Q: I am buying a resale apartment in Los Cristianos. If I buy through an agent, I understand that the transfer tax payable would be 6.5% VAT, but what is the tax if I buy the property privately? I have been told that the rates differ in each case.

A. The transfer tax payable in the Canary Islands when purchasing a resale property is the same regardless of your nationality or residence or whether you purchase through an agent or directly from the owner. The rate is 6.5%. For a new or off-plan property, the total purchase tax payable is 5.75%.

However, assuming that the agent’s commission is to be deducted from the agreed purchase price, it is possible to specify in the ‘escritura’ (Title Deed) separate figures for the agent’s commission and the balance of the purchase price going to the seller. That way, the buyer only has to pay the relevant tax on the amount going to the seller. There is no property tax chargeable on estate agents’ commissions or fees.

If the amounts are separated in this way, the buyer should not end up paying any more property tax simply because there is an agent involved.

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Q: I recently signed a contract to purchase a villa in Callao Salvaje. I was told by my bank that I was eligible for a mortgage of 65% of the agreed purchase price. I raised the 10% deposit privately and I had just enough funds to cover the remaining 25%.

However, the bank has now obtained a valuation of the property, which is for a lower amount than the agreed purchase price. Hence, the 65% of this valuation is no longer enough to cover the balance of the purchase price that I require. I now need to raise an additional 5.000 Euros.

My lawyer has obtained an official valuation from the local tax office, which values the property at almost the same amount as the agreed purchase price.

Are the bank entitled to rely on the lower valuation? What will happen if I am unable to raise the balance myself?

 

A: Unfortunately this is an ever more common scenario. The bank is a private organisation and hence legally entitled to determine its own valuation of the property. Any offer of a mortgage will be subject to that valuation. I suspect that the small print in any mortgage offer will confirm this.

The result is that you have signed a contract which requires you to complete the purchase within 2 months for the full purchase price. While it is possible to negotiate and insert a clause entitling you to back out in the event that the bank valuation is below expectations, this was not considered or negotiated by your lawyer.

Unfortunately, you must now either find the additional 5,000 Euros or obtain better mortgage terms from another bank at extremely short notice, or you will be in breach of contract. In that instance, you would lose your 10% deposit to the seller, who would then be free to put the property back onto the market.

We strongly recommend to all clients requiring a full mortgage that a contract clause is negotiated that allows the buyer to recoup his deposit and walk away in the event of receiving an unacceptably low bank valuation.

We offer a fixed fee conveyancing service for 1.500€ Euros covering all aspects of your property purchase or sale in Tenerife, from initial searches through to registration of utilities and council tax. To make an appointment, contact Tenerife Solicitors today on 922 717845 (0871 218 0063 from the UK) or email us at This e-mail address is being protected from spambots. You need JavaScript enabled to view it  

Tenerife News edition 431 -  Legal Column  with John Hatrick