The Evolving Practices of Payment in Spanish Real Estate Transactions

From Traditional Methods to Modern Adaptations

For many years, and even decades, a specific form of payment has been prevalent in the Spanish real estate market, particularly in the purchase and sale of properties. This traditional method typically involved two main stages of payment:

1. Partial Payments on Account of the Final Price

These payments were usually made through bank transfers. The funds could be transferred either to the account of the real estate agent representing the seller or directly to the seller’s account. This partial payment served as a commitment from the buyer, indicating their serious intent to proceed with the purchase.

2. Final Payment of the Agreed Price

The final and often most substantial payment was traditionally made by delivering a bank check (also known as a banker’s draft) to the seller. This check was drawn from a Spanish bank account, providing a secure and guaranteed form of payment.

This practice of making the final payment through a bank check, rather than a bank transfer, was rooted in the desire for payment simultaneity and security. The buyer would retain possession of the check until the seller signed the notarial deeds of sale in the presence of a notary.

This ensured that the exchange of payment and the transfer of property ownership occurred simultaneously, offering a perfect alignment of delivery and payment.

The Importance of Simultaneity in Payment

In the context of Spanish real estate transactions, it has not been customary for the final payment to be made via bank transfer. The primary reason for this lies in the timing concerns associated with transfers. Sellers typically require confirmation that the funds are in their bank account before they sign the notarial deeds, ensuring that they receive payment in full. On the other hand, buyers prefer to make the transfer only after the seller has signed the deeds, ensuring that the seller fulfills their obligation to transfer ownership.

Using a bank check resolves this timing issue by allowing both parties to meet their obligations simultaneously. The buyer presents the check at the notary’s office at the moment of signing, which guarantees the seller that they will receive payment immediately upon the completion of the sale. The bank check is backed by the issuing bank, providing the seller with an additional layer of security since the bank is obligated to honor the payment.

The Preference for Spanish Bank Checks

Sellers in Spain often insist that the final payment be made using a bank check issued by a Spanish bank. This preference is driven by several factors:

1. Trust and Recognition

Sellers may be wary of accepting checks from foreign banks due to the challenges in verifying their validity and the risk of delays or complications in clearing the check.

2. Costs and Delays

Clearing a check drawn from a foreign bank often incurs additional costs and may involve significant delays. By requiring a check from a Spanish bank, sellers ensure a smoother and faster transaction, with fewer uncertainties.

This requirement has significantly influenced property transactions, especially in coastal areas with a high percentage of foreign buyers. International buyers have often been advised to open bank accounts in Spain specifically to facilitate the final payment of the purchase price via a bank check. This practice ensures that buyers can quickly transfer the necessary funds into their Spanish bank account before completing the sale.

The Role of Spanish Banks and Foreign Buyers

Given the preference for Spanish bank checks, foreign buyers have commonly been encouraged to open accounts with Spanish banks. This not only facilitates the payment process but also aligns with the expectations of local utility companies and municipal authorities. Many service providers in Spain, including water and electricity companies, prefer or even require that payments be made from accounts domiciled in Spanish banks, rather than foreign accounts.

As a result, opening a Spanish bank account has traditionally been a recommended step for foreign buyers, particularly once they have formalized their intent to purchase a property.

Comparing Spanish Practices with Other European Systems

The requirement to open a Spanish bank account has often been a point of contention, particularly when compared to real estate practices in other European countries. In many continental European countries, for instance, all payments related to a real estate transaction are typically made directly into the account of the notary overseeing the sale. The notary then disburses the funds to the seller once all legal requirements have been met, ensuring a secure and regulated transfer of money.

For years, investors from countries such as France, Belgium, Netherlands, and Germany have found the Spanish requirement to open a local bank account unusual, especially given that in their home countries, the notary handles all financial aspects of the transaction. This discrepancy has sometimes caused friction, particularly when foreign buyers are unfamiliar with the necessity of opening a Spanish bank account solely for the purpose of completing the property purchase.

Moreover, for transactions involving mortgage loans from banks in the buyer’s home country, these banks typically disburse the loan funds directly to the notary’s account. This process ensures that the loan is used specifically for the purchase and that all legal formalities are observed. The requirement to direct funds to a Spanish bank account rather than the notary’s account has added an extra layer of complexity for foreign buyers and lenders alike.

The Emergence of Notarial Payment Services in Spain

In response to these challenges and the growing demand from international clients, many Spanish notaries in high-transaction areas have adapted their practices. An increasing number of notaries now offer services for receiving and holding funds in their bank accounts on behalf of clients. This service aligns with the practices in other European countries, providing a secure and familiar method for foreign buyers to handle their payments.

In regions with a high volume of international real estate transactions, particularly along the coast, it is now common for notaries to manage the payment process.

These notarial services include:

• Receiving deposits
• Managing the final purchase funds
• Disbursing payments to sellers, agents, and other parties involved in the transaction.

This adaptation has significantly eased the process for foreign buyers, allowing them to bypass the need to open a Spanish bank account if the notary provides this service.

Voluntary Nature of Notarial Payment Services

It is important to note that offering these notarial payment services is entirely voluntary. Not all Spanish notaries choose to provide this service, and availability may vary depending on the region and the individual notary’s willingness to accommodate these requests.

As a result, foreign buyers should confirm in advance whether the notary involved in their transaction offers such services.

The Payment Procedure Involving Notaries

When a notary does agree to manage the payment process, the typical procedure is as follows:

1. Initial Notification

The real estate agent or the buyer’s lawyer informs the notary of the need to facilitate payment through the notary’s account.

2. Due Diligence

The notary conducts a thorough verification process, including identifying the buyer, understanding the transaction’s terms, and ensuring compliance with anti-money laundering regulations.

3. Provision of Bank Details

Once due diligence is complete, the notary provides their bank account details to the agent or lawyer, who then relays this information to the buyer.

4. Buyer’s Transfer

The buyer transfers the agreed amount to the notary’s account.

5. Disbursement of Funds

Upon the successful completion of the sale, the notary disburses the funds according to the instructions provided, paying the seller, settling any outstanding taxes, and covering other associated costs.

Enhanced Security and Convenience for Buyers

This notarial system offers significant advantages for buyers, particularly in terms of security. By placing the funds in the notary’s account, the buyer is assured that the money will only be released once all conditions of the sale have been met. If the transaction fails to proceed, the notary can refund the money to the buyer, ensuring that their funds are protected.

In cases where a prior notarial deed of deposit exists, the notary will follow the agreed-upon terms outlined in the deposit document. If the parties cannot agree on how to proceed with the funds, the notary may be required to deposit the money with the judicial authorities, leaving the courts to resolve the dispute.

Documenting Payments in Spanish Real Estate Transactions

All payments and transfers related to the transaction must be meticulously documented. This documentation is typically included in the notarial deed of deposit or the final deed of sale. Accurate record-keeping is essential for ensuring that all parties’ interests are protected and that the transaction is legally binding.

Conclusion: The Evolving Role of Bank Accounts in Spanish Real Estate Purchases

In summary, while opening a Spanish bank account was once considered a necessary step for purchasing property in Spain, this is no longer universally true. The increasing availability of notarial payment services in certain regions has made it possible to complete real estate transactions without the need for a Spanish bank account.

However, the necessity of opening a local account may still arise depending on the specific requirements of utility companies, local councils, and other service providers.

At our law firm, we now advise clients that opening a Spanish bank account is optional, provided that the notary in the area is willing to manage the transaction through their bank account. Nevertheless, after the purchase is completed, clients may still need to open a Spanish bank account to handle utility payments and other ongoing expenses related to the property.

By understanding these evolving practices and adapting to the options available, foreign buyers can navigate the Spanish real estate market with greater ease and confidence.

TLACORP SLP