can be used or enjoyed. The most common include the following:
Right of way: this is one of the most common forms of easement. It entitles another person, typically the owner of adjoining land, to cross the property in order to gain access to a public highway or another property.
Rights to light and views: this type of easement may restrict the construction of buildings or structures that would obstruct the natural light or views enjoyed by a neighbouring property. For example, where a neighbouring house has windows overlooking the property, there may be an easement preventing the construction of a wall or other structure that would substantially interfere with those rights.
Watercourse or pipeline easements: these easements permit water mains, drainage systems or pipelines to pass through the property in order to provide services to neighbouring land.
Utility easements grant electricity, gas, water or telecommunications providers the right to install, maintain and access poles, cables, pipelines or other infrastructure located on the property.
Planning restrictions are limitations imposed by the applicable urban planning legislation and municipal planning instruments governing land use and development.
These restrictions regulate the permitted use of land and buildings in order to ensure orderly urban development. Before purchasing a property, it is essential to determine which planning restrictions apply and verify that the property fully complies with them.
Failure to do so may expose the purchaser to substantial financial penalties or, in the most serious cases, demolition orders relating to unauthorised works.
Urban planning burdens are obligations imposed by public authorities to ensure compliance with planning legislation or to facilitate public development projects affecting the property.
The most significant include:
Urban development projects: where a property is affected by a future development scheme, such as the construction of roads, parks or public infrastructure, it may become subject to partial or total compulsory acquisition (expropriation).
Building setbacks: setback requirements establish the minimum distance that must be maintained between a building and the boundaries of the plot. Planning regulations may impose additional setback obligations to accommodate future public developments.
Compulsory land transfers: in certain circumstances, landowners may be required to transfer part of their land to the public authorities for the construction of roads, pavements or other public infrastructure.
Environmental protection measures: where a property is located within an environmentally protected area, it may be subject to statutory restrictions limiting or prohibiting alterations or development. This commonly applies to land situated near rivers, coastal areas or protected natural parks.
These planning burdens may significantly restrict the owner’s ability to use or enjoy the property and may also reduce its market value, particularly where there is a possibility of future compulsory acquisition. Accordingly, it is essential to review the relevant municipal planning instruments and obtain specialist legal advice before proceeding with the purchase.
3. Tenancies when purchasing a property
Where the property to be acquired is subject to an existing tenancy, it is important to understand how the lease may affect the transaction, together with the rights and obligations that the purchaser will assume.
First, Article 25 of the Spanish Urban Leases Act (Ley de Arrendamientos Urbanos) grants the tenant a statutory right of first refusal (derecho de adquisición preferente).
Accordingly, the seller must notify the tenant of the proposed sale, specifying both the purchase price and the other essential terms of the transaction. The tenant then has 30 calendar days in which to exercise this right and acquire the property on the same terms.
If the tenant does not exercise this preferential acquisition right, the sale may proceed in favour of the purchaser.
In such circumstances, the purchaser is subrogated to the rights and obligations of the landlord, meaning that they assume the seller’s position under the tenancy agreement.
Article 14 of the Spanish Urban Leases Act provides that a purchaser acquiring a let residential property will be bound by the landlord’s rights and obligations during the first five years of the tenancy.
Where the original landlord is a legal entity rather than an individual, this mandatory period is extended to seven years.
Furthermore, where the tenancy has been agreed for a longer fixed term and has been duly registered at the Land Registry, the purchaser will be bound for the entire registered contractual term.
For this reason, when purchasing a tenanted property it is essential to review the tenancy agreement carefully in order to understand the contractual rights and obligations that will pass to the purchaser and to ensure that all obligations have been properly complied with.
4. Property tax (IBI) when purchasing a property
The Impuesto sobre Bienes Inmuebles (IBI) is a municipal property tax levied on the ownership of real estate in Spain. It is payable annually by the person recorded as the owner of the property on 1 January of the relevant tax year.
If the seller has failed to pay the IBI in previous years, the outstanding liability may remain attached to the property. Consequently, the purchaser may become liable for any unpaid IBI that has not become statute-barred.
Under Spanish law, the limitation period for recovering these tax liabilities is four years, calculated from the day following the expiry of the statutory period for filing the relevant tax return or making payment within the voluntary payment period (Article 64 of the Local Government Finance Act (Ley Reguladora de las Haciendas Locales)).
For this reason, we always recommend requesting from the seller a certificate confirming that all IBI liabilities have been paid before completion of the purchase. This document provides assurance that there are no outstanding property tax debts associated with the property.
5. Community of owners when purchasing a property
When purchasing a property forming part of a Community of Owners (Comunidad de Propietarios), it is essential to consider the community charges associated with the property.
These charges consist of the contributions payable by each owner towards the maintenance and operation of the common parts and shared services of the building or residential development, including, for example, lifts, swimming pools, cleaning of communal areas and security services.
Article 9 of the Spanish Horizontal Property Act (Ley de Propiedad Horizontal) provides that the purchaser of a property forming part of a condominium regime is liable, with the property itself serving as security, for certain outstanding community charges owed by previous owners.
However, this liability is limited. It extends only to:
- the outstanding contributions relating to the current financial year in which the purchase takes place; and
- the contributions corresponding to the three preceding calendar years.
Accordingly, before completing the purchase, it is essential to require the seller to provide a certificate confirming that all community charges have been paid.
This certificate must be issued by the Secretary of the Community of Owners, with the approval (or countersignature) of the President of the Community.
In addition to ordinary service charges, the Community of Owners may approve extraordinary contributions (derramas) to finance unforeseen expenses or major repair works. These may include, among other things: façade refurbishment; installation of a lift; replacement of building services or communal installations; or major structural repairs. Accordingly, purchasers should also review the financial position of the Community of Owners in order to determine whether any extraordinary contributions have already been approved or remain outstanding prior to completion.
6. Utility supply contracts when purchasing a property
Liabilities arising under utility supply contracts relating to the property are personal obligations of the contracting party.
Accordingly, unpaid debts relating to electricity, gas, water or telecommunications do not constitute charges affecting the property itself and remain the sole responsibility of the seller or, where applicable, the tenant in whose name the relevant contract was entered into.
Nevertheless, although a purchaser is not legally liable for these debts, utility providers frequently attempt, in practice, to require new owners to settle the outstanding balances before allowing them either to assume the existing contracts or to enter into new supply agreements.
For this reason, we strongly recommend requesting from the seller documentary evidence that the most recent utility bills have been paid in full before completing the purchase.
To ensure that your purchase is both legally secure and financially sound, Devesa has a dedicated team of lawyers and economists specialising in Spanish real estate law. Our specialists can review all relevant documentation, investigate any existing charges or encumbrances affecting the property, and advise on the most appropriate legal solutions before the transaction is completed.
Do You Need Legal Advice? Please visit our Real Estate Law section to find out how we can assist you with the purchase of residential property.
