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of in rem rights or other legal structures, which may impose encumbrances or grant contractual rights to third parties. 6. Spanish legal system permits joint ownership of real property Joint ownership is permitted. Under the Spanish Horizontal Property Law, buildings with more than one owner have common spaces which are property of all owners. Spanish regulation tends to be more protective with the lessee rather than the lessor and, therefore, establishes some mandatory provisions that benefits the lessee, i.e. the mandatory validity period of urban lease agreements is 5 years if the landlord is a natural person or 7 years if the landlord is a legal person, unless the lessee is interested in an anticipated resolution. As explained above, certain entities like trusts, unknown to Spanish Law, may have serious problems to formalize their property, as their registration as owners in the Land Registry is not permitted. Aside from this, practically all legal entities may own real property. 7. The ownership of a building is implied in the ownership of the land. Under the right of accession (art. 358 et sq. of the Spanish Civil Code), the owner of the land owns a building unless otherwise proven. If the building was built by another party, such a third party has the right to compensation for the necessary expenses or, alternatively, the owner of the land can ask such a third party to buy the land. Surface rights may be granted over a plot to build and develop. In this case, plot and buildings would have different
owners, but once the Surface rights expire, all that is built over the plot will revert to the owner of the plot. 8. Registration of the Property The Land Registry, with delegations at every Spanish region, is the formal registry where title over property is protected. Legal principle Prior tempore potior iure (“First registered has the better right”) grants protection to the registered over any other transaction which is not. The Good faith purchaser who acquires a property from the person who appears in the Registry with the faculty to transfer, shall be maintained in acquisition, once registered his right, no matter the right of the transferee is lately annulled or resolved (Article 34 of the Spanish Mortgage Law). 9. Special aspects to consider if the real estate transaction is organized as share deal The transfer of shares is exempt from VAT and transfer tax. Nevertheless, transfer tax/VAT can be incurred on the transfer of shares in companies when the transfer of the shares is made with the purpose of avoiding the payment of the tax that would have been paid in case of transfer of the real estate. The law considers there are tax avoidance reasons where 50% or more of the assets consist, directly or indirectly, of real estate located in Spain and are not used for business activities, and, as a result of the transfer, the buyer acquires control over the company (i.e., more than a 50% stake in its share capital) or increases its stake once it has obtained control. Transfer tax is payable at a rate ranging between 6% and 11% of the
ILN Real Estate Group – Buying and Selling Real Estate Series
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