Spain: Real Estate

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This country-specific Q&A provides an overview to real estate laws and regulations that may occur in Spain.

It will cover the most pertinent issues including ownership structures, restrictions, transfers, taxes and environmental contamination.

This Q&A is part of the global guide to Real Estate. For a full list of jurisdictional Q&As visit http://www.inhouselawyer.co.uk/index.php/practice-areas/real-estate

  1. Overview

    Spain is a parliamentary monarchy, based on a social representative, democratic and constitutional regime. The head of the state is the Monarch, while the Prime Minister is the head of the Government which is composed of the Ministers who collectively form the Council of Ministers.

    Spain has a highly decentralised system of administration with 17 Autonomous Communities or Regions and two autonomous cities, each based on a parliamentary system, in which executive power is vested in a Council of Ministers, headed by a president, elected by and responsible to a unicameral legislative assembly.

    Most of the Autonomous Communities have their own regulations affecting real estate matters to a different extent (contractual rules, planning laws, environmental regulations, etc.).

    Our answers to the questions in this Guide are limited to the regulations passed by the Spanish Parliament.

  2. How is ownership of real estate proved?

    Spanish law establishes a title recording system which is intended to provide certainty and publicity as to the ownership of real estate assets. Transfers of real estate assets must be executed in a notarial deed (called "escritura pública") before a Notary Public and recorded at the relevant Land Registry in order for transfers to be enforceable with respect to third parties. Land Registries provide legal notice of ownership, encumbrances and other matters relating to immovable property. Generally any acquisition or conveyance of or encumbrance over real estate assets not registered at the relevant Land Registry has no effect against bona fide third parties. The principle behind this system is to set up an a priori control of the legality of actions by private parties in order to ensure certainty of good title in real estate transactions and reduce the possibility of fraud.

    As a general rule, the person who registers title first has a better right to the property than anyone registering title thereafter.

  3. Are there any restrictions on who can own real estate?

    No, save in the case of minors and incapacitated persons.

  4. What types of proprietary interests in real estate can be created?

    There are the following types of proprietary interests:

    • Ordinary ownership: this entails full ownership over a real estate asset with the owner having the right to fully and exclusively enjoy and dispose of the asset.
    • Co-ownership: Co-ownership exists when various persons are joint owners of a real estate asset. Co-owners have equal rights to use the entire asset and they have to contribute to the necessary expenses in proportion to their respective interests in the property. There is a right of partition ("acción de división") of the common property, as long as such a partition does not render the property useless. In this latter case, the property would have to be sold and the proceeds distributed among the co-owners in proportion to their shares. On the other hand, co-owners have a legal right of repurchase ("retracto de comuneros") over the shares of the other co-owners, in the event that the latter wish to dispose of such shares. This right must be exercised within nine days of learning of the sale or of the registration of the sale by any third party at the Land Registry, whichever happens first.

      The co-ownership may be set up by voluntary act (e.g. by purchasing a property jointly) or, more commonly, by testamentary provision.

      In general terms, any act of mere administration may be carried out by a majority decision of the co-owners, but all acts involving an "alteration" to the property (e.g. sale, encumbrance) will need unanimous consent. On the other hand, the law permits the co­owners to enter into an agreement stipulating that they will not divide the property for a term not exceeding ten years, extendable by agreement of the parties.

    • Horizontal property: the so-called "horizontal property" (propiedad horizontal) regime is a very common form of co-ownership of property in Spain, which combines full ownership and common ownership. By means of the horizontal property regime a multi-story building is divided into several different units, fully owned by different persons, each of them representing a separate piece of the property, title to which may be recorded individually and separately at the Land Registry. The common areas serving the separate units (i.e. corridors, stairways, lobby, elevators, gardens, services, etc.) are owned jointly by all owners of the units under a condominium of owners ("comunidad de propietarios") regime.

      The "comunidad de propietarios/propiedad horizontal" regime must be set up by a document (normally executed before a Notary) which will divide the property or development into separate units and will describe both the entire property or development and each of the individual units. For the document to be enforceable vis-à-vis third parties it must be registered at the Land Registry.

      In contrast to the position under the co-ownership ("comunidad de bienes") regime, the members of the "comunidad de propietarios" do not have a right to request the partition of the property, since it has in effect already been divided up. On the other hand, they may sell separately or otherwise encumber their property in the respective units and the new owner will be subject to the same rights and obligations as the previous owner in relation to the enjoyment of the unit and the common areas.

      In order for the owners to manage the common property, they may (and normally do) approve the by-laws ("Estatutos") establishing the general rules which govern the condominium. The by-laws must be registered at the Land Registry if they are to be enforceable vis-à-vis third parties. According to the law, the condominium of owners are managed by the owners' assembly which will have to approve most actions (repairs, improvements, services, etc.) and service charges. The owners must elect a Chairman from amongst their members and may appoint a professional manager, with no requirement for the manager to be an owner of one of the units in the building (usually an independent professional is appointed), and whose main obligations are to supervise the upkeep of the common areas and to prepare and submit for the assembly's approval the budget for annual expenses.

      Condominiums of owners are not only frequent in the case of residential buildings but also in the case of commercial properties, such as shopping centres or retail parks.

  5. Is ownership of real estate and the buildings on it separate?

    Not unless otherwise agreed. Anything existing on the land forms part of it and is transferred with it unless otherwise agreed.

    It is possible to separate ownership of the land and the buildings by creating a ground lease ("derecho de superficie").

    The ground lease gives a person the right to build on someone else's land and to have separate ownership of the building for a certain period of time while the owner of the land retains ownership over the plot. In order for the ground lease to be enforceable, it has to be granted in a notarial deed before a Notary Public. The different Administrations (Local, Regional and State) routinely use this system to promote building, especially in business or industrial parks, by granting a ground lease to private developers to build on land owned by the Public Administration.

    When the ground lease is granted by private individuals or companies its term can be up to 99 years.

    Upon expiry of its term the owner of the land will retain ownership of everything that may have been built upon the land without having to compensate the grantee.

  6. What are common ownership structures for ownership of commercial real estate?

    Commercial real estate can be held directly by individuals or through entities, although it is more common for high value commercial assets to be held through specifically created structures.

    Common ownership structures include:

    • Limited liability companies; and
    • SOCIMIs (Spanish REITs).

    Limited liability companies: Sociedades Anónimas ("S.A.") and Sociedades Limitadas ("S.L.")

    The S.A. and the S.L. were traditionally the corporate vehicles most used in Spain. Both companies operate in a similar way, although the S.L. requires fewer formalities.

    Limited liability

    In both companies, the liability of the shareholders or members is limited to the stake held in the share capital of the company.

    Share capital

    The minimum share capital for an S.A. is 60,000 euros, and at least 25% of this amount should be paid up upon incorporation. In the case of an S.L., the minimum share capital is 3,000 euros, which may or may not be fully paid up upon incorporation, with the contribution of assets subject to financial valuation being possible in both cases.

    It is common for companies incorporated as investment vehicles to have a relatively low share capital and to capitalise through shareholder loans, so as to minimise as far as possible the Company's Corporate Income Tax ("CIT"). Although there is no thin capitalisation rule under Spanish tax legislation (i.e. no specific debt to equity ratio is required), earning stripping rules apply as regards tax deductibility of net financial expenses.

    As a general rule, net financial expenses incurred by Spanish entities would be deductible for tax purposes up to an amount of 30% of their operating profit (EBITDA) for the financial year. In any event, an expense amount of EUR 1 million would always be deductible (if incurred).

    In the case of entities belonging to a tax consolidated group, the 30% limit and the EUR 1 million threshold would refer to such tax group.

    Please note that additional limitations exist in the case of LBO transactions (i.e. acquisition of an entity and subsequent merger or subsequent application of the CIT consolidation regime).

    Furthermore the difference between the 30% limit and the net financial expenses for the tax period could be accumulated (i.e. be added to the 30% limit) in the tax periods ending in the following 5 years.

    Lastly, it should be noted that any net financial expenses not deducted for tax purposes may be deducted in the following tax periods, provided that the 30% limit is complied with in such years.

    In addition to the above, fair market conditions and strict documentation obligations should be observed as regards any indebtedness incurred with related parties. In particular, the taxpayer would be obliged to carry out a comparability analysis in order to determine a fair market value of the remuneration agreed under the relevant transaction.

    Please also note that interest derived from Profit Participating Loans granted as from 20 June 2014 by companies which belong to the same corporate group (regardless of their tax residence) are not deductible for CIT purposes.

    Formalities

    Companies are incorporated through deeds granted before a Notary Public, including the company by-laws. In general, such incorporation requires: (i) evidence via a bank certificate of the share capital being paid up, (ii) an attorney with sufficient powers to appear before a Notary Public to incorporate the company, and (iii) a certificate showing that the corporate name of the company has been reserved.

    Period before the company may operate

    The company acquires a legal identity pursuant to its registration at the corresponding Commercial Registry. The period for such registration varies from province to province, but tends to be approximately one month as from its filing at such Registry. The acquisition of a property by a company which has been incorporated but which is pending entry in the Commercial Registry is possible, although problems would arise, such as acquiring the potential personal liabilities of the parties which granted the sale and purchase, or the non-registration of the sale and purchase of the property in the Land Registry until the registration of the company at the Commercial Registry has been confirmed.

    Directors and company representation

    A company is represented by Administrators or by a Board of Directors. The Administrators or Directors may be entities or individuals, of any nationality and do not need to reside in Spain. Please note that if the Administrator or Director is a foreign person, he/she will have to obtain a Spanish tax identification number (known as "NIE"). Certain formalities have to be fulfilled in order to obtain a NIE. Should the Administrator or Director be an entity, it will have to appoint an individual as representative.
    The post of Administrator or Director may be remunerated or not, depending on the provisions of the company by-laws. The law establishes certain cases of incompatibility for the exercise of the post as Administrator or Director of a company, usually referring to persons in public office. Administrators and Directors are subject to liabilities as established by law, which may be covered by current insurance policies on the market.

    Administrators or Directors may be joint or joint and several, and accordingly should act together or individually without distinction. When the company is represented by a Board of Directors, the post of member of the Board of Directors in itself does not imply any capacity to represent the Company, although a Managing Director may be appointed to perform the same duties as those of the Board, save those which may not be delegated by law.

    Taxation

    The incorporation of a company, as well as any increase of its equity (i.e. share capital, share premium, other shareholder contributions to equity) are subject to but exempt from Capital Duty taxation ("Impuesto sobre Operaciones Societarias").

    On the other hand, any decrease of share capital where previous contributions are reimbursed to the shareholders are subject to Capital Duty taxation at a 1% rate on the market value of the assets/rights reimbursed.

    Under certain circumstances, some investors consider it appropriate to issue shares with a share premium, so as to reduce such Capital Duty on the return of funds to shareholders since the return of share premiums is not subject to such Capital Duty taxation.

    SOCIMIs

    Spanish Real Estate Investment Trusts (or the Spanish acronym SOCIMIs) are special legal and tax investment vehicles specifically devoted to real estate assets that generate rental income.

    Spanish SOCIMIs will be subject to a 0% Corporate Income Tax (CIT) rate subject to a mandatory annual dividend distribution of profits. Accordingly, rental income and capital gains generated by SOCIMIs will be taxed at a 0% CIT rate, provided that the real estate assets are owned for a minimum of three (3) years as from the date of application to adhere to the SOCIMI regime.

    The legal requirements of SOCIMIs are as follows:

    Requirements

    SOCIMIs

    Legal form

    Sociedad Anónima (S.A.)

    Minimum share capital

     

    EUR 5 M

    Mandatory listing

    Yes, also permitted in Alternative Markets within the EU (MAB, AIM, etc.)

    Corporate object /

    Qualifying assets

    a)      The acquisition and development (including refurbishment) of urban real estate for rental purposes

    b)      The holding of registered shares in the capital stock of Sub-SOCIMIs: non-listed companies – regardless of whether or not they are tax resident in Spain - whose primary corporate object is the acquisition of urban real estate for rental, and which are subject to equivalent investing, income distribution and leverage requirements.

     

    Investment requirements

    (asset & income test)

    Asset test

    At least 80% of the SOCIMI's assets shall consist of "Qualifying Assets":

    a)      Urban real estate for rental purposes.

    b)      Shares in similar entities (i.e. other SOCIMIs, SUB-SOCIMIs, international REITs or real estate collective investment schemes).

    Activity test

    At least 80% of the SOCIMI's annual revenues must derive from the lease of Qualifying Assets, or from dividends distributed by qualifying subsidiaries (Sub-SOCIMIs, foreign REITs and real estate collective investment schemes).

    Lease agreements between related entities would not be deemed a qualifying activity and therefore, the rent deriving from such agreements cannot exceed 20% of the SOCIMI's total revenue.

    Capital gains derived from the sale of Qualifying Assets are in principle excluded from the 80/20 revenue test. However, if such Qualifying Asset is sold prior to the minimum three-year holding period, then (i) the capital gain would compute as non-qualifying revenue; and (ii) it would be taxed at the standard corporate income tax rate (25%). Furthermore, the entire rental income derived from this asset would also be subject to the standard CIT rate (25%).

     

    Holding period of the assets

    Qualifying Assets must be owned by the SOCIMI for a three-year period since (i) the acquisition of the asset by the SOCIMI, or (ii) the first day of the financial year that the company became a SOCIMI if the asset was owned by the company before becoming a SOCIMI. In the case of urban real estate, the holding period means that these assets should be rented; the period of time during which the asset is on the market for rent (even if vacant) will be taken into account, with a maximum of one (1) year. If the holding period is not maintained, the SOCIMI will be taxed at a 25% CIT rate for all type of income related to such asset, during its entire holding period, together with the accrued default interest.

     

    Mandatory distribution of dividends

    a.       80% as a general rule (rental income)

    b.      50% of the profits derived from the sale of Qualifying Assets. Any excess amount must be reinvested within the following 3 years. If no reinvestment is made, 100% of the profits should be distributed.

    c.       100% of dividends distributed by the SOCIMI’s subsidiaries

     

  7. What is the usual legal due diligence process that is undertaken when acquiring commercial real estate?

    The normal procedure for acquiring a property, especially when dealing with complex transactions, tends to commence with certain preliminary agreements reflected in a document known as a carta de intenciones (letter of intent). Through such document, the parties, without binding themselves, state their will to enter into negotiations, outline the timeframe and the terms of the due diligence process. Despite the fact that letters of intent are usually prepared as non-binding documents (except for certain specific clauses such as, for example, those on exclusivity, confidentiality and non-competition), the breach of such preliminary agreements may give rise to pre-contractual liability for the party which unjustifiably breaches the agreements and causes damage to the other party which was relying on a future agreement.

    Subsequent to the letter of intent, it is common practice for the buyer to carry out an audit on the property, to review legal, technical, environmental, commercial aspects, etc., depending on the type of real estate asset in question.

    The legal audit of a property is based both on the documentation provided by the seller, usually through a virtual data room, as well as the verifications made by the buyer's lawyers in public registers, city councils, cadastral registers, etc. It generally covers the following aspects:

    • title and charges;
    • lease agreements;
    • third party rights;
    • condominium of owners;
    • urban development aspects: planning status and licences;
    • contracts related to the property (construction, supplies, maintenance, insurance, services, etc.);
    • judicial or administrative proceedings related to the property;
    • municipal taxes;
    • payment of service charges and other costs.

    In certain cases (such as when the seller is selling complex or numerous properties via a competitive bid process), the seller may decide to instruct its lawyers to prepare a due diligence pack including searches in order to speed up the sale process or to avoid numerous bidders having to carry out the same due diligence.

    Where a property is sold by way of a transfer of the entity or structure through which it is held, the process is typically the same but with additional due diligence in respect of the relevant entity or business (including all corporate, tax, employment, intellectual property matters, contracts with third parties, financial issues, etc.).

    Notwithstanding the due diligence which the buyer may carry out, it is standard practice for the seller's legal responsibility (which only covers title and hidden defects) to be replaced by a series of contractual representations and warrantees provided by the seller in respect of contingencies which may arise subsequent to the sale, based on events which take place prior to the transfer date of the property. Such representations and warranties are often qualified by the information disclosed during the due diligence process and also limited as regards the term and amount.

  8. What legal issues (if any) cannot be covered by usual legal due diligence?

    Buyer's legal due diligence does not usually cover building control, health and safety or environmental issues requiring specialists and experts to be employed.

    In addition, there are some land interests that bind a buyer even though the interest is not registered at the Land Registry, known as "apparent easements" and also there could be certain occupancy contingencies (e.g. squatters) which, as lawyers do not generally inspect properties, would have to be verified by the buyer itself.

  9. What is the usual process for transfer of commercial real estate?

    Transaction Steps

    Seller

    Buyer

    Comments

    Heads of terms ("HoT")

    ·  Prepare and negotiate HoT

    ·  Produce information pack comprising title documents and property information (e.g. if property let, leases and ancillary documentation, planning, licences, municipal taxes)

     

    ·  Negotiate HoT

    ·  Appoint advisors

    ·  HoT not binding save for agreed exclusivity and confidentiality provisions

    ·  Most information packs are hosted on virtual data sites

    Preparation of sale agreement

    ·  Prepare draft private sale and purchase agreement (in case there is signing and closing)

    ·  Prepare any ancillary documents (e.g. notifications to third parties, condominium of owners, etc.)

    ·  Negotiate agreement

    ·  Carry out legal due diligence (see Q7)

    ·  Negotiate agreement and ancillary documents

    ·  No prescribed form of agreement but market standard terms

    ·  In some cases the acquisition documentation is drafted by the buyer's lawyers

    ·  In some cases the transfer of the property is completed in a single stage (only closing, without signing a private sale and purchase agreement)

    Signing

    ·  Execute the private sale and purchase agreement

    ·  Secure the granting of the notarial transfer deed by means of a bank guarantee (securing payment back of the part of the price paid by the buyer)

    ·  Execute the private sale and purchase agreement

    ·  Pay part of the purchase price to seller

    ·  Up to 10% of the purchase price is typically paid on signing, which will be forfeited if the buyer fails to complete sale (unless failure was due to the seller)

    Signing to closing

    ·  Prepare draft notarial transfer deed

    ·  Fulfilment of any seller's conditions prior to closing

    ·  Agree arrangements with current lender for discharge of mortgage upon closing

    ·  Arrange funding including third party debt

    ·  Fulfilment of any buyer's conditions prior to closing

    ·  In some cases the acquisition documentation is drafted by the buyer's lawyers

    Closing

    ·  Execute the notarial transfer deed

    ·  Use price (or relevant part of it) to pay off existing debt

    ·  Execute the cancellation of mortgages deed

    ·  Delivery of the asset to the buyer (which usually occurs symbolically)

    ·  Execute the notarial transfer deed

    ·  Pay the balance of the purchase price

    ·  Execute buyer's mortgage documentation

    ·  Documentation to be formalised before Notary Public and to be filed at the Land Registry for registration

    ·  All parties to attend the closing at the Notary's office appropriately represented by means of duly executed powers of attorney (i.e. notarised and apostilled if any party is a non-Spanish entity)

    Post-closing

    ·  Pay fees related to the cancellation of mortgages.

    ·  Pay Tax on the Increase of Value of Urban Property

    ·  Transfer tenants' rent deposits to buyer

    ·  Apply to Land Registry to register, the property transfer and the new mortgage

    ·  Serve all notices of transfer (to tenants, to any condominium of owners, etc.)

    ·  Pay relevant taxes (Stamp Duty / RETT)

    ·  Pay the Land Registry fees.

    ·  It is standard practice for the buyer to pay the notarial fees (which can be negotiated with the Notary) but this is subject to agreement between the parties.

    ·  Registration takes 4-6 weeks

  10. Is it common for commercial real estate transfers to be effected by way of share transfer as well as asset transfer?

    Both asset transfers and share transfers are common, depending on many circumstances.

    There is often a tax advantage in transferring the interests in a company (share deal) rather than the underlying real estate (asset deal). For instance, the following reasons may be an incentive for sellers to divest through a share deal:

    1. Latent gains linked to the underlying asset (calculated as the difference between the market value of the asset at the time of the transfer minus its acquisition cost) do not materialise since there is no direct transfer of the asset.
    2. Local Tax on the Increase in Value of the Urban Land ("Impuesto sobre el Incremento del Valor de los Terrenos de Naturaleza Urbana") does not materialise since there is no direct transfer of the asset.
    3. Under certain circumstances, the capital gains arising from the transfer of the shares may not entail effective taxation in the case of the seller provided that (a) the seller is entitled to apply the provisions of the Spanish participation exemption regime or (b) the seller is entitled to apply the provisions of a specific Double Tax Treaty which prevents Spain from taxing capital gains arising from share transfers (even in the case of real estate underlying assets).
  11. On the sale of interests in land does the benefit of any occupational leases and income automatically transfer?

    In general terms, occupational leases (and related income) are transferred with the sale of the commercial real estate, unless it is agreed otherwise in the lease agreement or if the buyer could demonstrate that it had no knowledge of the existence of the lease at the moment of the acquisition and pretends the termination of the lease based on such lack of knowledge.

  12. What common rights, interests and burdens can be created or attach over real estate and how are these protected?

    A wide variety of rights, interests and burdens can be created or attached to real estate. Some of the key interests are:

    • Easements: An easement is a charge over a real estate asset, which limits in a certain way such asset for the benefit of another asset or person. Easements are rights that run with the land.

      Easements can be created by law or contractually. Examples of easements imposed by law are: the limitation by which the owner of a building is prohibited from installing windows, balconies or similar constructions that would face directly onto an adjacent plot unless there is a minimum distance between them, and the restriction which only permits the installation of windows or openings in a wall adjacent to another building at roof-level height in order to receive light. It should be noted that the majority of legal easements do not need to be created by any particular act and therefore may not be revealed by a title search at the Land Registry. Contractual easements can be of many types and content (of access, of well, sewage, etc.); they should be formalised by means of a notarial deed executed before a Notary and registered at the Land Registry.

    • Mortgages: This is the most common type of guarantee, used as assurance of payment of all types of loans or credit lines connected to the purchase and/or development of real estate. Please see Q. 19 for a more in-depth explanation about mortgages in Spain.
    • Usufructs: Usufructs give a person the temporary right to use and profit from someone else's property. This right may be granted by an inter-vivos or mortis causa act or by law. It may also be obtained by adverse possession. Usufructs are temporary rights granted for a specific period of time. They may be transferred inter-vivos, but the grantee of the usufruct can only transfer his own limited title. Such title may also be transferred mortis causa but limited to the remaining unexpired period of the usufruct in favour of the original grantee.

      The beneficiary of a right of usufruct is generally entitled to appropriate the land's profits (e.g. the crops or the rent in leased premises). He may not make alterations to the property, unless specifically authorised. As to repairs, generally, ordinary repairs are the grantee's responsibility and exceptional ones must be carried out by the grantor of the usufruct.

    • Options to purchase right: For the option right to be effective vis-à-vis third parties, it should be registered at the Land Registry, which would require the parties to execute a notarial deed specifying both the purchase price as well as the period in which the option has to be exercised, which may not be longer than four years. Should the purchase option be recorded, and the grantor sells the property to a third party other than the opting party, the latter may exercise its right vis-à-vis the new owner, whereas if it were not recorded, the opting party may claim liability from the grantor of the option.
  13. Are split of legal and beneficial ownership of real estate (ie Trust structures) recognised?

    No, these kinds of structures are not recognised under Spanish law.

  14. What are the main taxes associated with commercial real estate ownership and transfer of commercial real estate?

    Real estate activities in Spain are subject to direct taxation on profits obtained, and to indirect taxation on the possession of real estate assets and transactions related thereto.

    Direct Taxes

    Corporate Income Tax ("CIT")

    Spanish Corporate Income Tax ("CIT") is a tax on profits earned by:

    • companies resident in Spain on all income earned from their operations whether arising inside or outside Spain, at a rate of 25%; and
    • non-Spanish tax residents acting through a Spanish permanent establishment, at a rate of 25%.

    Non-Spanish tax residents acting without a Spanish permanent establishment: Non-Residents Income Tax rate of 19% which can be reduced by virtue of Double Tax Treaties / EU Directives.

    Existence of “participation exemption” provisions for Spanish tax-resident companies on dividends received and gains on sales of subsidiaries (Spanish or non-Spanish), but subject to certain conditions.

    Existence of Corporate Income Tax consolidation regime (a minimum participation of 75% is required).

    Tax deductibility of financial expenses: As a general rule, net financial expenses incurred by Spanish entities would be deductible for tax purposes up to an amount of 30% of their operating profit (EBITDA) for the financial year. In any event, an expense amount of EUR 1 million would always be deductible (if incurred).

    In the case of entities belonging to a tax consolidated group, the 30% limit and the EUR 1 million threshold would refer to such tax group.

    Please note that additional limitations exist in the case of LBO transactions (i.e. acquisition of an entity and subsequent merger or subsequent application of the CIT consolidation regime).

    Furthermore the difference between the 30% limit and the net financial expenses for the tax period could be accumulated (i.e. be added to the 30% limit) in the tax periods ending in the following 5 years.

    Lastly, it should be noted that any net financial expenses not deducted for tax purposes may be deducted in the following tax periods, provided that the 30% limit is complied with in such years.

    In addition to the above, fair market conditions and strict documentation obligations should be observed as regards any indebtedness incurred with related parties. In particular, the taxpayer would be obliged to carry out a comparability analysis in order to determine a fair market value of the remuneration agreed under the relevant transaction.

    Please also note that interest derived from Profit Participating Loans granted as from 20 June 2014 by companies which belong to the same corporate group (regardless of their tax residence) are not deductible for CIT purposes.

    Individuals' Income Tax

    Generally tax-resident individuals are taxed on worldwide income and gains.

    Non-Spanish tax residents are taxed on activities of Spanish permanent establishments or Spanish-source income.

    Spanish tax-resident individual investors: Dividends and capital gains tax rates range between 19% (up to EUR 6,000), 21% (EUR 6,000 to EUR 50,000) and 23% (above EUR 50,000) in year 2017.

    Indirect Taxes

    Value Added Tax ("VAT")

    Transfer of Properties

    Any transfer of real estate assets is always subject to either Value Added Tax ("VAT") or Real Estate Transfer Tax ("RETT"), the application of one excluding the other. The basic difference lies in the fact that, whereas the VAT borne by a company in a transaction may be deducted from the VAT incurred or to be incurred by such company in its other business activities, the RETT is not directly tax-deductible, although in accordance with the increase in price of the asset acquired, it may be considered an expense via the amortisation of the aforementioned asset.

    The following real estate transactions are subject to VAT:

    1. sale of new constructions;
    2. sale of plots which may be built on; and
    3. sale of properties to be refurbished or demolished. In the former case, the buyer must invest in the refurbishment an amount exceeding 25% of the purchase price of the building.

    In the remaining cases, the purchase is always subject to RETT instead of VAT; in this way, the second and subsequent handovers of any property are in principle exempt from VAT and, therefore, subject to RETT. However, this exemption may be waived, the transaction thus being subject to VAT (hence excluding the RETT) when the buyer is a taxpayer performing a business or professional activity and is entitled to the total deduction of the VAT borne in the transaction.

    The general VAT rate is 21%.

    It is worth pointing out that when a transaction is subject to VAT, it shall also be subject to Stamp Duty (hereinafter, "SD"), providing the transaction is formalised through a public deed and may be registered at the Land Registry, as is usually the case. The general rate of Stamp Duty is between 0.5% and 2%, depending on the Autonomous Community where the asset is located. Finally, it should be mentioned that if the VAT exemption mentioned above is waived, a higher rate of SD is applicable which, depending on the corresponding Autonomous Community, may vary between 0.5% and 2.5%.

    Lease of Properties

    In general, the lease of properties is subject to Value Added Tax at the rate of 21%.

    However, leases whose object consists of buildings or parts thereof exclusively devoted to housing, including accessory garages and annexes and furnishings leased jointly with such buildings, are exempt from Value Added Tax.

    In both cases, such exemption is not applicable to leases with a purchase option.

    Real Estate Transfer Tax ("RETT")

    General Rules

    RETT is applied to real estate transactions other than those mentioned in the foregoing section, and in particular to (i) second and subsequent transfers of properties once their construction has concluded (unless there is a waiver of the VAT exemption, as mentioned above), (ii) the sale of land not classified as plots for construction pursuant to urban development regulations and (iii) the transfer of real estate assets within the framework of the transfer of a going concern ("unidad económica autónoma") for VAT purposes.

    The RETT general rate is 7% but it may range between 6% and 11% depending on the Autonomous Community where the real estate asset is located.

    Transfer of Shares

    On a general basis, the sale of shares will be exempt from RETT / VAT if the asset is devoted to an economic activity.

    Local Taxes

    Property Tax ("PT")

    PT ("Impuesto sobre Bienes Inmuebles") encumbers the ownership of properties of a rustic or urban nature, the ownership of an in rem usufruct or ground lease over such properties or the ownership of an administrative concession over such assets or over the public services to which they are subject. The taxpayer is the owner of the property or the holder of such rights or administrative concessions. The taxable basis of the PT, which falls due annually, is determined by the cadastral value, which includes the land value plus that of the constructions thereon. Applied to such a basis are the taxation rates of 0.4% for urban land and 0.3% for rustic land, although these rates may be increased by each City Council depending on the population and other specific circumstances of the municipality.

    Tax on the Increase in the Value of Land of an Urban Nature

    This tax is collected as the result of the transfer of the ownership of urban land by any title and the granting or transfer of any in rem right of enjoyment, restricting ownership, over such land. The party obliged to pay such tax is the transferor of the land or the person granting and transferring the in rem right of enjoyment, when the transfer is for value.

    In fact, the tax does not encumber the capital gains earned by the seller, but rather is calculated on the increase of the cadastral value, applying thereto at the time the tax falls due a certain percentage established by the City Council depending on the number of years elapsed since the previous transfer (which cannot be more than 20 or less than 1).

    This local tax is currently under significant dispute within the Spanish tax system, as the Spanish Constitutional Court (Tribunal Constitucional) has recently declared unconstitutional part of the regulation of this local tax referring to the determination of the tax base (based on the land's cadastral value during the year of sale and the holding period), irrespective of the fact that there is no real gain (or even a loss) on the assets. This decision may have an impact on future proceedings in which the non-application of the tax or a refund based on the lack of increase in value of the transferred land is requested.

    Other local taxes

    City Councils may also subject acts regarding the use and exploitation of the property to taxation, amongst which it is worth mentioning the Tax on Constructions, Installations and Works ("Impuesto sobre Construcciones, Instalaciones y Obras"), which encumbers the carrying out of any construction, installation or works for which urban development or works licences are required. Moreover, the granting of other licences might constitute a further taxable item, such as, for instance, the obtaining of the so-called opening licence.

    Business Activity Tax ("Impuesto sobre Actividades Económicas") is another local tax on the mere performance of economic activities. As a general rule, the company may be obliged to register for the purposes of this Business Activity Tax and pay the relevant tax due, which would be determined according to the item corresponding to the relevant activity (i.e. item 833 if the company performs development works on the real estate assets and item 861 in the case of leasing activities). The local regulations of the City Council corresponding to the real estate assets' location will always have to be observed.

  15. What are common terms of commercial leases and are there regulatory controls on the terms of leases?

    The Spanish Law on Urban Leases (Ley de Arrendamientos Urbanos) (LAU) clearly differentiates between leases for housing, the regulations of which are protective towards the tenant, and those for any other use which is non-residential (such as the leasing of business premises, retail, offices or industrial warehouses), whose regulations are based on free agreements between the parties.

    In lease agreements for non-residential use, the parties may freely agree the majority of the aspects of the lease relationship. In the absence of any express agreement, the regulations of the LAU are applied. The common terms of commercial occupational leases are set out below.

    Term: there is no legal maximum or minimum duration. The term shall be that agreed by the parties, with an initial period being possible subject to extensions. There are no statutory rights regarding renewal.

    Rent: there are no regulatory controls as to the amount of the rent. Rent is usually payable in advance and every month. A variable rent may be agreed (established, for instance, according to the turnover of the tenant) in addition to a minimum guaranteed rent.

    Rent review: there are no regulatory controls as to when or how the rent may be increased, and parties are free to determine the type and frequency of the review. There are several possible types of review (open market, linked to Consumer Price Index, stepped, etc.).

    Service charges: there are no regulatory controls in the commercial context and the parties are free to agree what items are to be covered by the service charges. It can be agreed that the tenant pays all costs related to the property, such as condominium or general service charges, taxes and insurance relating to the property, and all repair, replacement and decoration costs. It is possible to agree that the tenant will be responsible for the maintenance costs of the structure of the property leased, although such agreement is not common.

    User: leases usually restrict a tenant's ability to change the use of the premises.

    Repairs: parties are free to agree who is responsible for each type of repair; the landlord being legally obliged to carry out any repairs which may be necessary for continuance of the corresponding use of the leased property.

    Preferential acquisition right: the tenant may have a preferential acquisition right over a leased property in the case of the sale thereof. It is common for the tenant to waive such right upon executing the lease agreement. On acquiring leased premises, it is particularly important to verify the existence of such right in favour of the tenants.

    Assignment and sub-leasing: unless otherwise agreed, when a business or professional activity is carried out on the leased property, the tenant may sub-lease the premises or assign the lease agreement without obtaining the landlord's consent, although the latter shall be entitled to increase the rent by 10% in the case of a partial sub-lease, and by 20% for the assignment of the agreement or total sub-lease. Most leases tend to waive this legal regime and establish other types of provisions.

    Clientele compensation for the tenant: if the tenant has been carrying out business activities on the leased property over the last five years, involving sales to the public and, upon expiry of the term of the agreement, the landlord decides not to extend, despite the express request from the tenant to do so and his acceptance of the payment of market rent, the landlord may be obliged to pay the tenant a compensation. The amount of any such compensation depends on various circumstances, but it could amount to 18 months' rent. The right to such compensation may be waived by the tenant.

    Registration of the lease in the Land Registry: it is possible to record the lease agreement of a property in the Land Registry, although this is not common practice as it would trigger Notarial and registration fees together with Stamp Duty.

    Tenant's guarantees: It is mandatory by law for the tenant to provide an amount equal to two months' rent as security for the fulfilment of all its obligations. Such amount should be deposited by the landlord with a public entity during the term of the lease. Other types of guarantees (i.e. bank guarantee, corporate guarantee, etc.) may be agreed by the parties of the lease.

  16. How are use, planning and zoning restrictions on real estate regulated?

    Urban development

    Anyone thinking of investing in real estate in Spain must bear in mind the existence of a complex system of laws and regulations adopted by the State, the Autonomous Communities and the Municipalities related to urban development, i.e. the transformation, construction and use of land.

    According to the Spanish Constitution, the Autonomous Communities hold exclusive powers with respect to planning, meaning that they are entitled to approve laws and regulations on this matter that will have to be complied with by the Municipalities when approving their respective urban development regulations. Regional laws and regulations on planning, amongst others, govern types of zoning plans, land classification, uses of the land, rights and obligations of owners of the land subject to zoning procedures, assignment of land in favour of the Municipality, and construction licences. However, although the Spanish State does not hold any powers with regard to planning matters, due to the fact that they affect ownership rights, it has passed legislation on ownership and valuation of land. In light of the provisions established in both the laws and regulations approved by the Autonomous Communities and the Spanish State, the Municipalities approved plans governing zoning and planning matters within the boundaries of their territories.

    Municipalities are entitled to define the classification and qualification of their land in the terms established in the regional laws and regulations. The General Municipal Plan is the regulation which establishes the classes of land and the possible uses. The General Municipal Plan is initially and provisionally approved by the City Council, but it is finally approved by the Administration of the relevant Autonomous Community where the Municipality is located. The inclusion by such General Plan of a certain plot within a category of land is of tremendous importance from the perspective of the rights held by its owner as regards its urban development use, especially in respect of the construction of buildings on such plot. In general terms, the land can be classified in three categories:

    • Urban land: (suelo urbano) this is land which has already been built upon and is integrated into the urban area, with all the basic zoning services (mainly roads, water and energy supply and sewage systems) or may be built upon or transformed as it has the urbanisation infrastructures and equipment necessary for its corresponding urban development use (i.e. access, water supply, drainage and electricity supply). For land to be granted this category it has to be urbanised beforehand so that basic services can be provided thereto and it can be classified according to the General Plan. Usually, the General Municipal Plan will establish the uses and constructing parameters applicable to urban land. Otherwise, the Municipality will have to approve regulations further implementing it and, where necessary in this class of land, to adopt decisions to redistribute ownership rights and assign responsibilities, as well as authorising the urbanisation measures required for the implementation of basic zoning services.
    • Land suitable for urban development (suelo urbanizable): land considered necessary by the Municipality to guarantee the growth of the population and economic activities. This land does not bear any zoning services and is not considered "solar", that is, land suitable for urban development. In order to transform this type of land into urban land, the Municipality will have to approve regulations implementing the General Municipal Plan, approve decisions to redistribute ownership rights and assign responsibilities, as well as authorising the urbanisation measures required for the implementation of basic zoning services.
    • Non-buildable or rustic land (suelo no urbanizable): this is land which in general cannot be built upon due to it being subject to special protection rendering urban development impossible or unadvisable, or due to its agricultural, forestry or livestock value.

    The classification of land, apart from conditioning the urban development capacities of the owners, also determines the valuation which must be given by the Authorities to the land for the purposes of establishing a fair price should it be subject to expropriation, with such valuation increasing in line with the increase in its urban use.

    Urban development regulations are implemented by the City Councils via the granting of licences, and also by imposing the corresponding fines when a party infringes any urban development regulation or applicable State and regional laws and regulations.

    In addition, it is worth remembering that, despite the aforementioned urban development capacities conferred on City Councils, the Autonomous Governments in certain cases usually retain supervisory powers over municipal urban development activities, as can be seen in the definitive approval of certain urban development instruments, or even in the imposing of substantial fines.

    Construction-related local licences and responsible declarations
    Construction activities are subject to supervision by the relevant Municipality. In the event of significant construction works, these would be subject to the granting of the so-called works and first occupancy licences. Where construction works are considered minor, instead of being subject to the granting of construction licences, a responsible declaration or notification to the Municipality would suffice. Both regional laws and regulations and local regulations govern construction licences and responsible declarations or notifications.

    Where construction licences are required, prior to commencing the relevant works, the interested party must obtain the works licence. This is the licence that will establish the construction parameters applicable to the relevant project and will verify the project's compliance with the provisions established in the applicable zoning laws and regulations. In order to obtain this licence, it is necessary to present a construction project signed by an architect and approved by the corresponding professional association, to pay the corresponding taxes, as well as, where applicable, to provide sufficient guarantees (bank guarantee, etc.) ensuring the execution of the works. If the applicant complies with the requirements established in the applicable laws and regulations for the granting of a works licence, the Municipality is not authorised to oppose such licence.

    Once the construction works finalise, a first occupancy licence must be obtained. The purpose of the first occupancy licence is to verify that the works have been carried out in the terms of the previously granted works licence. Generally, the granting of such licence is preceded by an inspection of the building by the technical services of the City Council.

    In the event of minor works, the interested party must file a responsible declaration or notification related to the works to be carried out, stating that they comply with applicable laws and regulations. Depending on the scope of works and the relevant Municipality, the works can be commenced after filing the document or after a certain period of time if the Municipality does not oppose them. In any event, the Municipality is entitled to inspect the works and adopt any measure to restore legality, as the case may be.

    It should be pointed out that such licences and responsible declarations are required from the owner of the property and, depending on the case, also from the property's occupants, such as, for instance, tenants of office buildings or retail units. Should any person or entity carry out any works or activities without previously having obtained the corresponding licence, the City Council may impose a fine, as well as take other urban development-related measures (such as, for example, ordering the suspension of the activities or works carried out without a licence, declaring the closure of the building or premises, etc.)

    General activity-related authorisations, licences and responsible declarations
    The uses of a construction are subject to the granting of an environmental authorisation, an environmental or activity licence (the name changes depending on the Region) or other type of permit (if the activity does not cause pollution but the Municipality exceptionally considers that it should be subject to a licence) or to a notification or responsible declaration, depending on the level of pollution to be caused by the activity in question. Environmental authorisations are granted by the relevant Autonomous Communities in those cases where the activity causes high pollution and must be obtained prior to any construction licences. Environmental licences and other types of permits are granted by Municipalities and must be obtained prior to, or at the same time as, the relevant construction licences. If a responsible declaration or notification is required, it must also be filed with the Municipalities.

    Generally, environmental/activity licences establish the parameters which the activity must comply with from an environmental legislation perspective, and concerning the fire protection and health and safety conditions of the building according to the use for which the building was constructed. Prior to commencing the relevant activity, the initial control or operating licence must be obtained, evidencing that the activity is fully compliant with the conditions and obligations established in the previously granted environmental licence. Afterwards, periodic controls and renewal of the licence must be carried out. Any amendment of the activity is subject to the granting of a new environmental licence and subsequent initial control. In those cases where the activity does not cause pollution but exceptionally the Municipality subjects the activity to the granting of a permit, prior to commencing the activity, an operating licence will have to be obtained.

    The entity carrying out the activity is the entity obliged to obtain the above-mentioned authorisations, licences and permits or to file the relevant responsible declaration or notification. Failure to obtain them is considered an infringement of the applicable legislation subject to sanctions that include, amongst others, substantial fines and total or partial, final or temporary, suspension of the activity or total or partial seizure of the premises.

    Specific activity licences and authorisations
    In addition to the above general activity/environmental licences, depending on the sector, the activity may also be subject to additional licences and authorisations to be granted by the State Administration or the Autonomous Communities. For instance, some Spanish Regions require the granting of a commercial licence for the opening of large retail premises such as malls.

  17. Who can be liable for environmental contamination on real estate?

    Liability for environmental matters can be established by statute, criminal and civil law. Under each law, the basic principle is that the polluter pays. This section refers to the statutory liability only.

    When committing an infringement defined in the relevant environmental laws and regulations, the infringing party will be considered liable for the commission of such infringement. Please note that generally such laws define who will be considered the infringing party. Additionally, it is worth mentioning the following two Acts:

    a) Act 26/2007

    The Environmental Liability Act 26/2007 establishes a framework of environmental liability based on the "polluter-pays" principle, to prevent and remedy environmental damage. This Act applies to environmental damage, as defined therein, caused by any occupational activity carried out by operators and to any imminent threat of such damage occurring by way of any activity. According to Act 26/2007, the operators are obliged to take the necessary preventive measures, repair the environmental damage caused or cover its costs. If there are a plurality of operators and their involvement in the damage is proved, they would be considered jointly liable, unless otherwise established by a specific piece of legislation.

    b) Act 22/2011

    In addition, the Spanish legal regime for polluted land is primarily regulated at a State level in Act 22/2011, of 28 July, and Royal Decree 9/2005, of 14 January, establishing the list of potentially contaminating activities and the criteria and standards for declaring such land polluted (note that legislation approved by the Spanish Regions will also have to be taken into account). According to Act 22/2011, operators of potentially contaminating activities are under a general obligation to provide information to the authorities periodically in order to enable them to determine whether the land is contaminated. In addition, the owners of lands where potentially contaminating activities have been carried out are obliged to declare this fact in the sale and purchase public deed executed for their transfer. This fact must also be recorded at the Land Registry for information purposes.

    The competent authority must issue a declaration of contaminated land when it becomes aware of land contaminated due to human activities that meets the criteria and standards contained in Royal Decree 9/2005 (for instance, where there is significant presence of the contaminating substances listed in the different Annexes of the Royal Decree). The declaration of polluted land by the relevant authority triggers an obligation to undertake the necessary actions in order to clean up and restore the land within the timeframe and in the terms that may be established by such authority.

    The declaration will be recorded at the Land Registry and will only be cancelled by the Registry once a new declaration from the relevant authority has been made, and after the necessary actions have been undertaken to remedy the contamination and the land is no longer considered polluted.

    Lastly, any polluted land subject to a declaration will be included in the catalogue of polluted land managed by the relevant regional authority. Once the relevant regional authority has verified that the land has been duly cleaned up, it will issue a further declaration stating this fact, and this will also be reflected in the above-mentioned catalogue.

    Liability for remedying polluted land primarily lies with those operators that have carried out the activities causing the contamination. If there were multiple polluters, all of them would be obliged to remedy the damage caused, on a joint and several basis.

    The owners and occupiers of polluted land, in that order, can be held secondarily liable for the clean-up and restoration of the polluted land, regardless of whether they were negligent or at fault. Furthermore, subsequent operators of contaminating activities, among others, may also be found liable on a secondary basis, for any financial liability arising from the application of remedy actions. Any party found secondarily liable will be entitled to recover from the polluters the costs incurred in remedying the polluted land.

    Lastly, it is worth mentioning that actions to clean up and restore the land may also be undertaken voluntarily by any party, without the need for a prior declaration of polluted land by the relevant authority. In this case, the project for restoring the land must be previously approved by the relevant authority.

  18. Is expropriation of real estate possible?

    The right to property is enshrined in Article 33 of the Spanish Constitution which nevertheless expressly states that the exercise of this right shall be limited by public interest. Therefore, it should be borne in mind that in Spain the Government may expropriate under constitutional authority in the cases set out in, and with the safeguards contained in, the appropriate implementing legislation.

    Different from an expropriation, it is worth pointing out that in recent years, several Autonomous Governments have passed laws establishing a preferential purchase right in favour of the Public Administration over vacated dwellings foreclosed by the banks, their real estate subsidiaries and real estate asset management companies for the purposes of solving housing needs faced by evicted families.

    In addition, certain Public Administrations benefit from pre-emption rights in relation to properties of historical, architectural or environmental importance.

  19. Is it possible to create mortgages over real estate and how are these protected and enforced?

    Yes, mortgages can be created over real estate. This is the most commonly-used security in relation to real estate assets. A mortgage ("hipoteca") constitutes, under Spanish law, an encumbrance over a property attached thereto as security for fulfilment of a personal obligation. If the obligation is not fulfilled, the mortgagee is entitled to request the sale of the property in public auction and the proceeds would serve to pay the mortgagee's credit plus any judicial costs. Any remaining balance is handed over to the mortgagor. Mortgages in Spain confer a lien on the property in favour of the mortgagee without conferring title to the property, which remains in the hands of the mortgagor.

    Mortgages must be made in writing, executed before a Notary Public in a public deed, and recorded at the relevant Land Registry. Without such formalities, mortgages have no legal effect. Second or further mortgages are permitted but they are subject to the priority system of the Land Registry. The person who registered his mortgage first will have a priority right over the second (first in time, first in right). For this reason, it is normal practice to obtain a title search certificate from the Land Registrar attesting as to whether or not prior mortgages or encumbrances exist over the property to be mortgaged.

    The law imposes a limit on the amount of interest on the principal debt that may be secured by a mortgage, that is a limit of up to five years' interest, referring to both ordinary or default interest.

    Mortgages may be granted by contractual agreement or by unilateral decision of the owner of the property. In the latter case, the person in favour of whom the mortgage is granted must accept it. Should he not do so within two months of being notified of the mortgage, the mortgagor may cancel the mortgage by executing a further public deed.

    For the creation of a mortgage it is necessary for the parties to agree on the value of the property, which will be the reference amount for the auction in the case of foreclosure. A valuation certificate must be issued by an expert and attached to the mortgage deed.

    In Spain, both the amount and the obligation secured by the mortgage must be determined in the mortgage deed. The amount of the debt, however, need not be known exactly at the time of the execution of the mortgage deed, and the mortgage may be established at a maximum amount (as would be the case if the mortgage secures a line of credit). Furthermore, a mortgage may secure a future obligation, provided that the Land Registry is notified when the obligation arises.

    The mortgagor may transfer the mortgaged property by a deed of transfer to a third party. In this case, the new owner will have his property encumbered by the mortgage, as mortgages run with the land. In order for the new owner to subrogate the underlying personal obligation secured by the mortgage, the consent of the mortgagee has to be obtained.

    The mortgagee, on the other hand, may assign all or part of his credit to a third party. The assignment of a credit secured by a mortgage involves the assignment of the mortgage as well. The assignment must be executed in a public deed and recorded at the Land Registry and the mortgagor must be notified of the assignment. In practice, however, mortgagors routinely waive the right to be notified.

    In the event of a default by the mortgagor, the mortgagee may request a judge to give him possession of the property and to allow him to manage it until it is sold in public auction. It must be stressed that a mortgage in Spain will not confer title over the property in the event of default by the mortgagor. It only gives the mortgagee the right to settle his debt with the proceeds of the foreclosure sale of the property. The mortgagee may also request that the property be awarded to him at the foreclosure proceedings. The sale may be carried out by public auction either through judicial or extrajudicial proceedings.

    A judicial sale of the mortgaged property may be carried out via foreclosure proceedings ("Procedimiento Ejecutivo") or through one of the two special and faster summary proceedings: the "Procedimiento Sumario" which is heard by a Judge or the "Procedimiento Extrajudicial" which is heard by a Notary.

    After the property is acquired in public auction, the price will have to be deposited with the Court (or the Notary in extrajudicial proceedings). The Court will subsequently issue a writ (a public deed in the case of the Notary) evidencing the award of the property to the highest bidder and ordering the discharge or cancellation of later liens over the property. This discharge or cancellation does not extend to any liens or encumbrances that may have been attached to the property before the registration of the mortgage.

    It is important to note that credits secured by a mortgage have priority in the event the debtor becomes insolvent.

    In recent years regulations related to mortgages have been amended to include measures to reinforce the protection of mortgagors, as a result of certain court rulings (both at domestic and European levels) in the context of the economic crisis and the large number of non-performing loans which gave rise to numerous eviction proceedings.

    A new amendment to the mortgage regulations is currently being drafted in order to implement Directive 2014/17/ EU of the European Parliament and of the Council of 4 February 2014 on credit agreements for consumers relating to residential immovable property, which is expected to be passed in the coming months.

  20. Are there material costs associated with the creation of mortgages over real estate?

    The formalisation and registration of mortgages with the Land Registry entails the payment of Notary and Land Registry fees and, more significantly, Stamp Duty.

    Stamp Duty rates may vary from 0.5% to 2.5% depending on the location of the real estate asset, the tax base being the total amount secured by the mortgage (i.e. 120%-140% of the loan amount as a market standard).

  21. Is it possible to create a trust structure for mortgage security over real estate?

    No, this is not possible. Mortgages should be created and registered in favour of the lender(s) as only the lender registered as mortgagee may enforce the mortgage.

  22. What is the main legislation relating to commercial real estate ownership?

    The Civil Code, dated 1889 (as amended and updated over the years) which governs the nature of land ownership and interests, third party interests and rights and different types of contracts over land and real estate assets.

    The Mortgage Act, dated 8 February 1946, and Mortgage Regulations, dated 14 February 1947, which establish the main rules for registration of land interests and mortgages in Spain.

    The Urban Lease Act, dated 24 November 1994, which governs commercial leases in Spain.

    The Horizontal Division Act, dated 21 July 1960, governing the horizontal division regime.