Spanish registration system
From the perspective of foreign firms and individuals, acquiring real-estate investments in Spain may be an interesting economic proposition given the circumstances, large number of available properties, and affordable prices.
However, before acquiring real estate in Spain, it is useful to understand the unique Spanish Registration System. The Spanish Registration System (“Land Registry”) is mixed, unlike those in most of Spain’s neighboring countries. The Land Registry combines elements of the two most prevalent registry systems: the German and French Systems. As a result, the Land Registry in Spain provides an important protection of rights for property registered, which allows an owner of property in Spain to assume an advantageous position. For this reason, we highlight the Land Registry as an added incentive to foreign investment in Spain.
The Mortgage Act (“Ley Hipotecaria”) (LH), approved by Decree on February 8, 1946, and its accompanying Regulations (“RH”) primarily regulate the Land Registry. The Land Registry is the legal institution that publicizes ownership and other property rights for real property and protects such assets and rights through registration. Article 2 of the LH outlines certain relevant property concepts:
- Declarative titles or domain conveyances or rights on real property.
- The titles that form, recognize, communicate, modify, or extinguish rights of usufruct, use, habitation, lease, mortgage, censuses, servitude, etc.
- Acts and contracts by those who sell property or real-property rights, even with the obligation to transfer or invest a price in the object specified.
- Judgments on the civil capacity of people that affect the free disposition of their assets.
- Leases of real property including subleases, transfers, and subrogations.
- Assets and rights of the Public Administrations and of the Church.
Article 7 of the RH permits the registration of other titles over other rights or acts with actual nature or significance not yet established. Merely possessing property, however, does not lead to a right to register it. (Article 5 LH).
Those persons who are legitimately entitled to register property, according to Article 6 LH, include: a person who acquires the right, a person who transfers the right, and a person who has an interest in the registration of the right. Representatives of these individuals can also make registrations.
The registrar, after receiving an application for registration, must verify whether the title meets the legal requirements, approving or rejecting the registration. This decision-making process may or may not give rise to entry of the property into the Registry.
These basic questions lead us to discussion about the more specific, protective features of the Land Registry.
First, registration is generally declarative (i.e. the legal transaction in question exists independently from the question of registration of property). The Land Registry operates, then, only as an advertising medium and a protection erga omnes (toward everyone). If a person seeks protection from third-party claims, he or she should pursue registration. In most cases, registration is voluntary and not by force (rogatory principle).
However, this voluntary nature of registering property in the Land Registry does not apply in all cases. In some special cases, there are certain titles that if not registered may not be recognized. The registration is constitutive. Among these special cases, the most important one is the mortgage (Articles 1875 CC and 145 LH). If a mortgage exists but does not appear in the Registry, there is no legal remedy between the parties or for third parties. It is, therefore, of vital importance to comply with the formality of publicly establishing the mortgage deed and then recording the writing in the Registry to establish validity. Additionally, any agreement that affects the mortgage requires registration. Other real rights such as a pledge without displacement or surface rights also require constitutive registration.
Once the registration is correctly complete according to certain principles, the registration produces certain favorable effects for the beneficiary of the registration. These principles include :
- Principles of legality: the registration must comply with the law, and the Registrar controls whether the registration meets the legal requirements.
- Principles of specialty: registered rights must be established and certain according to the requirements of Article 9 LH.
- Principle of Chain of Title: to register titles, the previously recorded right must be in the name of the person granting title.
Other principles:
The principle of legitimacy also applies. The real registered rights are presumed to exist and belong to the titleholder whose name appears in the relevant entry. Furthermore, whoever has the registered right is presumed to hold possession of the same for the entire term of the entry (adding that of the previous titleholders). Both of these presumptions are rebuttable.
Similarly, the principle of public–faith registration is significant. This principle provides that the third party who purchases (1) in good faith (third-party mortgage) (2) for valuable consideration (3) the property of a person apparently entitled to convey title and (4) inscribes his or her right in the Land Registry receives protection of theiuris et de iure (non-rebuttable presumption). The purchase will remain in the terms that appear in the Registry, which gives the purchaser an unassailable position before everyone else.
A determining factor for registration protection is the existence of the purchaser in good faith. The meaning of good faith in this context refers to the belief that the person who gave the right to the property was the owner and could convey it. Contrastingly, lack of good faith or bad-faith circumstances invalidate the title of the transferor. Thus, for practical purposes, it gives a significant benefit to the third party.
For example, consider the situation where a person acquires the property of another who appears to be the owner of it in the Land Registry, and the person acquiring the property is unaware that the contents of the Register do not conform to reality (always presume lack of knowledge). If the acquisition is burdensome and the purchaser registers the transaction in the Land Registry, the purchaser will continue to own the property even after a judicial declaration that whoever sold it had no ownership right, for reasons not stated in the Register.
On the other hand, considering the principle of legitimacy, for practical purposes significant benefits are also reported – especially on procedural aspects (i.e. when acting in a judicial process). Where the presumption of being the holder of the right exists, the burden of proof disappears. Then, the property owner must simply submit a registration certificate. In addition, the owner acquires the standing to bring claims and raise defenses to defend his or her rights simply by appearing as owner in the record. The owner, therefore, has standing to bring claims and raise defenses on issues of repossession, actions to quiet title, and other special actions. Exceptions may apply under liens, executive judgments, and means for collection when attempting to execute property where the defendant is a person other than the registered owner of the property.
In this way, the benefits associated with registering real-property rights stand out to a potential foreign investor. These potential dealings with the Spanish Land Registry underscore how important it is to know the specifics to receive the maximum protection and security for the investments. Otherwise, if the foreign investor follows other steps, he or she may encounter a situation of uncertainty and insecurity that may lead to a significant lack of protection against third parties of rights in question. Article 32 LH states that property rights not duly registered do not harm others (unenforceability principle), so third parties can attack the position of the owner – even on the existence of the right as in the case of a mortgage.
For all of these reasons, we recommend that when purchasing property in Spain all foreign investors seek proper counsel competent to handle these real-estate matters. Proper counsel can ensure effective registration of the property with the Land Registry as well as help shield investors with the appropriate legal protections to avoid unexpected situations.
Gonzalo Hurtado & Marina Bugallal
