The purchase and sale of real estate is one of the most significant and complex transactions in anyone's life. In Spain, there's a method used to facilitate these types of transactions, called a deferred payment deed of sale. This mechanism allows buyers to acquire properties without having to pay the full price immediately, which is considered an attractive option for both buyers and sellers. Did you know about this? Join us as you read on; it will be very beneficial.
A deferred payment deed of sale is a formal contract that records the sale of a property, with the particularity that the payment is not a single lump sum but is made in several installments over time. This type of transaction occurs when the buyer cannot pay the total cost of the property immediately; this way, the buyer avoids the high costs associated with mortgage loans. We typically see this procedure between trusted individuals, such as close family members.
Although not common today, it is a legally viable option, so it's important to understand its terms. During negotiations, the buyer and seller agree on a payment schedule, allowing the buyer to pay in several installments. This arrangement includes the delivery of the property before all payments are completed.
We can break down the process of a deferred payment deed of sale into several stages:
You might also be interested in: Purchase agreements.
To execute a purchase agreement with deferred payment in Spain, certain requirements must be met:
Executing a purchase agreement with deferred payment involves several steps.
Firstly, all necessary documentation must be prepared; we are referring to the property title, certificates of encumbrances, among others. Then, a lawyer will draft the deed or contract, outlining the specifications agreed upon by both parties.
Before signing the document, both buyer and seller must review it in detail; it is essential that both parties understand all terms and conditions.
Finally, although not mandatory, it is advisable to register the deed with the Land Registry to ensure the legal security of the transaction.
Some of the clauses that this document should contain are the following:
Rescission clause
Specifies the possibility of rescinding the contract (Article 1124 of the Civil Code) in the event of non-payment by the buyer.
Guarantee
A solvent third party undertakes to pay if the buyer defaults. In other words, the guarantor or surety ensures the principal debtor's fulfillment of the payment obligation for the agreed purchase price, with all their present and future assets.
Retention of title
Although this is not common, the seller can retain ownership until the buyer fully pays for the property.
Payment in a deferred payment purchase agreement is made through periodic installments which, depending on the agreement between the parties, must be paid monthly, quarterly, or annually. It is essential to specify in the deed both the amount of each installment and the due date. Likewise, it is recommended that payments be made via bank transfers or checks to keep a record of each transaction.
Although both a mortgage and a deferred payment purchase agreement involve buying a home with installment payments, there are key differences between the two:
· Nature of the agreement: in a mortgage, the buyer obtains a loan from a financial institution to acquire the property, whereas in a deferred payment sale, the seller directly finances the purchase, adjusting the payment schedule to the buyer's financial capacity.
· Ownership: in a mortgage, the bank retains a right over the property until the loan is repaid, whereas in a deferred payment sale, the buyer typically acquires ownership from the outset.
· Interest: in mortgages, banks apply interest on the principal amount borrowed; on the other hand, in a deferred payment sale, interest rates are negotiable and depend on the agreement between the parties.
We invite you to read our articles on: reverse mortgage, maximum mortgage, fixed, variable, and mixed mortgages.
Taxation in a deferred payment sale is handled similarly to any other real estate sale.
The seller must consider the Personal Income Tax (IRPF), which will be applied to the profit obtained from the sale. Capital gains are calculated as the difference between the sale price and the adjusted acquisition cost. If the sale is of a new home, the declaration for the Value Added Tax (VAT) must also be submitted.
In the case of the buyer, they must pay the Property Transfer Tax (ITP), which varies by autonomous community. Likewise, they must pay the Stamp Duty (AJD) when signing the public deed of the contract. It is also necessary to consider the Personal Income Tax (IRPF), if the deferral of payments generates interest considered as capital income.
The buyer has several advantages, the first being immediate access to their property before completing payment. Additionally, it can offer more flexible payment terms compared to a mortgage, and they will avoid paying the high interest rates of a mortgage loan.
The seller It has the advantage of attracting potential buyers, which will make it easier to sell the property quickly. Additionally, you have the option to receive extra income (from interest) if you agree to this with the buyer in the contract.
The main risk for the seller in this type of transaction is non-payment, which can lead to legal and financial complications, and difficulties in recovering the property. Meanwhile, the buyer will face the disadvantage of a higher total cost due to interest payments, as well as the risk of penalties for late payments. Furthermore, both parties will have a long-term commitment, which can be a drawback if either party wishes to exit the agreement.
If the buyer fails to make the payments stipulated in the deferred payment purchase agreement and does not reach an agreement with the seller, the seller may cancel the contract and reclaim their property or, in case of dispute, proceed with a lawsuit to enforce their rights.
In a deferred payment property sale, the seller must offer certain guarantees to the buyer. On one hand, ensuring the delivery of the home in the agreed-upon conditions and also offering assistance if any hidden defects appear after the purchase. On the other hand, the buyer must be assured of receiving all legal documentation for the home, including the property deed and technical certificates.
As mentioned earlier, registering a deferred payment purchase agreement is not mandatory for its validity, but it is advisable. Registration provides legal certainty and protects the buyer's rights.
If, after registering the contract, other payment terms need to be negotiated, a new agreement can be reached as long as both parties agree. It is recommended to properly document any modifications and, if possible, re-register the contract to ensure its validity against third parties.
Yes, interest clauses can certainly be included in a deferred payment purchase agreement, provided both parties agree. These clauses must clearly specify the interest rate that will apply to the installments, as well as the conditions under which they will be managed, and will be included in the agreement to avoid future conflicts.
For a successful transaction, consider these practical tips:
This is a preliminary step; consider your current and future financial situation to ensure you can meet the agreed-upon payments over time.
A to ensure all legal aspects are covered, it is advisable to seek experienced legal counsel.
Make sure you understand all the terms and conditions specified in the deed, including the payment schedule and guarantees.
Gather all necessary documentation before signing the contract, including certificates of encumbrances and property titles.
Consider registering the deed with the Property Registry to protect your property rights.
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A deferred payment purchase agreement is an effective and flexible solution that allows buyers to access properties without the stress of a full immediate payment. With proper preparation and advice, both buyers and sellers can benefit from this arrangement, thereby facilitating access to housing and the realization of real estate investments.
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Calle Pilar Mateo
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1.167.964,69€
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