Guide to buying a HOUSE

Items for consideration

As much information as possible about your future property must be obtained and we consequently
advise you to bear the following items in mind:


1. Check the registration. At a new construction property, the consumer will find details about its registration at the sales office, as we will see later on in this guide, depending on the state of progress of the construction. Although we can apply for a “note simple” from the register showing the registration owner, the declaration of new work, horizontal property division, etc. With used properties, the “note simple” will provide us information about any possible liens that might encumber the property, in addition to the name of its present owner. Apart from this, before signing the Public Deed of Purchase/Sale, the Notary will apply for a registration note of the property and the seller will provide a certificate from the president of the owners’ association stating that the property is up to date in its community fee payments, and last Property Tax (IBI) bill.


2. Documentation at the public’s disposal. Law 8 of 20 October 2004, on Property in the
Autonomous Region of Valencia, and Royal Decree 515 of 21 April 1989, on consumer protection
regarding information to be supplied in the property lease and purchase/sale, obliges the real
estate developer to have detailed information available to the public at the sales offices, regarding
the developments it is marketing.

A dossier of the documentation listed below will be available to the public:


1. Company name, address and its recording at the Trade Registry.
2. Site plan of the development.
3. Technical Project
4. Drawings of electricity, water, gas and heating networks, and other services.
5. Guarantee of the installations.
6. Fire safety measures.
7. Scale plan of the properties, defining their useful area. Memorandum referring to the measurements relating to useful areas, built areas and areas built with repercussion of the community elements.
8. General building description (number of stories, number of housing units and type of building),
of the communal areas and accessory services.
9. Reference of the material used in the construction including thermal and acoustic insulation
avoiding general references such as “first quality”, for example.
10. Instructions of use and preservation of the installations and emergency exits.
11. Indication of the Notary who has performed the Horizontal Division and New Works
Declaration and the Registration number where this has been recorded or indication that
there is no recording entry.
12. Copy of the urban development licence or reported delay and provisional classification, if applicable.
13. State whether the Owners’ Association has been formed and if so, copy of the Articles of
Association and Administrator’s name and address. If operational, extract of accounts and
obligations relating to the property.
14. Tax information.
15. Photocopy of the sale and purchase contract.
16. Scheduled terms for termination and delivery of the properties, after obtaining the administrative authorisations and licence for their occupation.
17. Name and address of the Architect. Name, registered name and office of the builder.
18. Document formalising the guarantees for down payments, stating the guarantor entity and
special account into which the payments must be deposited.19. Note explaining the price with the following data:
a) Total price, including VAT, if the sale is subject to this tax, or otherwise Transfer and
Stamp Tax, and also Agent’s fees if intervening in the sale.
b) Form of payment. Applicable interest on deferred payments, amounts for principal and
interest and maturities.
c) Admissible payment means for deferred amounts.
d) If subrogation in credit with real guarantee is foreseen, clearly state the name of the
Notary authorising the respective deed, its date, recording particulars at the Land
Registry and mortgage liability for each property, indicating maturities and amounts.
e) Buyer’s guarantees for deferred payment.
f) This note will state that any down payment made by the buyer before formalising the
operation will be deducted from the total sales price.
3.- For finished properties, in addition to the above documents and requirements, the following
will be required:
1. Formation of the ten-year insurance.
2. If subrogation in credit with real guarantee is foreseen, clearly state the name of the
Notary authorising the respective deed, its date, recording particulars at the Land
Registry and mortgage liability for each property, indicating maturities and amounts. If
the buyer does not choose subrogation, the expenses for cancellation of the mortgage
loan are payable by the Developer.
3. Building Log Book, containing the documentation on the executed work and its use
and maintenance manual.
4. Licence of occupation or final classification certificate.

Steps to be followed for formalising the purchase/sale

1.- THE RESERVATION
This is a very commonplace document even though the sale and purchase contract cannot be formalised between the parties. The buyer will deposit an amount as guarantee that he/she will buy the property in a given term and the seller undertakes to sell it to him/her. Both parties may terminate the contract in accordance with the agreed penalties.


2.- THE SALE AND PURCHASE CONTRACT
You should analyse the sale and purchase contract you will be given by the real estate developer and if you have any queries, do not hesitate to ask for the suitable explanations; make it clear who will pay for the expenses and taxes incurred from the conveyancing and any exceptional cases in which the seller may modify the property, and for example for technical needs or government impositions, without this implying any change in the price or surface area.
Remember that the law on housing property states that for new construction properties the seller
must accredit the following at the time of signing the contract, in addition to the documents required for their marketing:
a) The availability of the land, technical project and works licence.
b) The deed of Declaration of New Work and constitution of the Horizontal Property
Regime, and also certificate of registration of the participation rates in the communal
elements of the property and the articles of association or project of the property
owners’ association.
c) The schedule of deadlines for completing and delivering the properties.
d) Guarantee of the down payments made (as set out in item 18, section B.2.
Documentation at the public’s disposal).

3.- THE SALE AND PURCHASE CONTRACT
In used housing properties, the documents mentioned in point B-1 of this guide (Registration Verification) will be accredited when signing the deed. When the public deed is a new construction property, the real estate developer will issue you the following documents:
1.- The Building Log Book, which is composed of:
- Project of the building, with the modifications made and duly approved during the construction.
One copy should be issued to the owners’ association.
- Final certificate of reception. Final works certificate.
- An identification list of the agents who have participated in the construction.
- User and Maintenance Manual of the building and of your property, and also its
installations, with the obligations assumed by the future owners regarding the good use
and preservation of the property.
2.- The licence of occupancy.
3.- The bulletins for contracting utilities (water, electricity, etc.)


4.- THE FINANCING
Spain is one of the countries where the offer of mortgage credits is most regulated. The finance company from which we request information must issue us a prospectus clearly specifying the repayment term, interest rate, bank charges and fee and expenses payable by the client.
Once we have chosen the finance company, it will study our circumstances to ascertain the feasibility of granting the loan. If we have chosen not to be subrogated in the loan that the property might hold, and to arrange it with another credit entity, this latter entity will take charge of a new appraisal, at our expense. This is an important step, because the amount of the mortgage loan will vary between 70% and 80% of the property appraisal value. Lastly, the finance company will ask us for a registration note of the property or it will carry out the query in our name to guarantee the security of the transaction. With all this data to hand, the credit entity will issue a binding offer, which we will have ten days in which to analyse. The mortgage loan is signed in the presence of a Notary Public and is simultaneous to the sale and purchase deed. By Law we are obliged to take out a fire insurance policy for the property that is to be mortgaged. It is also recommended, although not compulsory, to contract a loan repayment insurance covering the outstanding capital to be paid in the event of the death of its holder.

As borrowers we are entitled to examine the deed three days before it is signed and the notary will furthermore check there are no discrepancies between the binding offer that the finance company gave us, and the deed of loan.

Taxation

1.- EXPENSES FOR FORMALISING THE OPERATION
The property buyer shall be responsible for paying:
- V.A.T..: 7% Proportional payments will be made on down payments.
- I.A.J.D. (Legal Documents Tax): Payable when a recordable notary document is
subscribed and for an economic amount. This tax does not apply to governmentsponsored
protected housing or used housing. See following table.
- I.T.P. (Transfer and Stamp Tax): Payable when buying a used property. .. See following table.
- THE NOTARY: The buyer will pay the fees for the first copy of the deed. The amount will
depend on the value of the purchase/sale.
- THE REGISTER: The buyer will also pay the fees for recording the deed at the
Property Register.
- THE MANAGER: If contracted for handling all the formalities, in accordance with his tariff.

The seller shall be responsible for paying:
- CAPITAL GAINS TAX: Its correct definition is Tax on Added Value of Urban Property.
- THE NOTARY: The seller is liable to pay the fees for the original deed.
When forming a mortgage loan, the buyer shall be responsible for paying:
- THE NOTARY: The public notary again intervenes and the fees are in function of the
mortgage liability.
- THE REGISTER: The mortgage loan must also be registered and its fees will depend
on the mortgage liability (the sum of all items that are guaranteed by the mortgage).
- I.A.J.D. (Legal Documents Tax): This must be paid in advance (within one month
from signing the deed) when recording the property at the Property Register. This
procedure is normally processed through a management agency.

ORIENTATIVE FORECAST OF EXPENSES DERIVED FROM THE PURCHASE/SALE OF NEW PROPERTY
The registration and notary fees are approximate, because they depend on factors that are not only related with the amount.

TAX BENEFITS IN THE YEAR 2005:

The purchase of a first residence property entitles the owner to enjoy the following reductions when making his/her Income Tax return:
- The amounts destined to the purchase or rehabilitation of the first residence property:
5% with a maximum base of 9,015.18 € (1,500,000 pesetas). The same percentage
applies on amounts earmarked for adapting the first residence of disabled taxpayers
with an independent limit of 12,020.24 € (2,000,000 pesetas).
- For the purchase or rehabilitation financed with loan, including the repayment of
interest and other charges derived from this, and provided the amount of the loan is
at least 50% of the purchase value of the property and that in the first three years no
amounts have been repaid that altogether cover 40% of the amount of the requested
loan, these will benefit from:
a) In the two years following the purchase: 25% on the first 4,507.59 € (750,000
pesetas) and 15% on the excess until 9,015.18 € (1,500,000 pesetas).
b) Later: 20% on the first 4,507.59 € (750,000 pesetas) and 15% on the excess
until 9,015.18 € (1,500,000 pesetas).
The housing account: it is also interesting to know that the amounts deposited in a housing account for first residence purchase or rehabilitation of the first residence housing are entitled to a 15% deduction with a maximum base of 9,015.18 € (1,500,000 pesetas).

Resolution of disputes

1.- LIABILITY FOR VICES OR DEFECTS
There is the following liability for vices in property built under a municipal licence after the 6th May 2000:
- One year for vices or defects in termination or finish.
- Three years for vices or defects in the installations that cause non-compliance in the
habitability requirements (insulation, damp, watertightness, etc.).
- 10 years for damages caused by vices or defects affecting the foundations, supports,
beams, forging, bearing walls or other structural elements (they are covered by the
ten-year insurance). If these are properties with municipal licence previous to the 6th May 2000, there is a 10-year liability in cases of total or partial ruin.

2.- THE CONSUMER ARBITRATION SYSTEM
An arbitration system is a quick, simple procedure for resolving controversies between the parties
without having to resort to the Law Courts.  If the product or service that you, as consumer or user, have purchased does not respond to the correct characteristics and you file a complaint, you should know that article 31 of the Statute of Consumers and Users of the Valencia Autonomous Region has foreseen the establishment of this system for resolving claims.


The Consumer Arbitration is free, private, voluntary and equal and is made at the so-called Consumer Arbitration Boards.
How are the arbitration proceedings processed?:
- The process starts by formalising an Arbitration Request that may be submitted
directly at the Consumer Arbitration Board or through a Consumers Association.
- Once the request is received, it will be checked to see whether the trader or
entrepreneur claimed is a member of the System. If it is, the actual proceedings will
commence; otherwise the request will be transferred, having a term of 15 days in
which to accept or to reject it.
- If the entrepreneur rejects the arbitration invitation, the request will be filed without
further formalities, because this is a voluntary System.
- If it is not rejected, the parties will be called to a hearing, at which they may state
whatever they deem suitable about the existing dispute.
- The College will agree whatever evidence it deems pertinent at its own initiative or
that of the parties.
- The Proceedings conclude with a verdict which resolves the dispute as a court sentence
and has the efficacy of judged chose. If the parties reach an agreement themselves
throughout the proceedings, this will be included in a judgement called conciliatory
judgement, so it also has the same efficacy as if this were a court sentence.
- Only an Appeal for Cancellation is possible against the sentence ruled by the College
of Arbitrators, filed at the Provincial Court in a term of two months from notification to
the parties concerned and the Appeal for Review, in accordance with the provisions
laid down in the procedural law for firm court sentences.

There are four Consumer Arbitration Boards in the Valencia Autonomous Region. For more information, see: http://www.gva.es/industria/consumo/consumo3_c.htm

Urban Development Regulations

In the middle of the decade of the ‘90s, Law 6/1994, Regulating the Urban Development Activity
(LRAU) was incorporated in the Valencia urban development legislative framework, and following
its approval this would mark a clear progress in the forms of managing land. To clarify the
application of the urban development legislation, we will distinguish between the purchase and
sale of new construction housing and plots.


PURCHASE AND SALE OF NEW CONSTRUCTION HOUSING
As a general rule, its construction is authorised on “land with ground plot condition” or, in a
singular case, on ground that is subject to an urban development process as foreseen in the
LRAU: Whereas in the first case, the ground has the necessary utilities and infrastructures,
in the second case, it must be developed. During the urban development process, the
construction of housing may be authorised, provided the entire urban development works are
fully guaranteed, among other requirements foreseen in the current law. At the end of the
urban development process with its respective cessions and charges, the resulting land will be
“urban ground with plot condition”.

The above situations may be accredited by the “urban development guarantee certificate”,
issued by the Town Hall.
Once the housing building has been concluded in accordance with current law, which in this second case means the complete termination of the urban development works, the “occupancy licence” will be issued. This document evidences that the building is fit for habitation, destined to residence of individuals, that it meets the basic quality requirements of edification, environment and location in accordance with the applicable law.
In these cases, the new construction housing cannot be affected again by an urban development
process and, consequently, it will not be subject to new urban development cessions or charges.
The construction of housing on different land to “urban land with plot condition” or “land under
urban development process” is authorised by way of exception when its purpose is to serve as
residence for the owner who exercises a forestry, agricultural or livestock activity. The purchase and sale of these properties is not exempt in future of contributing in the urban development charges:
compulsory cessions plus urban development cost. In this latter case, we insist, the properties
and land where they are located, may be affected by the application of the LRAU, through an
urban development process and, consequently they will be liable to the ground cessions and urban
development charges in accordance with current law.


PURCHASE AND SALE OF PLOTS
Plots classified as “urban land with plot condition” shall not be subject to the application of the
LRAU and consequently shall not support cessions or urban development charges. Nevertheless, and absolutely by way of exception (cases of redevelopment of sectors), these may be taxed with an urban development fee.
The plots located in a zone (sector, industrial estate, partial plan, etc.) that is under urban development, shall not be subject to the application of the LRAU again, once the urban development has been completed and the cessions have been made in accordance with current law.
Plots located in land than the above may be affected by the LRAU.
The “urban development guarantee certificate” issued by the Town Hall accredits the land classification and whether it is taxed by an urban development fee.

DEFINITIONS
 

Occupancy licence:
The occupancy licence is the document that evidences that the built property is adapted to the architectonic project for which the municipal building licence was formed. The Town Halls are the competent administration to grant this document.  In new construction housing, the real estate developer is the party obliged to give the buyer the occupancy licence, when granting the public deed of purchase and sale, or evidence of having obtained it as consequence of administrative silence for the lapsing of three months. It is also obliged to issue the habitability certificate, or evidence of having obtained this as consequence of administrative silence, only in those cases where the Town Hall has not adapted the regulation on occupancy licences to the
Valencia law (Law 3/ 04 and Law 8/ 04).
 

Cessions:
By legal imperative, the owner of a land on which the Administration authorises urban development is obliged to revert part of the capital gain he obtains to society. This means he must assign the Town Hall 10% of the already developed ground, and must also cede another percentage of ground free of charge for constructing roads, pavements and public facilities (parks, schools, hospitals, etc...). In practice, this percentage varies between 10% and 50% of the initial gross land.

Urban development charges:
This is the cost of the urban development and equipping of public utilities to the ground that has received an authorisation to develop. The owner is entitled to pay in cash or in land.


Urban development fee:
This only applies in absolutely exceptional cases on plots and not on housing. When the Town Hall undertakes some very costly urban development infrastructures e.g.: drains and sewers, pavements) the law allows it to reflect part of this cost on the plots that have benefited
from this action: urban development fee. The plot is taxed with this cost, but it will not be demanded by the Town Hall until the building licence is requested, at which time the owner’s benefit becomes effective.


Novelties in the Valencia Urban Development Law with regard to the LRAU:
The Government of the Autonomous Region of Valencia is aware that the LRAU has fulfilled a very important social and economic role in the development of our territory and it is furthermore aware that there are aspects to be improved and imperfections to avoid. It will consequently approve a new law shortly (Valencia Urban Development Law) that will replace the present LRAU, and whose measures will include introducing more information, broader terms, greater facilities for owners to become urban developers, more transparency in fixing urban development charges and objectivity in awarding the PAI.

 

 

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Guide to buying a HOUSE
 
The Arsenal has prepared this guide targeted at informing consumers who are interested in real estate purchases about their rights an obligations.

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