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Always Use independent lawyers in Spanish Property Transactions

Sale of Spanish AssetsPosted by Andrew Thu, February 02, 2017 15:22:36

June 26th, 2014

It is now a clearly established general principle for Spanish property transactions, that neither the seller nor the buyer can or should leave it to the estate agent to deal with the legal work in the sale or purchase. Otherwise this puts the estate agent in an impossible position professionally; and the seller/ buyer does not necessarily get the benefit of the full professional service which they need, in order safely to deal with Spanish properties.

Quite aside from the very obvious conflict of interest issues, the skill set and professional regulation and accountability between the legal and estate agency professions differ to a significant extent. So, it is very rare that a well informed buyer or seller of Spanish property will confidently conclude that their interests are properly protected if represented by the same person for both the estate agency role and the legal function.

The more experienced and professional Spanish estate agents recognise and accept this; and due to the highly damaging publicity of scandals and scams in Spanish property dealings in the recent property boom, professional operators in the Spanish property market are more concerned than ever to ensure that clients should not be exposed to this type of
pitfall in Spanish property transactions.

However, there is a separate ‘variation on the theme’, which Spanish property buyers and sellers also need to be wise to; and that is: ‘legal advisers’ who are either connected to or (perhaps of even greater concern) employed by the estate agent dealing with the sale or purchase.

As an example, an associate was recently consulted on a Spanish property sale, with a sale/ purchase contract, which oddly contained extensive skillfully crafted legal drafting to deal with the protection of the estate agent’s commission. But then, just brief and sloppy wording as to the sale/ purchase, which left the seller legally at risk; and unable easily to withdraw from the sale- even in the event of a buyer’s breach of contract.

This was completely at odds with the reality of the transaction. What should have happened was that the property sale/ purchase should have been addressed as the main issue; with the estate agent’s commission very much as a secondary concern.

It transpired that this contract had been (perhaps unsurprisingly) prepared by the estate agent’s ‘in house lawyer’. This explained the focus on the estate agent’s commission rather than the sale and purchase agreement.

Some points Spanish property buyers/ sellers should bear in mind:

1. The Solicitors’ Regulation Authority in the UK (by way of an example) has expressed concerns about the high level of risk of a conflict of interests where a lawyer employed by (and therefore seen to be advising) the estate agent is also dealing with the legal work for the buyer or seller in the same transaction. There are specific professional conduct rules; and non-compliance can lead to grave consequences for the professional in question.

2. As such, it is a well established principle in the UK (and indeed other countries) that the estate agency representation on one hand, is one professional relationship; and on the other hand, the legal representation of buyer/ seller is entirely separate and independent.

3. Many non-Spanish buyers of Spanish properties, who are very cautious in their own home countries, following ‘normal’ conventions in terms of taking independent professional advice in property transactions, come to Spain, and (for some curious reason) relax and ‘take their eye off the ball’; and take risks that they wouldn’t dream of taking at home. The best advice when addressing a Spanish property transaction is to consider all the steps and precautions you would take if buying or selling a property in your home country; and as far as possible, apply the same principles to the transaction in Spain. In fact, in nearly all respects, there is no reason at all why things should be any different in Spain. Indeed, if anything, people should proceed even more cautiously in Spain, given the well publicised cases in recent years (particularly relating to planning issues) where investors in Spanish property have lost their property or their investment. This underlines the need for top quality, independent legal advice in Spain.

4. The reality in Spain is therefore the same as in the UK/ other countries- that the functions of the estate agent and the legal adviser are entirely distinct; and should therefore be carried out by separate and unconnected professionals, to ensure that the three parties with a substantial interest in a property transaction (namely the buyer, the seller and the estate agent) are each independently advised. Each needs their interest fairly protected, to ensure an appropriate balance of the respective interests.

5. In some cases, estate agents who disregard these conventions (against the interests of their clients, it has to be said), convince the client that the client is saving money; as the estate agency fee of 3, 4 or even 5% (plus IVA) includes legal representation. But as this is not independent legal representation, properly safeguarding client interests, it is therefore impossible for this to be seen as ‘good value’. Better that the corresponding proportion of the estate agent’s fee in such cases be applied instead to the engagement of entirely independent legal advice. Economically, this should make no difference to the buyer/ seller, as the same total fee is payable. And it should make no difference to the estate agent, as one assumes that there is a cost to ‘their’ provision of legal services in this regard, so unless they are profiting from that also, the release of this function and the corresponding cost to an independent professional should be economically neutral for them.

6. If the estate agent indicates there is no cost to the provision of ‘in house legal representation’; then that also raises alarm bells, as it is impossible to provide a high quality professional service such as legal property sale/ purchase representation without any cost base- unless the skill/ quality/ qualification/ regulatory compliance of the person/ people behind the legal service simply isn’t what it should be.

7. This article should not in any way be viewed as a criticism of estate agents in Spain generally. On the contrary, the reality is that the vast majority with whom we work are truly skilled and knowledgeable property professionals- expert negotiators and transaction facilitators. It is unfortunately the very few who potentially spoil it for the many. And this is a matter of deep frustration for all who are committed to building confidence in the Spanish property market as a secure destination for inward investment. You are referred to our Blog of 1st October 2013, with advice on appointing estate agents in Spain (prepared with the helpful input of professional Spanish estate agent contacts, as indeed has been this article).

8. Equally, a Spanish property buyer/ seller has to be extremely careful in selecting a legal adviser on a Spanish property transaction. You are referred to our Blog of 27th November 2013, with some general advice/ pointers in this regard. The title ‘abogado/ lawyer’ does not automatically imply all the necessary knowledge and experience to be able to advise a non-Spanish national dealing with Spanish property.

In relation to any proposed Spanish property sale/ purchase, please contact the Legal 4 Spain team, to ensure you have the best quality, completely independent legal representation to protect your interests fully; but always at a competitive cost.