Steps being taken in Spain and the United Kingdom to return liquidity to banking

British banks and the Spanish Government are analysing the feasibility of certain emergency measures to provide liquidity to financial entities and to jump-start the capital markets.

In Spain, one of the initiatives on the table consists in requesting that the Central European Bank grants a greater term for financial operations with the purpose being to provide more stability to financial entities.

Another of the measures being discussed involves the Spanish Government and the Public Authorities being able to guarantee certain securitisations.

Specifically, this proposal has materialised in the form of the 3,000 million securitised VPO debts (subsidised housing) that have already been guaranteed by the ICO (Official Credit Institute of Spain).

In the United Kingdom, during the months of May, June and July, the Bank of England will exchange up to 50,000 million Sterling in securit ies in securities backed by mortgage debt by public debt, in other words, Treasury bonds.

With this action, the Central Bank of the United Kingdom intends to improve the liquidity situation of the banking system and raise confidence in the financial markets.

Authorised entities will have six months to exchange the assets for mortgage loans during an initial period of one year that may be extended to three.

Those interested in doing so, will also be required to pay a commission resulting from the difference between the three-month Libor rate and the official price of money at three months.

Costs Involved in the Purchase of a New Property: V.A.T.

VAT (Value Added Tax – “IVA” in Spanish) covers the entire construction process of a property, from the moment it is contract to the moment it is completed. The land, the construction works, its completion and the first delivery made by the developer are all subject to this tax.

Therefore, this tax is only applicable when a newly-constructed property is purchased from a developer. Subsequent sales of the property are exempt from this tax but are subject to another type of taxation, Property Transfer Tax (“Impuesto de Transmisiones Patrimoniales” in Spanish).

In Spain, VAT currently stands at 7% for freehold property, garages and annexes. The 7% is only applied to garages and annexes (basements, attics, storerooms) that are located in the same building as the property in question provided that they are purchased at the same time, on the same date and before the same notary. It should be mentioned that the number of garage spaces that can be subject to the 7% rate of VAT is limited to two.

For this reason, it is fundamental that the transfer of the garage and the annexes is done during the same act and on the same date. It does not matter whether this transfer is reflected in the same or a different private document or public deed.

The VAT is paid to the developer at the same time as the price of the sale.

Converting the document into a public deed

After the conditions of the sales agreement have been agreed upon it will be converted into a public deed by being executed before a notary.

The deeds will be registered at the Land Registry after all the expenses and taxes due have been paid. Only legal and administrative documents, not private contracts, may be registered at the Land Registry and this is why it is essential to convert the agreement into a public deed before a notary.

The deeds list all the points to be considered in the purchase of a property: location; specifications, boundaries; surface area; price; method of payment and all the pertinent contractual conditions.

The purchaser will keep the original deeds after all the expenses have been paid and the document has been registered at the Registry.

Contents of the agreement

The wording of the sales agreement should adhere to the principle of good faith and the rights and obligations of both parties should be fairly and reasonably shared. It is extremely important to read all the articles of the agreement carefully before signing to verify that that you agree with all the conditions.

The National Consumers Institute and the Autonomous Communities, working in collaboration, have drawn up a standard sales agreement for a newly-built property. In line with this model, sales agreements should contain the following:

- Parties involved: name and National Identity Document number of the purchaser of the property; name and National Identity Document number or tax number of the seller.

- Information about the plot or property: name, square metres, location, Land Register information, information contained in the annexes.

- Architect details: name, address, contact details, statement affirming that all the permits and administrative licenses required by law have been obtained.

- Builder details.

- Information on the mortgage loan: Statement affirming that the purchaser has taken out a mortgage from a bank.

The bank’s loan conditions should be attached.

- Date of delivery of the property: conditions on which said delivery is dependent.

- Total price of the plot broken down according to type of building and the annexes.

- Method of payment: The down payments and deadlines should be specified. The interest rate for late payment in the event of non-payment should be specified.

- Guarantee information: The name of the institution that is providing the guarantee should appear.

- Specify whether there is an option to assume the loan mortgage.

- Annex to the sales agreement listing the documentation that should be handed over to the purchaser: plot information, financing, building, licenses etc.

- General Conditions of the Agreement which describe the obligations of the parties.

All these points should be worded in adherence to the principles of good faith and fairness. Article 10 of Royal Decree 515/89 refers to all real estate sales contracts and leases:

“Real estate sales contracts and leases should be drawn up in a clear and concise way. Other texts or documents may be referred to provided that the parties have been given a copy of the text or document before signing the contract, or on executing the contract. They should also adhere to the principles of good faith and a fair distribution of the considerations accepted by both parties. Consequently the inclusion of clauses is not allowed ….”

The sales agreement for a newly-built residential property

What is a sales agreement?

A sales agreement is a private document in which one of the contracting parties, in this case the seller, undertakes to hand over a residential property while the purchaser undertakes to pay a specified price for said property.

The agreement is completely valid and is legally binding on both parties from the moment of signing, even though the property has not been handed over. The agreement will eventually be converted into a public deed before a notary.