The real estate market seems to be picking up again in our country and, with it, the number of property sales is growing. In fact, it is likely that, at this moment, you are also thinking about buying a house. If so, you are probably worried about the costs associated with the operation. One of the most controversial is the deed of sale. And the fact is that, on many occasions, it is difficult to be clear about who pays, and as lawyers specialising in real estate law we have prepared this article to try to explain it to you in detail.
Freedom of agreement
The first thing to be said in this respect is that the law, although it makes specific rulings as to who is responsible for each expense associated with the purchase and sale of a property, gives priority to the freedom of agreement between the two parties. This means that both parties can agree on something contrary to what appears in it and, even so, what has been signed must be complied with. Therefore, it is very important that you study and analyse the document to make sure that all the conditions are explicitly stated in it.
The costs of buying and selling a real estate property
Having made the above clarification, it is time for us to dive deeper into the subject that concerns us. Obviously, we are going to refer to what the legislation establishes regarding the obligatory nature of the payment of the different costs associated with the deed of sale, although, as we have mentioned, this can be modified by agreement between the seller and the buyer.
The public deed expenses
Unless otherwise stipulated in the purchase contract, the seller is always obliged to pay the costs associated with the execution of the public deed, i.e. those of the original deed, which are also the highest. On the other hand, it is the buyer who has to pay those related to the first copy and other costs directly associated with the sale, such as, for example, the mortgage contracted for the acquisition of the property.
Transfer Tax or VAT and the Property Register
The purchase of any property requires, irremissibly, its inscription in the Land Registry. In fact, if it is second-hand, the procedure must also be carried out in order to specify who the new owners are and for the Public Administration to be aware of this. This expense must always be paid, unless otherwise agreed, by the purchaser.
The same applies to transfer tax in the case of second-hand properties and value added tax in the case of new properties. In both cases, it is also the buyer who is responsible for payment. Generally, in order to ensure that the payment is made, they are established as notary fees, and the notary is the one who pays them directly to the administration.
Cancellation of charges, encumbrances and mortgages
The law establishes that it is the seller, being the original owner of the property involved in the transaction, who is obliged to meet all the expenses necessary to proceed with the handover. Therefore, he is responsible for the cancellation of charges, encumbrances and mortgages that are attached to the property.
Obviously, this is also a matter that can be freely agreed, but it is very unusual for the buyer to be willing to pay these expenses. In any case, in order to prevent errors and mistakes, it is very advisable that, in the purchase contract and in the public deed, it is explicitly stated that the buyer acquires the property free of encumbrances. The simple request for a simple note in the Land Registry is sufficient to verify this.
In the case of properties that are sold with an associated mortgage, this is usually dissolved automatically when the contract is signed and the fixed amount is paid. In fact, the heads of the institutions are usually present to ensure that this happens. In the event that the amount is not sufficient to satisfy the entire debt, the seller must look for ways to release the property from this burden.
Tax on the Increase in the Value of Urban Land
The Tax on the Increase in the Value of Urban Land is better known to all of us under the name of 'capital gains tax'. Specifically, it is levied on the difference in price between the time of purchase and the time of sale to compensate for the increase in the price of real estate due to the passage of time.
Obviously, since it is the seller who can make an economic profit taking into account the price at which he bought the property and the price at which he sells it, it is he who has to bear this expense.
This is a rather special case. This capital gains tax is levied by the competent local authorities. It may have been stated in the purchase contract that it is the buyer who has to pay this tax. However, the municipality in question will request the collection of the amount from the seller by default. It will be the seller who will have to pay it and, subsequently, demand the fulfilment of the agreement from the buyer.
Stamp Duty Tax (Impuesto de Actos Jurídicos Documentados)
This tax is only applicable in the event that a mortgage is constituted for the acquisition of the property. If this is the case, it will be the purchaser who will have to pay this tax, as well as the costs associated with the granting of the loan and the fees of the Property Registrar.
Real Estate Tax
This is a rather tricky issue and a common source of conflict between the buyer and the seller. This is mainly due to the fact that the law establishes that the person responsible for the payment of the Real Estate Tax (IBI) corresponds in its annual totality to the person who was the owner of the property on the 1st of January.
Therefore, if a subject sells his house on 13th April, for example, the law states that he will be responsible for the payment of the corresponding IBI until 31st December of the same year. It would not be until the following year that the new owner would have to pay the tax.
However, there is already a Supreme Court ruling which indicates that the amount of IBI should be divided proportionally between the buyer and the seller. This means, following the example above, that the previous owner would only have to pay the proportional part corresponding to the period from 1 January to 13 April, while the buyer would be liable for the amount from 14 April to 31 December.
For this reason, an increasing number of purchase contracts clearly specify how the IBI is to be paid after the transaction. Depending on the size and characteristics of the house, the figure can be very significant.
In short, these are all the costs associated with the deed of sale that you should bear in mind when selling or buying a property. We hope we have been of help to you in understanding to whom each one corresponds.
We hope we have been helpful. If you have any questions, please do not hesitate to contact us.
