Key Legal Aspects You Might Not Know When Buying Property in Spain
Buying a home in the Balearic Islands has long been a dream for many — and often, a privilege. Over the past decade, property prices in the region have risen by more than 50% in five years and 20% in ten, reflecting the high demand for Mediterranean living.
While the pandemic briefly slowed the market — with a 0.4% drop compared to early 2020 — prices have since stabilised and even increased by 0.8% year-on-year, showing that the Balearic real estate market remains resilient and attractive.
At Frau Legal, we guide our clients through every stage of buying or selling property in Spain — from tax optimisation and co-ownership issues to agency commissions — ensuring legal security and peace of mind.
1. Reducing Wealth Tax When Buying Property
Many foreign buyers are unaware that they can reduce the taxable value of a property for Wealth Tax purposes through a loan contract — provided it meets certain conditions.
Requirements for the loan to be valid:
- The loan agreement must be signed before or at the same time as the property purchase, and formalised in a public deed or registry.
- The loaned funds must be used exclusively for the purchase, with the property clearly identified in the contract (address, registry details, cadastral reference, and amount).
- The conditions must reflect a market-rate agreement between independent parties.
- All loan repayments and interest payments must be fully documented.
- The title deed can include a clause stating the origin of the funds: “It is hereby stated that €___, used to acquire part of this property, is a loan granted by [Lender] to [Borrower].”
Meeting these formalities ensures the Spanish Tax Authority (Hacienda) recognises the loan for Wealth Tax purposes.
For tailored tax advice, contact our real estate and tax law specialists.
2. Real Estate Agency Commissions in Spain
When selling a property, it is common and advisable to work with a real estate agency. The agency negotiates the best deal and manages the process — in exchange for a commission.
- Typically, the seller pays the agency commission, which is deducted at the notary during the signing of the deed.
- The buyer provides two cheques: one to the seller and one to the agency.
- The usual commission rate ranges from 3% to 7% of the sale price, plus 21% VAT (unless VAT is already included).
Always ensure the commission terms are clearly stated in a signed agency agreement before proceeding.
3. Co-Ownership and Common Property Rights
Many Balearic properties have multiple owners under a co-ownership agreement (proindiviso). Understanding each owner’s rights and responsibilities is essential.
Key considerations:
- Use of the property
Each co-owner may use the property fully, provided they respect the rights of others and the nature of the shared asset. - Costs and benefits
Expenses for maintenance and profits from the property are shared proportionally based on ownership percentages. - Management decisions
- Majority agreement is required for general management and maintenance.
- Unanimous consent is necessary for structural changes, selling the property, or creating legal encumbrances.
- Selling a share
A co-owner can sell their share, but must first notify the others, who have a one-month pre-emption right to buy it under the same terms. - Division of the property
Any co-owner can request the division of the asset at any time. If the property is indivisible, it may be allocated to one owner, who compensates the others.
For legal support with co-ownership agreements, visit our section on Real Estate Law in Spain.
