Legal guide to the Spanish real estate market

Buying a home, signing a mortgage, renting a flat, managing a homeowners' community or investing in Spanish real estate from abroad are operations that usually involve large sums of money and, at the same time, concentrate an enormous amount of litigation: most civil disputes in Spain are related to real estate, mortgages and leases. This guide offers a complete overview of Spanish real estate law: due diligence in purchase and sale, Spain's Real Estate Credit Contracts Act (LCCI / Law 5/2019), Spain's Urban Lease Act (LAU) after Spain's Housing Law (Law 12/2023), evictions, horizontal property, taxation (Property Transfer Tax (ITP), VAT, Personal Income Tax (IRPF), Local Property Tax (IBI), municipal capital gains tax (plusvalía municipal)) and investment by non-residents.

Regulatory framework: the laws you need to know

Spanish real estate law rests on around a dozen key statutes whose basic logic is worth understanding:

• Spanish Civil Code: contracts in general, purchase and sale, earnest money (arras), gifts, inheritance, easements.
• Mortgage Act and its Regulation: Land Registry, principle of public faith of the registry, mortgages.
• Spain's Real Estate Credit Contracts Act (LCCI / Law 5/2019): substantive transparency in mortgages, costs, fees and early termination.
• Spain's Urban Lease Act (LAU / Law 29/1994): residential leases and leases for purposes other than housing.
• Spain's Housing Law (Law 12/2023): amendments to the LAU, stressed areas, large landlords.
• Spain's Horizontal Property Act (LPH / Law 49/1960): homeowners' associations.
• Consolidated Text of the Land and Urban Rehabilitation Act: national-level urban planning; each Autonomous Community has its own planning law.
• Personal Income Tax Act, Non-Resident Income Tax Act, VAT Act, Wealth Tax Act and Consolidated Text of the Property Transfer Tax (ITP) and Stamp Duty (AJD) Act: real estate taxation.

Purchase and sale of a property: due diligence and process

A real estate purchase and sale usually unfolds in three phases: preliminary analysis, private contract (earnest money or reservation) and public deed plus registration. Due diligence is concentrated in the first phase.

Registry, urban planning and technical due diligence

• Up-to-date Land Registry extract (nota simple registral): ownership, encumbrances (mortgages, attachments, preventive entries), easements, tax liens.
• Cadastral certificate: boundaries, surface area, physical identification.
• Urban planning certificate from the City Council: land classification, permitted uses, alignments, status of the building (legal, non-conforming, etc.).
• Habitability certificate or first-occupation licence and energy performance certificate.
• Homeowners' association: certificate confirming that fees are up to date, minutes of pending special assessments, internal rules.
• Technical building inspection (ITE) where required due to the age of the building.
• Mortgage debt certificate if there is a live charge on the property (so it can be cancelled out of the purchase price).
• Local Property Tax (IBI) and municipal capital gains tax (plusvalía municipal): confirm that they are up to date.

Earnest money (arras) contract: types and consequences

The earnest money (arras) contract is the private agreement that precedes the public deed, usually accompanied by an upfront deposit. The Spanish Civil Code distinguishes three types:

• Confirmatory arras (arras confirmatorias): evidence the contract; if a party breaches, the other can require performance or terminate with damages.
• Withdrawal arras (arras penitenciales) (art. 1454 of the Spanish Civil Code): allow withdrawal; the buyer forfeits the amount paid; the seller returns double. These are the most common in Spain.
• Penalty arras (arras penales): liquidate damages in advance; they do not allow withdrawal.

Mortgages: Spain's Real Estate Credit Contracts Act (LCCI / Law 5/2019) in practice

Spain's Real Estate Credit Contracts Act (LCCI / Law 5/2019), in force since June 2019, transformed the Spanish mortgage regime by transposing Directive 2014/17/EU. Its practical keys are:

• Enhanced substantive transparency: the bank must deliver to the client, at least 10 days before signing, the European Standardised Information Sheet (FEIN), the Standardised Warnings Sheet (FiAE), the loan conditions, any floor clauses, etc.
• Double notarial act: before signing, the client must visit the notary for a prior information notarial record (free of charge), where the notary verifies that the client has understood the conditions. Without it, the mortgage cannot be signed.
• Allocation of costs: notary, processing agency, registry and Property Transfer Tax (ITP) / Stamp Duty (AJD) are borne by the lender; only the appraisal is borne by the client.
• Limited fees: early repayment and subrogation fees are capped by law depending on the type of mortgage (fixed, variable, mixed).
• Early termination: regulated by the LCCI itself, with minimum default thresholds (12 instalments or 3% of principal in the first half of the loan; 15 instalments or 7% in the second half).

Residential leases after Spain's Housing Law (Law 12/2023)

Spain's Housing Law (Law 12/2023) significantly amended the LAU. The current practical keys are:

• Minimum duration: 5 years of compulsory extension if the landlord is a natural person; 7 years if a legal entity. After the initial period, a tacit extension of 3 more years applies, unless prior notice is given.
• Rent update: rent is no longer linked to the CPI. The Reference Index for the Updating of Rents of Residential Lease Contracts published by the Spanish National Statistics Institute (INE) applies, unless otherwise agreed.
• Stressed areas: in Autonomous Communities that have declared them, specific caps apply to the price of new contracts and to rent updates, particularly for large landlords (more than 10 urban properties, or 5 in a stressed area).
• Security deposit: one monthly rent is compulsory, deposited with the corresponding regional body. An additional agreed guarantee is possible (up to two months' rent).
• Real estate agency fees: under the new law, real estate agency fees and the cost of formalising the contract are borne by the landlord, not the tenant.
• Termination for non-payment: the eviction procedure for non-payment is maintained, with special features in cases of certified economic vulnerability (judicial suspension while a housing alternative is arranged).

Leases for purposes other than housing

Leases of commercial premises, offices, industrial warehouses or properties not used as a primary residence are governed, first, by what the parties have agreed and, on a supplementary basis, by the LAU (Title III). This means much greater contractual freedom than in residential leases: free duration, free rent, free conditions.

Key aspects to regulate in these contracts: initial term and extensions, rent and updates (which can indeed be linked to the CPI), common expenses, Local Property Tax (IBI), utilities, works and improvements (especially in commercial leases with significant investment), assignment of the premises, pre-emption and redemption rights, additional guarantees (bank guarantee, deposit), termination and notice periods.

Evictions: types and procedure

Eviction (desahucio) is the judicial procedure to recover possession of a property. There are three main types:

• Eviction for non-payment: the most common. Summary proceeding, oral trial. Quick deadlines in theory, but in practice between 3 and 12 months.
• Eviction for expiry of the term: when the contract ends without renewal. Also via oral trial.
• Eviction for precario: when someone occupies a property without a legitimate title (not a formal tenant). A slower procedure, which requires proving the lack of title.

In all cases, the prior demand to the tenant and rigorous documentation (contract, proof of payment/non-payment, communications) are the basis for a well-structured proceeding. Law 12/2023 added mandatory prior mediation mechanisms in cases of certified economic vulnerability.

Horizontal property and homeowners' associations

Spain's Horizontal Property Act (LPH / Law 49/1960) regulates coexistence in buildings divided into flats and commercial units. Key issues:

• Owners' meeting: ordinary (at least one a year) and extraordinary. Quorum and majorities depend on the type of resolution (unanimity, 3/5, simple majority).
• Bylaws and internal rules: any amendment of the bylaws requires unanimity or 3/5 depending on the subject matter. Internal rules are more flexible.
• Unpaid community fees: there is an express order-for-payment procedure under art. 21 LPH (Horizontal Property Act) to claim them, with a real action over the defaulter's property.
• Works on common elements: works necessary for the upkeep of the building are mandatory. Accessibility works for persons with disabilities are also mandatory, with public co-financing where applicable.
• Annoying, unhealthy, harmful, dangerous or unlawful activities (art. 7.2 LPH — Horizontal Property Act): the community can apply to the courts to stop them and, ultimately, to deprive the offender of the right to use the property.
• Short-term tourist rentals: following the 2019 reform and subsequent clarifications, communities may limit or prohibit them by a 3/5 majority.

Real estate taxation: a panoramic view

Real estate operations pass through several taxes. It is worth having a panoramic view in order not to be caught by surprise:

Special mention should be made of the tax on the increase in value of urban land (commonly known as "municipal capital gains tax / plusvalía municipal"). Following Constitutional Court ruling STC 182/2021 and the subsequent reform, the taxpayer may choose between the objective method (based on cadastral value) or the real method (based on the actual gain), opting for whichever is more favourable. If there has been no real increase, no tax is due.

Real estate investment by non-residents

Non-residents may purchase property in Spain without general restrictions (subject to security areas and certain specific exceptions). The tax particularities are:

• A foreigner identification number (NIE) is mandatory for every non-resident acquiring a property.
• Opening of a bank account in Spain with the NIE and Form S1 declaration to the bank for movements above €100,000.
• Purchase: payment of Property Transfer Tax (ITP) or VAT + Stamp Duty (AJD) on the same basis as a resident.
• Holding: imputation of real estate income or rental income via Form 210 (annual or quarterly depending on the case). General rate of 24%; 19% for EU/EEA residents.
• EU/EEA residents may deduct the same expenses as a Spanish resident (art. 24.6 of the Non-Resident Income Tax Act (LIRNR)), in line with Court of Justice of the EU case law.
• Sale: a 3% withholding on the price, which the buyer must pay on account of the seller's Non-Resident Income Tax (IRNR) (Form 211). The seller files Form 210 for the capital gain at 19% (EU/EEA) or 24% (rest).
• Wealth Tax: real obligation for non-residents (limited to assets and rights located in Spain).
• Double taxation treaties: review the treaty between Spain and the country of residence to adjust double taxation.

Case studies

Common mistakes in real estate transactions

• Signing earnest money (arras) without specifying the type: if "withdrawal arras" is not specified, they are presumed confirmatory, which radically changes the consequences of breach.
• Failing to perform Land Registry and urban planning due diligence: buying without an up-to-date Land Registry extract, urban planning certificate or habitability certificate can be costly.
• Signing a mortgage without the prior notarial act: the LCCI does not allow it, but some clients try to speed things up and the transaction then collapses.
• Not reviewing the old mortgage deed: floor clauses, IRPH reference index and unduly charged mortgage costs remain claimable if the deed was signed before 2019.
• Forgetting the municipal capital gains tax (plusvalía municipal) on sale: it is the seller's responsibility (unless otherwise agreed). Failing to settle it generates interest and penalties.
• Renting in a stressed area without checking the caps: the agreed rents may be annulled, with refunds due to the tenant.
• Failing to declare rental income in Personal Income Tax (IRPF): the Spanish Tax Agency (AEAT) cross-checks data with utility providers and digital platforms. Tax adjustments are common.
• Failing to withhold 3% when buying from a non-resident: the buyer is jointly and severally liable for the seller's Non-Resident Income Tax (IRNR) if no withholding is applied.

Buyer's checklist

Frequently asked questions

Conclusion

Spanish real estate law is one of the densest and, at the same time, most everyday areas of law: hundreds of thousands of purchase and sale transactions, mortgages, leases and community proceedings every year. The difference between a transaction that goes well and one that ends up in court usually lies in the prior preparation: Land Registry and urban planning due diligence, well-drafted clauses, mortgage transparency, tailored tax planning and, above all, having specialised legal advice at every stage. Whether you are buying your first home, managing an investment portfolio or you are a non-resident, the cost of a good real estate lawyer is usually a tiny fraction of the value of the transaction and an insurance policy for peace of mind for years to come.