Top Casa – 11/2014 – The path to your dream home in Ibiza – Mayor points you need to check before buying a property

The path to your dream home in Ibiza - Mayor points you need to check before buying a property

Buying a property in Ibiza is still very attractive, especially for many Europeans. However, to avoid trouble in the acquisition and protracted disputes, the following points should especially be taken into account when making a purchase request:

Spanish Coastal Law: Many dream properties are located in the beautiful coastal area of Ibiza. This then means also that the Spanish Coastal Law can be applied. This is often an unseen problem. The coastal area is divided by the coastal law in different areas where different obstacles have to be taken in consideration regarding the possibilities of construction. First, there is the public seashore (zona de dominio público marítimo-terrestre), then the protection zone (servidumbre de protección), which is usually 100 meters wide. In individual cases, this can be extended by up to another 100 meters. By the last reform of the law was the possibility established to reduce the protection zone to only 20 meters in areas of estuaries. In this protection zone no new building may be constructed. This zone is followed by the affected zone (zona de influencia), in which some development is permitted under special restrictions. The latest reform of the law grants for the already existing construction situated directly at the coastline an extension of the time of usage of about 30, 50 or 75 additional years and for construction situated in the protection zone it grants eventually the right of preservation of the status quo. Even though the new coastal law is loosened by this reform and therefore the demolition is no more the priority as it was before, it has to be verified before a purchase if the property is situated in an affected zone for avoiding any later troubles. Because there is still the possibility that a building license for renovation or construction of new buildings or new constructional elements may be refused. A simple check of the land registry is not sufficient. It may be quite possible, that the buildings were built in the past without any closer official checking as close as possible to the sea and was registered therefore without any indications.

Option Contract: Precisely because of the validity of private purchase contracts, it is common practice in the Balearics to sign before signing the notarial purchase deed a private option to purchase agreement. By such option contract, the prospective buyer can reserve the property for a certain period, for instance, to realize the financing of the purchase. The purchase option agreement establishes the right to purchase the property and provides protection from a purchase by a third party. The prospective buyer pays a price which usually is 10% of the purchase price that is at the same time a down payment on the total purchase price payable at the day of signing the purchase deed. In case he does not perform the purchase, he loses the option price paid. Conversely, the seller will pay the same amount as penalty, if the purchase is not realized on time due to his fault. As a formal requirement the option contract must contain all the elements of the actual sales contract and exactly this is the root of the basic problem of this type of contract. Many buyers sign the contract without scrutiny, since in their eyes it is a merely less important "preliminary agreement". But this is just not the case. The agreements established in the option contract are the basis for the sales contract. In case the potential buyer after a thorough examination wants other stipulations, such as changes in the purchasing arrangements, it may happen in the worst case scenario, losing a substantial sum of money because of not carrying out the purchase at last. It is therefore advisable before signing any legal contract, to have the option to purchase contract as well as the property itself checked in detail by a legal expert, verifying amongst other things the encumbrances and building regulations.

Municipal Capital Gain Tax (Plusvalía municipal): In settlement of the purchase contract, the Capital Gain Tax should as well be taken into account. This tax has to be paid by law by the seller. It is calculated based on the cadastral value, the number of years in which the seller had the property in possession, and the municipal regulations. If the seller does not pay the tax after selling the property the buyer cannot be inscribed as the new owner in the Land Registry. The voucher of the payment of the tax has to be presented to the Land Registry. In practice therefore, it is recommended that the buyer retains the tax and thus withdraws it from the purchase price and then pays it directly in the name of the seller to the Tax office.

Of course, the buyer has to take into account that buying a property carries also other issues, such as tax issues and the aspect by whom the property may be purchased (by him as individual or by a company). You should absolutely pay attention to the problems mentioned in order to avoid paying a lot more money later. Keeping those things in mind you are a big step closer to your dream property.



Christian Gerboth Lawyer & Abogado

Specialized in real estate, inheritances and Company Law
Partner and founder of the German-Spanish firm Gerboth & Partner
Calle Pintor Puget 14, Santa Eulalia, Ibiza
Jaime III 3, 07012 Palma de Mallorca, Tel. 0034-971722494

Gerboth & Partner - European Lawyers