Contractual neutrality in real estate transactions

Within the process of constructing the "law between the parties", i.e. the construction of the contract, it is especially important what and how the business is to be ordered. It is not a matter of saying, "I buy/sell you this for x euros" or "I rent you this for x euros per month" but of completing the whole regulation: defining the object and indicating all the conditions of the business.

The main difference between a lawyer and a non-lawyer when reading a given contract is that the non-lawyer reads what is in the contract, while the non-lawyer reads everything that is not in the contract: the laws and jurisprudence that apply in the absence of an express agreement for each and every one of the vicissitudes.

In real estate contracting, this point is especially important, not only because of the multitude and complexity of the legal issues that may affect the property, but also because of the economic importance of these operations.

The agreement on price is relatively simple, but the real negotiation comes when it comes to determining what we will receive in exchange for that price, as we often take things for granted that may not necessarily be true. Depending on the type of business we are doing, we may encounter some problems or others.

We will now look at the two main real estate transactions, and see how the contract can omit some very important issues.

Lease contract

With regard to leases, two issues must be distinguished: on the one hand, leases for residential use and, on the other, leases for use other than residential use, since the applicable regulations are different.

How long does the lease last?

If a residential lease contract states that the duration of the contract is one year, the lessor is obliged to respect a minimum duration of 5 years (7 if he is a legal entity), even if the contract does not expressly state this. On the other hand, if a business lease states that it lasts for one year, no extension applies.

Who is responsible for each repair?

Although tenants may believe that they are only obliged to pay the rent, they have another equally important obligation: to take care of the property as if it were their own. However, for residential tenancies, the law establishes a distribution (defective and full of indeterminate legal concepts) as to who is responsible for each repair, and regulating in the opposite direction is expressly forbidden.

However, in the case of leases for use other than residential use (offices, commercial premises, industrial buildings, etc.), it can be regulated in any way deemed appropriate, so it is important to fully develop the obligations of the parties in the contract, and it should be an important point in the negotiations.

Will I be able to open my business?

Certain planning situations may result in the impossibility of obtaining the necessary licences for the development of the activity. If this has not been foreseen in the contract, you may be bound by a lease that is not useful for the business.

It is also important to check the legal surface area for urban planning purposes, which may be significantly lower than the registered area. There was a time when developers were experts in leaving undeclared gaps in the building which they then incorporated into the premises they owned, and which cannot be considered for the purposes of processing activity licences, because they are not legal from an urban planning point of view.

Do I have to pay rent even if I cannot open?

When renting premises, it often happens that the necessary deadlines for obtaining licences are not taken into account, with the result that it is obligatory to pay rent for premises that cannot be legally opened.

It is therefore important to anticipate the analysis phase, to foresee possible contingencies and to negotiate grace periods or suspensive conditions accordingly.

Buying and selling property

Am I buying a house?

A client who thought he was buying a house discovered, thanks to our intervention, that what he was about to buy, despite looking like a villa, was, legally speaking, the changing room of the former tennis court of the urbanisation, which had been transformed into a house without a licence.

The contract proposed to him, of course, made no mention of this situation, but merely stated that he was buying the property for a certain price, without further reference to the urban development situation. For this reason, it is essential to analyse the legal situation of the property before buying.

The same applies to storage rooms converted into dwellings without a municipal licence, which may be sealed and forbidden to be used as dwellings.

Is the garage/storage room/communal swimming pool included?

Sometimes the dwelling and other accessory elements are independent properties (even the communal swimming pool can be), and it is necessary to expressly include them in the contract, as otherwise they are not being transferred.

In this sense, an operation in the mountains of Madrid in which a villa was purchased within an urbanisation, and the swimming pool was an independent registered property of which all the owners of the villas bought an undivided share, a matter that was not contemplated in the contract initially proposed.

Can I register for electricity?

In order to register for electricity, it is required to present the certificate of habitability (which the illegal dwellings do not have) but, in addition, it may be necessary to present the Certification of Electrical Installation (Electrical Bulletin) for which it may be necessary to change the complete installation, so it is necessary to check that it is registered.

Is the furniture in the house included, and the electrical appliances?

Unless otherwise agreed, normally only the empty property is transferred, without including any type of furniture or electrical appliances (not even the fitted kitchen).

Therefore, this is an important point that should be discussed in the negotiations and properly included in the contract.

The importance of analysing and adapting the contract

For reasons such as the above, it is necessary to avoid standard contracts that are supposedly neutral and to carry out a legal review not only of the operation, looking for the appropriate legal form and the specific regulation that covers the contingencies of the property, but also the needs of the client, because two people can have completely different interests in the same operation.

Only by doing this work will it be possible to reach a contract that reflects the true interests of the parties and reach a point of equilibrium, which does not necessarily imply neutrality.

For this reason, always consult a specialised lawyer to advise you on real estate transactions.