Real Estate 2019 Comparisons

Last Updated April 30, 2019

Law and Practice


King & Wood Mallesons has a track record of 20 years in Spain, advising some of the top companies in the country. During the last few years, real estate has been one core practice areas of the firm, considering it a sector more than a department. The firm's real estate offering in Spain covers the entire property life cycle from tax structuring, fund formation, creation of vehicles and joint ventures, acquisition of the property, development, financing, leasing and final exit. The KWM-Spain real estate sector group includes lawyers from the real estate, fund formation, tax, corporate, finance, property litigation and labour departments; clients in this sector include global investors, developers, sponsors, fund managers, banks and financial institutions. Having worked within both law firms and real estate companies, the real estate team bring vast understanding of the real estate industry as well as experience of complex and sophisticated transactions.

The main sources of real estate law are:

  • Civil Code (Royal Decree of 24 July 1889);
  • Urban Lease Act (Law 29/94 of 24 November 1994);
  • Horizontal Property (Law 49/1960 of 21 July 1960);
  • Mortgage Act (Decree of 8 February 1946), and Mortgage Regulation (Decree of 14 February 1947, and Royal Decree 1093/1997 of 4 July 1997);
  • Land Act (Royal Decree Law 7/2015, of 30 October 2015);
  • Building Act (Law 38/1999 of 5 November 1999).

The Spanish real estate market in 2018 has overcome the uncertainties and instabilities of the previous year due to the economic recovery it has experienced. Therefore, many national and international investors have focused their efforts on this market, with a volume of transactions over EUR12 billion.

Large international investment funds have been very active in conducting assets deals, as well as merger and acquisition projects with a key real estate component. Spanish REITs (SOCIMIs) have been consolidated as investment vehicles that are very useful when acquiring and/or investing in several kinds of real estate assets to be leased, bearing in mind the advantages of REITs' specific tax regime.

The most active business areas have been the retail, office and tourism sectors. Also noteworthy is the growing activity within the logistics services and with alternative assets such as student residences, which have garnered attention from investment funds.

Regarding the residential sector, the number of dwellings sold in Spain has gone back to pre-crisis levels. Investment in leased dwellings has risen particularly sharply.

Moreover, according to the geographical area, the most attractive areas were Madrid and Barcelona, with their corresponding areas of influence, Costa del Sol (Malaga and its surroundings), the Valencian Community and the Balearic Islands (quoted from highest to lowest demand).

Last but not least, the most significant transactions that have been made public include: Deka's acquisition of 16 premises owned by the Amancio Ortega Group, valued at EUR400 million; Starwood Capital's purchase of the San Fernando Business Park, valued at EUR121 million; as well as several acquisitions of residential leased portfolios by Testa Residencial Socimi, including an acquisition of 1,500 leased dwellings to Caixabank, valued at EUR228 million.

Concerning leased dwellings, a Royal Decree was enacted on 1 March 2019, entitled Urgent Measures Regarding Leased Dwellings. This decree amends the Urban Lease Act, giving greater protection to tenants against landlords, for example, as follows:

  • an automatic extension of the lease agreement, in favour of the tenants, for a minimum of five years if the landlord is an individual, or seven years if the landlord is a company; and
  • an adjustment of the kind of guarantees to be requested to the tenants – eg, to a maximum amount and/or to avoid bank guarantee.

Nonetheless, such amendments are not applicable to lease agreements for non-dwelling use.

Additionally, the draft of the Regularisation of the Real Estate Loan Contracts Act is in the parliamentary process to be approved. Its purpose is to transpose the European Directive 2014/17, dated 4 February 2014, which introduces new measures to enhance legal certainty, transparency and understanding of loan contracts by clients, particularly in financing contracts for the purchase of dwellings by private (ie, not professional) individuals.

Furthermore, regarding tourist apartments, it is likely that more restrictive rules for their commercial exploitation will be legislated in future.

The most common property right is the absolute freehold (propiedad en pleno dominio), which is the right to fully and exclusively enjoy and dispose of a property.

Moreover, there are certain categories of limited property rights, such as:

  • bare ownership (nuda propiedad), which means the virtual ownership of a property in which the owner has no right to use, rent or enjoy the property as it has been assigned to a third party through a right in rem called usufruct;
  • co-ownership (propiedad en pro indiviso), which means owning a share of a property, so that the property belongs jointly to two or more people;
  • condominium (propiedad horizontal), which implies separate ownership of each premises and/or dwellings which are located within the same building and, additionally, a co-ownership right over the common elements of such building which are inseparable of it;
  • surface right (derecho de superficie) is the right to build on another's land and to own the property of such building for a certain time period (see 6.1 Types of Arrangements Allowing the Use of Real Estate for a Limited Period of Time, below).

The Spanish Civil Code regulates the transfer of private properties, notwithstanding that (i) according to regional rules, specific formal requirements must comply with certain types of real estate assets (eg, transfer of dwellings), and/or (ii) according to Law 8/1075 on Areas and Facilities of Interest to the National Defence and its implementing regulation, there is a specific administrative control transferring certain real estate assets due to their location, nature or public interest.

Likewise, transferring public properties is foreseen within Law 33/2003 of 3 November 2003 on the Real Estate Assets of Public Administrations.

Freedom of agreement between parties prevails in order to enter into an agreement, so even a verbal agreement would be a valid transfer of title. What is significant is the existence of title (private contract, verbal or in writing, or public deed) and that the buyer possesses the relevant property. 

Therefore, although it is not an essential requirement, it is a market practice to formalise the transfer of the property by means of a public deed executed before a notary public. Usually, prior to such formalisation, a private sale and purchase agreement is signed between the parties in which part of the sale price (generally around 10%) is often paid; transfer of possession of the property does not occur until the public deed is granted, at which point the rest of the sale price is paid.

In practice, sale and purchase agreements are formalised in writing for evidential purposes, granted before a notary public and recorded within the Land Registry. Thus, although registration is not compulsory for the valid transfer of the title, this is the most common practice for the buyer who acquires the valuable consideration and bona fide from a seller who is registered as owner of the relevant property in the Land Registry, so subsequently the buyer records such acquisition, obtaining legal protection against third parties.

Due to the legal protection granted by the Land Registry information, title insurance is not commonly used in Spain. 

Normally, prior to acquiring a real estate property, a technical or physical, commercial and legal due diligence of such property should be carried out. The scope of this may vary depending on the type of property (dwelling, shopping centre, construction in progress, etc).

The main legal aspects to be reviewed are:

  • title and encumbrances (verifying the information provided by the Land Registry excerpts);
  • leases and other third-party rights;
  • licences and zoning aspects;
  • payment of taxes affecting the property;
  • condominium issues; and
  • litigation, if applicable.

It is common to negotiate several representations and warranties (regarding the seller's transfer capacity, title, status of charges and encumbrances, urban and licence situation, leasing and occupiers status, physical state of the property, environmental aspects, etc) and other specifics depending on the circumstances of the property (for example, if there was any litigation procedures in progress). Likewise, a maximum guarantee period is usually established (commonly between two and four years) and a maximum possible amount of compensation in the event of non-compliance by the seller (referred to a percentage of the price, variable according to the circumstances).

However, under the Civil Code there is an indemnification of ejectment of title (saneamiento por evicción) in favour of the buyer. This means that no third party has a right prior to the sold property for a term of five years; for hidden defect remedies (saneamiento por vicios ocultos), it means any hidden defect in the property, for a term of six months. However, the parties may opt to waive the Civil Code regime.

The main areas to be considered are those relating to civil law (title and charges), urban planning law (in terms of the status of licences and permitted uses) and tax law (in terms of the taxes that are levied towards the property and under unpaid scenario who will be responsible as well as the taxes to be paid within the transaction).

As a general rule, those who carried out the contaminated action are legal responsible, being obliged to take the necessary actions to decontaminate and remediate it; if there are several polluters, all of them will be jointly and severally responsible.

However, the owner or occupier of such property will also be secondarily and residually responsible to carry out the remedial actions.

Therefore, it is especially important that, prior to acquiring the property, in order to try to minimise such risk, if there is the slightest suspicion that there may be any contamination of soil resulting from previous use of the land then an environmental due diligence is carried out by the potential buyer.

There is a public register of contaminated soils, in which the properties classified as contaminated by the administrative authorities must be recorded. Such registration must be recorded within the relevant Land Registry.

Urban planning regulations applicable to a property can be consulted at the relevant city council. It is even possible to request a city council to certify what the permitted uses and/or any other applicable local planning parameters are (maximum height, setbacks distance, etc) by issuing an urban planning certificate (cédula, informe o ficha urbanística).

The urban development of plots is determined by the applicable state, regional and municipal rules, without prejudice to the fact that, among the aforementioned instruments, urban development agreements (convenios urbanísticos) may be entered into with the local authorities within certain restricted parameters.

According to the Spanish Expropriation Act of 16 December 1954, for reasons of public utility or social interest (eg, public infrastructure) the public authorities may expropriate properties or private rights, acquiring them coercively for themselves or for a third party, and paying the owners the corresponding compensation (justiprecio).

Owners have the right to challenge the need for expropriation and the price of such compensation if they consider it inappropriate. Furthermore, as a guarantee of the effective destination of the expropriated property for public or social use or interest, they also have the right to recover the property when it ceases to be used for that purpose ('right of reversion') and, if this is not possible, to receive the corresponding economic compensation.

Asset Deal

The purchase and sale of real estate through an asset deal is subject to VAT or to Transfer Tax (Impuesto sobre Transmisiones Patrimoniales Onerosas), both of which are borne by the purchaser. Furthermore, when VAT is applicable, the transaction is subject to Stamp Duty (Actos Jurídicos Documentados) which is also paid by the purchaser. The transaction is normally also subject to Tax on the Increase of Urban Land Value (Plusvalía municipal) borne by the seller. Main aspects of these taxes are explained below.


First transfer of buildings by VAT taxpayers are generally subject to VAT. The standard VAT rate is 21%. It would be applicable to transfers of land and first transfers of buildings, except for the first transfer of residential properties where there is a reduced VAT of 10%. VAT is charged by the seller and paid by the purchaser.

First transfer of buildings that have been in continuous use for a period of over two years and second and subsequent sales of buildings are VAT-exempt but will be subject to transfer tax at a 6% to 11% rate (depending on the region where the property is located). However, sellers can waive such exemption and charge VAT on the sale if the buyer is a taxable person and is entitled to deduct, at least partially, the input VAT borne. Waiving the VAT exemption would imply a VAT reverse charge (a reverse charge mechanism or inversion del sujeto pasivo): the purchaser would become the VAT taxpayer and would have to self-charge VAT which then would be treated as deductible (all or in part). In cases where a waiver of exemption is possible, the transaction can entail that all or part of the VAT charged is recoverable by the buyer. This is normally preferred as Transfer Tax is always a definitive cost.

According to Article 7.1º a) of Law 37/1992 (VAT Law), transfers of assets carried out by entrepreneurs on the basis of their habitual activities ('transfer of a going concern') would not be subject to VAT if such transaction involves the transfer of all the assets of the seller and is made to a single acquirer. In this sense, the sale of this real estate property to a single acquirer can be considered a transfer of all business assets, therefore making this transfer not subject to VAT but subject to Transfer Tax at a 6% to 11% rate (depending on the region where the property is located) on the fair market value of the property transferred.

Transfer Tax

Transfer Tax is levied, in general, on asset transfers which are non-taxable by VAT. The rate applicable to such transfers is a rate of 6% to 11%. It is a non-recoverable VAT and constitutes an additional cost for the buyer.

Therefore, according to the above, no Transfer Tax would be payable on the transfer of the property where the transaction is subject and not exempt from VAT or, exempt from VAT the purchaser elects, where possible to submit the sale of the property to VAT (which is recoverable by the purchaser if certain conditions are satisfied).

Stamp Duty

Stamp Duty is levied on certain documents, such as notary deeds that are registered in, among others, the Property Registry. Therefore, the sale of the property subject to and not exempt from VAT (even in the event of waiving VAT exemption) in a notary public deed would be subject to Stamp Duty at a rate from 0.5% to 3% (depending on the region where the property is located), payable by the purchaser.

Most of the regions have approved an increased stamp duty rate in the event of real estate property transfers where there has been a waiver of the VAT exemption. These regions have established increased tax rates of around 1.5% to 3%. 

No Stamp Duty is levied in the sale of property subject to Transfer Tax, as both taxes are incompatible.

Tax on the Increase of Urban Land Value

This tax is levied whenever urban land is transferred on the estimated increase in the value of land. The tax base is calculated as a percentage of the land's cadastral value (valor catastral) at the time of the sale, depending on the location of the property and the period during which the building has been owned. This tax is currently under review after having been partially declared illegal by the Spanish Constitutional Court.

Share Deal

In principle, the purchase and sale of real estate through a share deal should not trigger any of the above taxes.

Nevertheless, as the assets are immovable properties, attention should be paid to the anti-abuse rule aimed at countering fraudulent indirect transfers of real estate properties contained in Article 314 of the Restated Text of the Law on the Securities Market approved by Royal Legislative Decree 4/2015, of 23 October 2015 (SM Law). So, in general, VAT at a rate of 21% (10% for residential properties) or Transfer Tax at a rate of 6% to 11%, when applicable, can be levied if 50% or more of the company’s assets comprise of Spanish real estate not used in business activities and, as a result of the transfer, the purchaser ends up holding an interest of over 50% in the share capital of the company.

There are specific administrative controls when transferring certain assets due to their location, nature or public interest in accordance with the provisions of Law 8/1075 on Areas and Facilities of Interest to the National Defence and its implementing regulation. Therefore, depending on the characteristics of the investor (not applicable to EU citizens) and the specific real estate asset, it may be necessary to obtain some administrative authorisation prior to acquire the property.

According to Royal Decree 664/1999, foreign investments in real estate exceeding EUR3,005,060 or investments that come from a tax haven must be notified to the Register of Investments of the Ministry of Economy for administrative and statistical purposes.

Acquisition of real estate transactions may be carried out through an asset deal or through a share deal. In both cases, the financing is normally carried out by means of the execution of a bilateral or a syndicated facilities agreement which includes a tranche for either the partial or the total financing of the acquisition. It is also standard to include an additional tranche for the purpose of the financing of construction or improving works in the property and also one for capex investments in order to improve the relevant real estate asset.

Apart from the security generally executed in these kind of transactions (please see 3.2 Typical Security Created by Commercial Investors, below), it is customary to hedge the risk of fluctuation of the applicable interest rate.

The customary security package in a real estate acquisition financing transaction would include:

  • mortgage over the real estate asset acquired;
  • pledge over the shares in the company holding the real estate asset acquired (more customary in real estate finance involving the acquisition of the shares of the company holding the real estate asset acquired);
  • pledge over credit rights arising from the acquisition documents;
  • pledge over credit rights arising from
    1. agreements related to the asset acquired or the specific real estate business (lease agreements, construction agreement or insurance agreements), and
    2. bank accounts into which such credit rights are transferred;
  • pledge over credit rights arising from intragroup loans or hedging transactions;
  • guarantees (by way of first demand guarantees, parent guarantees), issued by companies of the group.

Financial assistance restrictions shall be taken into consideration in share acquisition deals. This restriction entails that the target company cannot grant any security or guarantee to secure the obligations arising from the acquisition tranche of the relevant facilities agreement. This means that the financing (in a share deal) may include a pledge over the shares of the target company but not a security granted over the assets of the target company (this restriction applies to any guarantee granted by the target company).

There are no particular restrictions for the granting of security in favour of foreign lenders. Also, there are no restrictions on repayments made to a foreign lender because of the enforcement of the related security.

However, it shall be taken into consideration that withholding tax may apply to the repayment of interest, depending on the jurisdiction that the lender has been incorporated with. For the purposes of avoiding withholding tax implications, it is market standard to include a gross-up clause in the facilities agreements by virtue of which the obligors undertake to carry out payments in full, free of taxes or deductions of any kind.

Regarding the implications of the expansion of the reach of the Committee on Foreign Investment in the US (CFIUS), a non-US investor should assume additional advising costs in order to determine if the investment is subject to CFIUS review, what are the steps to comply with such regulation and, finally, submit the transaction to the ultimate approval of the CFIUS.

As long as the security regarding real estate can be registered at the Land Registry, Stamp Duty is levied on the notary deeds documenting such security, at a rate from 0.5% to 3%. In granting of a mortgage deed the rate of Stamp Duty is calculated over the total liability secured by the mortgage including principal, interest, default interest and enforcement cost and fees. The mortgage also involves payment of notary and Land Registry fees.

By contrary, pledges of shares are not subject to Stamp Duty as they may not be registered at the Commercial Registry. However, they involve payment of notary fees as they must be granted in a public deed.

There are no particular restrictions for the purposes of granting security in acquisition asset deals apart from corporate benefit.

Regarding acquisition of shares deals, in addition to corporate benefit, financial assistance regulations need to be taken into account.

There are financial assistance regulations in Spain where limited liability companies (sociedades de responsabilidad limitada) and joint-stock companies (sociedades anónimas) shall not advance funds, grant financing, guarantee or provide security or financial assistance of any kind for the acquisition of its own shares or the shares in its parent companies; with reference to the limited liability companies, this limitation affects to other companies of its group.

Corporate benefit is required when granting guarantees. While corporate benefit may be implied when granting downstream guarantees (receipt of dividends), it is not that clear in the case of upstream and cross-stream guarantees and it may be challenged if no remuneration is provided in favour of the subsidiary granting the guarantee.

Security may be enforced if any payment default arises under the facility agreement (either in case of an ordinary repayment or acceleration of the loan). No enforcement can be carried out in case of a default besides a breach of an economic obligation, unless the loan is accelerated and all the debt becomes due.

Security can be usually enforced either totally or partially, so partial enforcement of security can be carried out to obtain satisfaction of specific instalments due. Unless otherwise agreed with the borrower, lenders can freely decide which security interest should be enforced first – however, this would be normally carried out by enforcing security over credit rights, cash in bank accounts, etc, which would only require a notice to be delivered to the relevant obligor requesting direct payment to the lender(s).

In case of acceleration (which requires a material breach of obligations, normally lack of payment), and if refinancing or restructuring of the debt has failed, the lenders would normally also enforce the mortgage. Enforcement of mortgages are subject to tough proceedings which would require certain formalities to be met, such us prior notice to the borrower requesting payment of the amounts due, debt settlement, etc.

Regarding the priority of the security, it is determined when it is created. If a prior ranking security (either a pledge or a mortgage) is created over an asset, proceeds arising from its enforcement will be applied to fulfil the secured obligations. Only when such secured obligations have been fulfilled will such proceeds be set off against other obligations which rank as junior. Enforcement of senior ranking security will purge junior ranking encumbrances, but the enforcement of a junior ranking encumbrance will not affect a pre-existing charge. No steps other than registration are needed to ensure this.

Apart from some kind of credits that could have priority by operation of Law (eg, tax credits), subordination of debt can be carried out by contractual means. Subordination of ranking of security can also be agreed with the consent of the senior lender.

The parties under a facilities agreement may agree the priority of a certain debt and provide a newly created debt with a higher priority to the prior created debt.

Only if the lender acquires the property of the asset may it be liable under environmental laws (see 2.7 Soil Pollution of Environmental Contamination, above).

Within the insolvency proceedings of the borrower, security interests may be subject to a claw-back action – and, therefore, rescinded, annulling all their effects – provided that the following requirements are met.

  • They have been granted by the borrower within the two years preceding the declaration of the former under the insolvency status by the Commercial Court.
  • The security interests are detrimental to the insolvency estate of the borrower. The detriment shall be evidenced by the insolvency administrator or by the claimant party. The Spanish Insolvency Act (SIA) provides presumptions of detriment, some of which can be rebutted by the borrower and others cannot. However, in the case of security interests, in practice, only the following presumptions that are rebuttable apply:
    1. when security interests are granted to secure a debt of the borrower with a related party;
    2. when security interests are granted to secure pre-existing debts (either when the pre-existing debt was not initially secured or when new securities are granted).
  • However, security interests granted within the framework of a refinancing agreement can only be rescinded by the insolvency administrator, provided that the requirements set forth within the SIA for the benefit of the creditors are met.

As the LIBOR will be no longer supported by the Financial Conduct Authority by the end of 2021, the key point for all the parties under the financing documentation would be to carry out a smooth transition to the Sterling Over Night Index Average (SONIA).

For that purpose, it is required to amend the financing documentation in which maturity is beyond 2021 by including fallback terminology that ensures a correct adaptation to SONIA (LMA and ISDA have already suggested drafting the clauses in order to adapt the hedging documentation and the facilities agreement).

It is important to bear in mind the scenarios where there is a syndicate of lenders and unanimity is required for the amendment of the reference interest rate. In this case, disputes may arise involving an increase of cost in terms of time and advising services required as well as a delay in the adaptation. Therefore, negotiations for the adjustment of the documentation should start as soon as feasible.

National legislation on planning matters oversees basic and general aspects. However, the regions and municipalities also have territorial legislation regarding planning matters. The regions approve urban planning laws applicable to their territory, as well as supra-municipal planning instruments (land-use planning instruments); such planning instruments are then developed and implemented by the different municipalities (general master plans, partial plans, etc).

During the approval process, periods of public information are opened for interested parties in order to lodge pleadings. Likewise, such regulations may also be challenged by means of appeal before the administrative authorities and/or the courts.

The construction of new buildings or their major refurbishments are subject to the prior obtaining of the relevant works licence issued by the city council, which is granted once the authority has verified that the technical project complies with all the applicable regulation.

Upon completion of the relevant construction, the city council will verify whether works carried out have been executed according to the work licence granted; the first occupancy licence or equivalent certificate that enables the use of the building will then be issued.

Legislation on planning matters is applicable (see above, 4.1 Legislative and Governmental Controls Applicable to Strategic Planning and Zoning).

Usually, a general master plan regulates (i) the main and prohibited uses corresponding to a plot, without prejudice to the fact that such rules may also contemplate other ancillary, alternative and/or associated uses that may require a prior procedure of some specific urban planning instrument, and (ii) other applicable urban parameters (maximum height, setback distance, etc).

A submission must be submitted to the city council alongside (among other documents) the technical project. The relevant city council will grant the licence if such technical project complies with the urban planning regulations and the building parameters laid down.

Granting licence is an administrative authorisation and, therefore, as an administrative procedure is only conditioned to the prescriptions of the urban planning regulations, not to any other consideration or civil rights. Consequently, third parties do not have the right to participate or lodge pleadings during the licence-granting procedure.

Any administrative procedure can be appealed within the legally prescribed periods of time before the relevant administrative authority (one or two months from its notification date, depending on the kind of appeal) and/or the courts.

It is possible to enter into urban development agreements in order to make commitments of planning or land management with the city councils (eg, a commitment to reclassify land use). However, such agreements cannot be reached during the regulation intervention phase (fase de intervención) as several urban requirements must be complied with in order to be provided with a licence. If such requirements are met, an applicant will be granted with the relevant licence.

Planning urban parameters applicable to a property are controlled by means of the granting of the relevant licences to carry out works (works licence) or to carry out activities (activity licence).

Thus, if certain works are carried out without the relevant granting of the licence, (i) during a certain term (which it is usually four years) the authorities may require them to be demolished, and (ii) once this period has elapsed, the property will be considered as out of planning order (fuera de ordenación), which entails a series of limitations in terms of works and uses.

By contrast, carrying out certain activity in a property without having been granted with the relevant licence, can lead to penalties (economic and/or administrative) – for example, ceasing the activity and closure of the property.

There are several variations, such as incorporating an investment vehicle or establishing a Spanish branch of a foreign company or a collective investment vehicle.

It is fairly common for investors to use investment vehicles in the legal form of a limited liability company (Sociedad de Responsabilidad Limitada, SL), or a public limited company (Sociedad Anónima, SA), both of them providing their shareholders a limited liability to the extent of their equity contributions.

However, in the last decade we have seen a significant increase of legal collective investment vehicles and, in particular, SOCIMIs.

A SOCIMI is a public limited company listed in a regulated market and whose corporate purpose is, in summary, the acquisition and development of real estate properties of an urban nature for renting.

In addition to the SOCIMIs, there are also two other legal regulated collective investment vehicles suitable for investment in real estate assets:

  • a Spanish Real Estate Investment Fund (Fondo de Inversión Inmobiliaria, FII) is a fund with no legal personality that is managed by a management company (SGIIC);
  • a Spanish Real Estate Investment Company (Sociedad de Inversión Inmobiliaria, SII) is a regulated collective investment SA that can be self-managed or delegate management in a SGIIC.

The incorporation process of investment vehicles (as opposed to collective investment vehicles) entails a process which will require a notary in order to notarise a public deed of incorporation. In addition, it is necessary to appoint the relevant directors. The incorporation deed needs to be registered with the Commercial Registry. In terms of the incorporation time frame the total process normally takes up to four weeks. Another alternative is to acquire an existing incorporated vehicle. Please find below a brief comparison of the main characteristics of the investment vehicles.

Share Capital

SL – minimum capital EUR3,000, which must be fully paid up upon incorporation.       

SA – minimum capital EUR60,000, of which at least 25% must be paid-in upon incorporation.


SL – they are not marketable securities.       

SA – they are marketable securities that can be traded in secondary markets.

Contributions in Non-cash

SL – contributions in non-cash assets do not require verification by an expert.       

SA – any contributions made by the shareholders in non-cash assets must be verified by an independent expert appointed by the Commercial Registry.

Shareholder's Liability

The liability of the members for the debts of the company in both forms of entity (SA and SL) is limited to the extent of their equity contributions. There are only limited exceptions in cases where a sole shareholders’ status is not made public or in case of insolvency if the shareholders prevent a creditors agreement from being implemented.

Transfer of Shares and Limits

SL – transfer of shares needs to be formalised by means of a public deed before a notary public. In addition, SL companies are intended to prevent outsiders' access with some limitations to the transfer of quotas.        

SA – The procedure for transferring shares depends on the nature of the title: registered shares, bearer shares or shares represented by book entries. In principle, the shares are freely transferable, but the company's by-laws may impose other restrictions on the transfer of shares.


SL – four forms of management are available: (i) a sole director, (ii) two or more separate directors, (iii) two or more joint directors, or (iv) a Board of Directors which must have a minimum of three members and maximum of 12.       

SA – four forms of management are available: (i) a sole director, (ii) two or more separate directors, (iii) two joint directors, or (iv) a Board of Directors which must have a minimum of three members.

Term Appointment Directors

SL – the duration of the appointment of the directors has no limit unless otherwise stated in the by-laws.       

SA – the duration of the appointment of the directors must not exceed six years, unless renewed.

The timeframe for incorporating a real estate collective investment vehicle, either a FII or a SII, will depend on the formal procedures before the CNMV (National Securities Market Commission), which shall take approximately three to four months, as well as the fund-raising process.

SL: EUR3,000, which must be fully paid-up upon incorporation.

SA: EUR60,000, of which at least 25% must be paid-up upon incorporation.

SOCIMI: EUR5 million.

FII: EUR9 million, which must be fully paid-up upon incorporation. It should be noted that, as mentioned above in 5.1 Types of Entities Available to Investors to Hold Real Estate Assets, the FII shall be managed by a management company (SGIIC), whose minimum capital is whichever is the higher of (i) EUR125,000 and (ii) 25% of the cost of structured charges in the profits and losses account of the preceding tax year.

SII: EUR9 million, which must be fully paid-up upon incorporation.

SL and SA

Both type of companies are governed by the general shareholders meeting and the administration body. Regarding forms of management see above, 5.1 Types of Entities Available to Investors to Hold Real Estate.

Should the company be listed, the administration body shall be a board of directors. It will be mandatory to have operational rules of the shareholders meetings and board of directors (reglamentos de funcionamiento de la junta y del consejo), appointing an audit commission (comisión de auditoría) and one or two separate commissions, of board appointments and remuneration (comisión de nombramientos y retribuciones). Such commissions might also be appointed voluntarily by non-listed companies.

The CNMV imposes significant periodical reports obligations to listed companies.


Those two types of vehicles will delegate their management to an SGIIC, unless the SCII is self-managed (which is infrequently the case). It shall be also considered that the SII is a type of SA and therefore it will be governed as well by the general shareholders meeting and the administration body, although if the management has been delegated in a SGIIC they will merely adopt formal decisions.

Those two collective investment vehicles are subject to periodical report obligations to the CNMV in their capacity as the regulated entity.


An SOCIMI should comply with the same requirements as an ordinary SA, in addition to those others imposed on a listed company.

SL and SA

Maintenance costs shall not exceed EUR20,000 per year.

In terms of accounting compliance costs, SL and SA are only obliged to audit their annual accounts provided that certain thresholds set in the Spanish Companies Act are met. Auditors' costs will depend on the activity of the companies.


Given their nature as regulated vehicles, collective investment vehicles will have higher annual maintenance costs.

FIIs and SIIs are obliged to appoint a depositary entity, which will be in charge of the custody of the security and surveillance of the SGIIC and will charge a fee for those services.

SOCIMIs, in their capacity as listed companies, are legally required to appoint a registered adviser (asesor registrado) and a liquidity provider (proveedor de liquidez) and to pay them the agreed fees.

Spanish law sets forth that real estate legal collective investment vehicles are required to audit their accounts. The management company (SGIIC) of the FII and SII – the latter if it is not self-managed – must be audited as well. Auditors' costs will again be highly dependent on the activity of each entity.

On a separate note, management fees agreed to be paid to the SGIIC shall be considered.

The most common contract is the lease agreement, regulated by the Urban Lease Act (ULA) when the object is a construction (dwellings, premises, buildings, etc) or by the Civil Code when the object is not a building.

Other, less frequent options are the granting of the following rights by the owner of the property.

  • The surface right allows separation of the ownership of the land from the ownership of what is built on it, during a specific time period, on payment of a fee to the land owner. The surface right holder can transfer, encumber or lease its right as if he/she were the freehold owner of the building during the given time period of the surface right. However, the ownership of the building will revert to the land owner at the end of the agreed term.
  • Beneficial interest (derecho de usufructo) allows the usufructuary to possess, use and enjoy a property. It must have a duration period – for natural persons this may be even for life, while for companies it may not exceed 30 years.

There are other residual alternatives, such as the right of use and habitation or the emphyteutic right, which due to their lack of practical applicability are not further explained in this guide.

Commercial leases are those that are rented specifically for business or other commercial use, as opposed to for residential purposes. Such leases are regulated by the will of the parties, by the provisions of the ULA and by the Civil Code.

However, there are other special circumstances, such as:

  • the lease of a plot of land on which the tenant is entitled to build – this is considered as a lease agreement such as those regulated by the Civil Code.
  • leases whose object are the property and facilities (machinery, workers, etc) for a business activity, which are considered as an industrial lease agreement regulated in the Civil Code.

The rent is agreed at the will of the parties.

Regarding duration, in the urban leases regulated by the ULA, two situations are foreseen:

  • in non-dwelling leases, the term may be agreed at will between the parties; and
  • in dwelling leases, the parties may agree at will the duration but must respect the restrictions provided for by the ULA (ie, the tenant has the right to stay at least five years if the landlord is a natural person, and seven years if the landlord is a legal person, by virtue of RD 7/2019, as mentioned above in 1.3 Proposals for Reform).

The duration of non-dwelling lease agreements is agreed at will by the parties, with no minimum nor maximum time period implemented by the law. In practice, durations of between five and 20 years are usually agreed.

In non-dwelling lease agreements, the parties may agree at their will the system of maintenance and repair. In the absence of an agreement, the legal regime set in the ULA shall apply:

  • the landlord is obliged to carry out all the necessary repairs to preserve the property and make it fit for the agreed purpose, but is not entitled to raise the rent, except when the deterioration is attributable to the tenant; and
  • the tenant must carry out the small repairs caused by the ordinary use of the building.

The rent is usually paid monthly in advance. However, another payment frequency can be agreed (quarterly, half-yearly, annual, etc).

The rent agreed in the initial lease agreement is usually updated throughout the term of the lease according to the system expressly agreed by the parties; this may depend on the variation of the Consumer Price Index (CPI), market values, etc.

As explained above in 6.5 Rent Variation, parties usually agree to establish a system to update the rent, determining the specific procedure to calculate it.

Residential rental payments are subject but exempt from VAT. Non-residential rental payments, by contrast, are generally subject and not exempt from VAT (21%).

Costs may be incurred if there are additional works that are undertaken in order to meet the requirements of the tenant.

A legal deposit of one month’s rent in dwelling lease agreements, or two months in non-dwelling lease agreements, must be delivered by the tenant.

It is the landlord who usually covers expenses related to the property's maintenance and repair, while the tenant pays the community expenditures that correspond to the leased property.

Each tenant directly pays the supplier companies for the services contracted individually.

In cases where there are no individualised meters for each tenant, a proportional system of payments is usually agreed, whereby each tenant pays an appropriate percentage of the total cost.

The owner usually takes out property damage insurance and the tenant takes out damage insurance concerning its content and the civil liability related to its activity.

Buildings must be used solely for the purpose provided for in the planning regulations and according to the licences granted. Thus, lease agreements foresee the use of the property by the tenant (whether a dwelling, office, commercial use, etc), allowing the termination of the contract by the landlord if there is a misuse of conduct by the tenant within the property.

Likewise, the ULA enables the landlord to terminate the contract if the tenant is guilty of disturbing, insalubrious, damaging, dangerous or illegal activities.

The ULA establishes that the tenant may not carry out works on the property that modify its layout unless he has the explicit consent of the landlord.

Thus, in non-dwelling lease agreements, it is customary to determine in detail which kind of works can be carried out by the tenant without the consent of the landlord and which works require his prior consent.

The ULA is applicable to lease any kind of building, providing a more restrictive and protective regime in favour of the tenant in dwelling leases, and greater autonomy in case of other type of buildings (premises, hotels, offices, etc).

The tenant's declaration of insolvency does not constitute grounds of termination of the lease agreement by the landlord. However, the insolvency administration or the insolvent tenant can request the termination of the lease if it is convenient for financial recovery of bankruptcy. The judge will decide depending on the circumstances.

Further to this, in accordance with the current Bankruptcy Law, the bankruptcy administration may stop an action for eviction brought against the tenant prior to the declaration of insolvency. Moreover, such administration may also resume the validity of the contract until just prior to the eviction of the tenant. In such cases, the assets available to creditors will assume any pending rents and any court costs incurred.

The ULA establishes that the tenants must make a legal deposit of one month's rent for dwelling leases and two months' rent for non-dwelling leases, as a security for the return of the property in good condition at the end of the lease.

Parties may agree additional securities such as other deposits, guarantees, comfort letters or, on occasion, an income insurance.

Once the lease contract has terminated due to the expiry term agreed by the parties, the lease can be extended if the tenant continues to stay in the property for 15 days after the end of the contract and pays the rent without resistance from the landlord. In such a scenario, the lease will be extended annually if the rent was fixed yearly, or monthly if the rent was fixed monthly.

Therefore, if the landlord wishes to avoid such extensions it is essential to require the return of the property when the contract expires.

Breach of contract from either involved party automatically gives the right to the complying party to demand compliance with such obligation or request the termination of the contract. 

The landlord may terminate the contract in the following circumstances:

  • if the tenant fails to pay the rent, the legal deposit or any other amount required;
  • in case of assignment or sublease if this is forbidden, or if the consent of the landlord was required;
  • malicious damage within the property, or undertaking works not consented to by the landlord when such consent was necessary;
  • if the tenant carries out disturbing, insalubrious, damaging, dangerous or illegal activities in the property;
  • if there is a change of use of the property that was not authorised by the landlord;

Similarly, the tenant may terminate the contract on the following grounds:

  • if the landlord fails to carry out necessary repairs in the property for the agreed use;
  • disturbance, in fact or in law, that the landlord causes in the use of the property (eg, fit-out works carried out by the landlord which disturb the tenant's activity).

The lease shall also expire in the event of loss of the property or in the case that the property is stated to be ruined by the competent authority.

The tenant will be obliged to leave the property if the contract is terminated (see above, 6.18 Right to Terminate Lease).

The length of an eviction procedure depends on the effective capacity of the court handling it, usually taking between six and 12 months.

In the framework of insolvency proceeding the judge may admit the termination of the lease if it is convenient to ensure the viability of the insolvent party (see above, 6.15 Effect of Tenant's Insolvency).

The contractual intention of the parties prevails in construction agreements. Therefore, depending on the model of the construction project, a fixed rate (flat rate) might be agreed, or a variable (usually per unit of measurement) price.

As foreseen in Article 1,593 of the Civil Code, the contractor and the architect in charge of a construction with an agreed flat rate price cannot ask for a price increase even though the cost of the workers and/or the materials have been increased. However, they could ask for such a price increase in case of an increase of the work because of a change in the project that was agreed with the owner.

In practice, it is common for this type of contract to have a fixed price.

The Building Management Law (BML) regulates the obligations and responsibilities of each of the agents involved in the construction (developer, contractor, designer, project management, etc).

According to the BML, the builder is liable for material damage resulting from deficient execution during the first year; all the agents involved in the building process are liable for material damage caused in the building by flaws or defects affecting habitability during a period of up to three years; finally, the liability is up to ten years if those flaws and defects affect the structural safety of the building.

In any case, the liability shall be demanded jointly and severally if it is not possible to identify the cause of the material damage or if it is duly proven that various agents were liable without it being possible to determine the exact degree of their intervention in the damage caused.

Furthermore, the developer will be jointly and severally liable with the other agents to the possible purchasers of the building materially damaged by construction flaws or defects. Liability actions are time-barred after two years from the occurrence of the damage.

The agents involved in the building process are liable to the owner and, where relevant, to third parties for material damage in the building and damages caused to people and property within the legally stipulated periods.

The BML foresees, in such a scenario, for residential building (excluding self-promotion), the compulsory subscription for a period of up to ten years of an insurance against material damages caused by flaws or defects affecting the structural elements.

Likewise, various securities are regulated in the contracts such as: price withholdings, guarantees, deposits, other insurances, etc.

It is customary, regarding turnkey contracts, that the owner transfers all liability to the contractor, with the owner then being held not responsible for any loss.

Construction agreements usually regulate works timings and manage the possible penalties which will be triggered in the event of non-compliance with the agreed deadlines (both the final deadline and, on occasion, intermediate milestones in the calendar of the execution of the works).

Thus, a maximum time period is generally agreed for the execution and reception of works that cannot be extended. Therefore, if the contractor fails to comply, a periodic financial penalty is usually foreseen within the agreement, normally daily, to a variable amount depending the project.

Nevertheless, delays due to force majeure not attributable to the contractor are generally excluded.

The most common guarantee in favour of the owner is withholding a certain percentage of each payment of the price (usually 5%). This is to assure the owner that the contractor will execute and complete the works even in the event of damage, necessary repairs or delay, at least until both parties have signed the reception certificate approving the works.

However, it is common as an additional safeguard to provide a bank guarantee for a certain amount of the agreed price, or parent guarantees.

The construction contract generally regulates that, in case of non-payment, the contractor is entitled to unilaterally terminate the contract and claim the due amount and damages caused by such non-payment and consequent early termination.

Article 1,923 of the Civil Code foresees the possibility of encumbering the property because of the non-payment of a due amount. This will depend on a judicial procedure in which the judge determines the seizure of the property if it is requested by the plaintiff (contractor, designer, etc). This way, it is possible to grant preferential ranking in the collection of the debt over other creditors.

A judicial resolution would be necessary to cancel such registration charge, for which it is necessary to prove the payment between the parties and the subsequent request for the release of the charge (seizure).

According to the applicable regulations, building construction, works execution and the relevant occupation require the necessary licences and other appropriate administrative authorisations. However, the regulation depends on each autonomous community and city council where the property is located.

Works Licence and Activity Licence

Both licences are granted once the building project has been reviewed by the city council’s technicians in order to ensure that such project complies with the applicable urban planning regulations. The work licence is necessary for any work, including refurbishment, fit-out and/or demolition works. In turn, the activity licence is necessary for those buildings dedicated to commercial uses as long as such activity is permitted by the applicable regulations in force.

First Occupancy Licence and Opening Licence

Both licences confirm that the construction has been developed in accordance with the technical requirements and in line with the works or activity licence that may have been granted. Consequently, after obtaining the aforementioned licences, the building can be devoted to the agreed use (residential or the authorised commercial activity).

The sale of real estate is taxed as explained above in 2.10 Taxes Applicable to a Transaction.

Additionally, the second and subsequent transfers of buildings (i) for their refurbishment, are subject and not exempt from VAT at a rate of 21% (reduced VAT of 10% in the case of residential properties); and (ii) for their demolition, are subject and not exempt from VAT at a rate of 21%.

When share deals can be carried out instead of asset deals, and the sale does not fall under the anti-abuse rule contained in Article 314 SM Law (see above, 2.10 Taxes Applicable to a Transaction), the tax cost of the transaction is heavily reduced.

Business premise owners are subject to Real Estate Tax. This is a municipal tax which is calculated on the basis of the cadastral value of the real estate. There are no exemptions regarding business premises.

There is a non-resident withholding tax at a rate of 19% on dividends and interests obtained by foreign investors.

Rental income from real estate obtained by foreign investors not acting in Spain through a permanent establishment (PE) is subject to a general non-residents tax of 24%, which is reduced to 19% in the case of tax residents in the European Union (EU) and the European Economic Area (EEA).

Capital gains derived from the transfer of real estate obtained by a foreign investor not acting in Spain through a PE are subject to a non-residents tax of 19%. The buyer shall withhold 3% of the sale price, which will be creditable against the 19% tax levied on the seller.

Tax residents in the EU or the EEA who obtain income from Spanish real estate not acting in Spain through a PE can benefit from the deduction of the expenses and costs related to the real estate. The rest of the non-resident investors cannot deduct any expense or cost linked to the real estate.

This matter is not relevant in Spain.

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King & Wood Mallesons has a track record of 20 years in Spain, advising some of the top companies in the country. During the last few years, real estate has been one core practice areas of the firm, considering it a sector more than a department. The firm's real estate offering in Spain covers the entire property life cycle from tax structuring, fund formation, creation of vehicles and joint ventures, acquisition of the property, development, financing, leasing and final exit. The KWM-Spain real estate sector group includes lawyers from the real estate, fund formation, tax, corporate, finance, property litigation and labour departments; clients in this sector include global investors, developers, sponsors, fund managers, banks and financial institutions. Having worked within both law firms and real estate companies, the real estate team bring vast understanding of the real estate industry as well as experience of complex and sophisticated transactions.