Real Estate Due Diligence in Spain – Avoiding Legal Pitfalls

1. Title and Ownership Verification

The first step is confirming who owns the property and what exactly is owned. This is done by obtaining a Nota Simple from the Land Registry. The nota simple is an extract that shows:

• Registered Owner(s): The name(s) of the current owner(s) as per the registry. Ensure it matches the person you are dealing with (seller). If the seller is a company, confirm the representative’s authority.
  
  

• Property Description: Location, size (square meters of land and building), cadastral reference, and boundaries. Verify that this matches the reality. Discrepancies in size or boundaries could indicate unregistered extensions or even that part of the property isn’t legally included.
  
  

• Charges or Encumbrances: Mortgages, liens, judgments, or other debts secured on the property. For example, if there’s an outstanding mortgage, it should be cleared or canceled at the sale (often the bank provides a debt certificate and the mortgage is canceled simultaneously with the purchase deed).
  
  

• Easements or Rights of Way: The registry might note if a neighbor has a right of way through the land or if there are utility easements. Know these in advance, as they remain after purchase.
  
  

• Other conditions: Sometimes previous owners put usage restrictions or there are leases registered. For instance, a long-term tenant’s lease could be registered, meaning the buyer must respect it.
  
  

Pitfall to avoid: Proceeding without a registry check. There have been cases of fraud where someone who is not the true owner attempts to sell property. Always confirm the seller’s ID against the registered owner’s name. If a property is still in the name of a deceased person or previous owner, insist the title is updated or appropriate steps are taken before purchase.

2. Debts Attached to the Property

In Spain, certain debts “stick” to the property, not the person. Key ones include:

• Unpaid Property Taxes (IBI): Municipal property tax (IBI) is charged annually. A property carries a preferred lien for the outstanding IBI of up to 4 years. Ensure the seller provides receipts proving the last several years of IBI are paid. If not, the town hall could hold you, as the new owner, accountable.
  
  

• Community Fees (Cuotas de Comunidad): If the property is in a condominium or community association, any unpaid fees for the year of sale and the previous 3 years become the responsibility of the new owner by law. To avoid this, get a certificado de deuda (debt clearance certificate) from the community administrator stating the seller is up to date on payments. This certificate is usually required by the notary at sale.
  
  

• Utilities: While not automatically passed to the new owner, unpaid utility bills (water, electricity, gas) can result in disconnection. It’s wise to have the seller show recent paid bills and ideally do the meter readings and name change on or right after completion to ensure you aren’t stuck paying someone else’s usage.
  
  

• Mortgage: A registered mortgage should be canceled by the seller if it exists. Normally at closing, the seller’s bank will either receive a portion of the sale price to pay off the loan and simultaneously sign a mortgage cancellation deed. Ensure the notary will handle or verify the cancellation. If you agree to “take over” a seller’s mortgage (subrogation), do this formally through the bank so that the registry reflects you as debtor – don’t rely on private arrangements.
  
  

Pitfall to avoid: Trusting that “there are no debts” without evidence. Always demand official certificates or receipts. Also, include in the private purchase contract that the property will be delivered free of liens and encumbrances, and specify what happens if any hidden debt is found (e.g., seller must satisfy it or compensate the buyer).

3. Urbanistic and Planning Compliance

Especially important in Spain: confirm that the property was built with permits and complies with planning laws:

• Building Licenses: If it’s a villa or house, ask for a copy of the original building permit (Licencia de Obra) and the first occupancy license or habitation certificate (Cédula de Habitabilidad / Licencia de Primera Ocupación). These documents confirm the home was built legally and is fit for use. Rural properties are a common pitfall area – some owners built homes on rustic land without permission, which can be deemed illegal and even subject to demolition orders.
  
  

• Extensions or Reforms: If the seller made significant changes (added a pool, extended a terrace, converted a garage to living space), check if they obtained the necessary permits. Unpermitted works might not only be subject to fines, but also might not be covered by insurance or could complicate future sale or renovation.
  
  

• Protected Areas: Determine if the property is in a protected zone (coastal protection zone, historic area, nature reserve). If so, special restrictions apply. For example, coastal law prohibits building too close to the shore; ensure the property isn’t in violation.
  
  

• Property boundaries: In rural or suburban properties, verify boundaries and whether fences or walls correspond to the legal plot. Occasionally, neighbors encroach or there are disputes about where the exact dividing line lies. You can get a cadastral plot plan and even a surveyor’s report if boundaries are in doubt.
  
  

• Zoning and usage: For apartments or commercial spaces, ensure the zoning allows your intended use. E.g., if you plan to run a B&B or tourist rental, check community rules or local laws – some cities have restrictions on short-term lets that could be a “legal pitfall” if you assumed you could rent it out.
  
  

Engage your lawyer or even an architect/technical expert for these checks if necessary. They may check municipal records for any infractions or pending fines on the property.

Pitfall to avoid: Buying a lovely country house only to find out later it was built illegally. These situations can be very problematic – legalization might be impossible or costly. Another pitfall is an apartment advertised with a larger size due to enclosed balconies or built-out attics that were done without permission; legally, those meters might not exist. Always verify built area in the registry and cadastral reference against what’s physically there.

4. Contract and Seller’s Representations

Before reaching the notary, you often sign a preliminary contract (deposit or option contract). Ensure this contract contains key representations and terms to protect you during the due diligence phase:

• Clear identification of the property: Include the registry details, cadastral ID, and any accessory units (parking space, storage room) that are part of the sale.
  
  

• Seller’s declarations: The seller should declare that the property is sold free of liens, charges, tenants, and encumbrances, and that it’s in legal order (or if not, disclose any issues known). If you have suspicions or pending checks (e.g., awaiting a town hall certificate), you might include a clause that the purchase is conditional on that being satisfactory.
  
  

• Deposit conditions: Typically, the arras contract states if the buyer pulls out without cause, they lose the deposit; if the seller pulls out, they must return double. Ensure you define “cause” – e.g., if serious legal issues are found in due diligence that the seller cannot remedy (like an undisclosed zoning illegality or a lien), the contract should allow you to cancel with full refund.
  
  

• Fixtures and contents: If any furniture or appliances are included, list them. It avoids disputes on what should remain in the house when you take possession.
  
  

• Completion date and formalities: Set a realistic timeline to allow for checks and obtaining necessary documents (certificates of debt, etc.). Usually 1 to 2 months is common. Ensure the contract allows extension or penalty if the seller delays (especially if waiting on a mortgage cancellation or probate if the seller inherited the property).
  
  

Having a professionally drafted contract by your lawyer is part of due diligence – it legally binds the seller to the promises made. It’s harder for a seller to backtrack on fixing a problem if it’s explicitly stated in the contract that they will resolve it before closing.

5. Physical Inspection and Hidden Defects

While the focus is often on legal checks, do not neglect the physical due diligence:

• Home inspection: For your own peace of mind, inspect the property thoroughly or hire a surveyor/architect for a technical report. Look for structural issues, dampness, pest infestations, roofing problems, etc. Spanish law, like many countries, has the concept of “hidden defects” (vicios ocultos) – if the seller knew of serious hidden material defects and did not disclose them, you could have recourse. However, proving this later is hard and time-consuming, so better to detect issues beforehand.
  
  

• Systems check: Test the plumbing, electricity, heating/cooling systems if possible. Ensure everything that was advertised (e.g., underfloor heating, solar panels) is present and functioning.
  
  

• Occupancy: Verify the property will be delivered vacant. It’s rare, but if a tenant or occupant exists, know the situation. If it’s a holiday home, ensure no future rentals are booked past your purchase unless you’re willing to honor them.
  
  

• Lot and garden: If buying a house, check for any signs that parts of the property are used by neighbors (a shared driveway, etc.) which might indicate an easement. Ensure those are documented or you’re okay with them.
  
  

Sellers in Spain have a general obligation to not deliberately conceal defects, but there’s no substitute for “buyer beware.” After purchase, your remedies are limited and time-barred (6 months for hidden defects claims generally), so upfront diligence is key.

6. Verify Habitability and Utilities

Make sure the property is habitable and that utilities and services are properly connected:

• Habitation Certificate: Some regions require this for selling or for getting utilities in your name. If it’s expired or missing, consider making renewal a seller’s responsibility.
  
  

• Utility meters: Verify that electricity and water meters exist and are legal. In rural homes, sometimes people use illegal hookups – you don’t want to inherit that issue.
  
  

• Sewerage: Check if the property is connected to public sewer or has a septic tank. If septic, was it built legally and does it function well? Unexpected infrastructure costs (like needing to install a new septic system) can be a pitfall if overlooked.
  
  

• Energy Certificate: By law, the seller must provide an Energy Performance Certificate rating the property’s efficiency. Ensure you receive this document at closing. While not a “deal breaker,” it gives an idea of insulation quality and future energy costs.
  
  

7. Use a Qualified Professional

This cannot be stressed enough: employ a competent lawyer to handle the due diligence. While we’ve outlined what needs checking, a local expert will know how to obtain and interpret the information. They will also check something very important – the purchase method and potential tax implications or costs, such as:

• If the seller is a non-resident, making sure the 3% retention is handled.
  
  

• If the property is being sold by a company, checking there’s no claim like unpaid corporate tax that could affect the sale.
  
  

• Making sure any deposit you pay is handled securely (preferably held by a neutral party or only released under clear conditions).
  
  

• Drafting powers of attorney correctly if you can’t be present to sign.
  
  

Pitfall to avoid: Trying to save a bit of money by not using a lawyer or using someone unqualified (like an unlicensed “gestor” or an attorney who doesn’t specialize in real estate). The small fee for professional due diligence is nothing compared to the potential cost of an unresolved legal issue.

8. Case Study Examples of Pitfalls

• Case 1: The Coastal Cottage without Permits – An expat buys a seaside cottage only to learn a year later that part of it was built on public maritime domain land. The structure was illegal and eventually had to be demolished. Proper due diligence would have revealed no building license and encroachment on protected coastline. Lesson: Always verify legality of construction, especially near coasts or protected areas.
  
  

• Case 2: The Villa with a Lien – A seller didn’t mention a court embargo (lien) on the property due to unrelated debts. If the buyer’s lawyer hadn’t checked, the buyer could have paid, but the property might later be seized by creditors. Lesson: Always check the Land Registry for any annotations of embargoes or lawsuits.
  
  

• Case 3: The Urbanisation Rules – A foreign buyer purchases a home intending to do short-term rentals, but after closing the community of owners fines them and forbids it (community statutes disallowed tourist lets). The buyer hadn’t reviewed the community bylaws. Lesson: Check community statutes for any restrictions on property use (pets, rentals, renovations).
  
  

• Case 4: Hidden Flood Risk – A house seemed perfect, but unbeknownst to the buyer, it was in a flood-prone zone (in fact, a big flood had damaged it 5 years before, which the seller fixed cosmetically). A bit of research or asking neighbors would have uncovered this history. Lesson: Due diligence can include environmental risks; don’t hesitate to ask around locally in addition to document checks.
  
  

By studying these, you can see how thorough due diligence is your insurance policy against future headaches.

In conclusion, real estate due diligence in Spain is a multi-faceted process covering legal, financial, and physical aspects of the property. By checking title, debts, permits, and using professional help, you drastically reduce the risk of encountering legal pitfalls. Don’t rush into a purchase – take the time to verify everything. A property purchase for an expat can and should be a positive experience, and it will be if you go in informed and protected.

When in doubt, consult experts. We assist foreign buyers in performing all the necessary checks to ensure a safe transaction. If you’d like personalized help with due diligence on a property in Spain, book an appointment with our real estate legal team. We’ll guide you through the process and give you peace of mind before you sign on the dotted line. Book your consultation here: Book an appointment.