Due diligence of real estate in Spain: what to check before signing a reservation contract

Buying a property in Spain and especially in such a special market like Formentera is a decision with a big investment. There is one basic step that many buyers underestimate or skip altogether before making a decision to sign the reservation contract: real estate due diligence. It is an in-depth verification process of the legal, urban planning, tax and physical status of the property that allows an informed decision and avoids costly surprises.

What is the real estate due diligence

The term due diligence is taken from the Anglo-Saxon business field, meaning the due diligence any prudent buyer should carry out before concluding a deal. In the case of the Spanish real estate market, it consists of collecting and reviewing all the pertinent documentation of the property before signing any binding document. It is not legally mandatory to do it but its omission can have very serious consequences: from finding unpaid mortgages to finding illegal constructions that are impossible to regularize.

The Property Registry: an important first step

The first paper any buyer should request is the simple note from the Property Registry. This document can be obtained online or in person for a small fee and contains important information such as: who is the registered owner, whether there are any encumbrances (mortgages, liens, easements) on the property, what is the registered description of the property in terms of area and boundaries.
It is important to confirm that the seller is the registered owner and there are no undisclosed encumbrances. If there is an outstanding mortgage, it should be clear whether the seller will cancel it before the notarial signing or transfer it to the buyer and in which conditions.

Urban Reality and the Cadastre

It is also convenient to check, together with the Registry, the **Cadastral** to verify that the cadastral area and description agree with those registered and the physical reality of the property. Discrepancies between the two are common in old properties or those with undeclared renovations and can complicate the transaction or generate additional costs to regularize the situation.
In Formentera, where urban planning regulations are particularly restrictive, this point is of vital importance. We must check with the Consell Insular de Formentera that all existing constructions have the corresponding building license and that the use given to the property is in accordance with the current planning regulations. Swimming pool, extension or annex built without a building permit, may not be regularizable and in some cases may be subject to a demolition order.

Community Costs and Debts

If the property is part of a homeowners’ association, the seller must provide a certificate of being up to date with payments from the community administrator. Without this document, the buyer could find himself liable for previous debts, as the debts with the community are attached to the property for the three fiscal years prior and the current year.
In addition, review the minutes of the last community meetings for any approved or pending special assessments that will require an upcoming extraordinary expense.

Other local taxes and IBI

The Property Tax needs to be paid up to date and the seller has to be able to show the proof. Unpaid IBI receipts are also attached to the property, so a buyer who does not check this point may end up paying years of taxes that are not theirs. In the case of Formentera, it is recommended to ask for them directly from the Consell, or to demand the seller for the rest of the documentation.

Rental Status

If the property is rented, the buyer should be well aware of the terms of the existing contract. The Urban Leasing Law gives the tenant a right of preemption, which means they have the right to buy the property on the same terms. Also, depending on the type of contract and its duration, the new owner may be obliged to respect the lease for a given period, which limits the immediate availability of the property.

Energy Efficiency Labeling

Since 2013 the energy efficiency certificate is compulsory for any sale or rent of properties in Spain. It must be issued by a qualified technician and registered with the competent authority of the autonomous community. Its absence does not invalidate the transaction, but it is an administrative offense for the seller and can be a sign of the general condition of the property.

Physical condition of the property

A thorough due diligence is not only paperwork but also a technical inspection of the real state of the property. In Formentera, where proximity to the sea and humidity, as well as the characteristics of the building itself, are specific factors, it is advisable to have a **architect or building surveyor** check the structure, the electrical and plumbing installations, the condition of the roof and the presence of any signs of damp or aluminosis. Cost of this inspection is nothing compared to a surprise renovation.

Initial Occupation License and Habitability Certificate

The **first occupancy license** is proof that the property was built according to the approved project and is suitable for residential use. The certificate of habitability is equally important in the Balearic Islands and is also needed to contract water and electricity supplies . Both documents should be reviewed before signing, especially in new buildings or those recently renovated.

Formentera: why due diligence matters all the more

There are some peculiarities in the real estate market of Formentera that make this previous verification even more necessary than in other markets. The shortage of buildable land, environmental restrictions caused by the proximity to the Ses Salines Natural Park, the restriction of the tourist licenses and the complexity of the urban planning regulations of the island, create a context in which purchase mistakes are difficult to be reverted and may have a very high economic impact.
A trusted local real estate agent and a lawyer specialized in Balearic real estate law are not a luxury: it is an investment that protects the buyer’s capital and ensures that the transaction is closed on solid foundations.