Buying Property in Andorra
Initial agreement between the buyer and seller - Preliminary contract
1 - What form can this agreement take? Preliminary contract?
Normally, the preliminary contract or preliminary purchase-sale agreement is concluded in the form of a private agreement signed at the real estate agent’s office.
The reason is that legality in the Principality of Andorra is very stringent to this regard, especially if the buyer(s) is (are) a foreigner(s) not residing in the Principality. In this case, the buyer(s) has (have) to obtain a government investment authorisation and this process takes some weeks.
As a result, in order to fix their wish to purchase-sell in writing, the parties sign a private agreement, prior to the final signature before a notary, and in the meantime fill in all the necessary documents.
2 - With whom must the parties (buyer/seller) formalise the initial agreement? Is a legal form imposed?
In order to formalise their initial agreement, the parties have to consult a notary, a lawyer or a real estate agent.
Normally, the parties do not consult a notary for their preliminary contract, but use the same sample private agreement used for all real estate or the sample agreement used daily by the agent, changing the date, the name of the buyer, the real estate unit(s) to be sold, price and form of payment.
No legal form is imposed under Andorran law, unless non-residents are involved.
3 - What are the legal effects of this preliminary contract? Is a preliminary contract necessary?
The main legal effect of the preliminary contract is to RESERVE the property in favour of the buyer, who LOSES the money paid if in the end he/she fails to fulfil his/her part of the contract, i.e. purchase the property; or, who is paid back DOUBLE the amount of money, if the seller fails to fulfil the agreement.
However, it is important to bear in mind that these duties only involve the personal guarantee of the parties and not security over the property to be sold.
A preliminary contract is not necessary, but advisable in order to bind the parties.
4 - Are there amounts to be paid, and to whom? Can these amounts be repaid?
Yes, normally the signature of the preliminary contract involves a down payment of a certain portion of the final price of the property to be purchased.
This portion normally amounts to 5% - 10% of the total sale price; hence, if the sale is completed, the buyer has to complete the payment up to the final total price.
The sums actually paid can be returned if the sale is not completed because of the seller.
5 - Are there any consumer protection measures (cooling-off period, right of withdrawal)?
In Andorra, unfortunately, these consumer protection measures, the cooling-off period and the right of withdrawal do not exist in the case of purchase of property.
However, it should be recalled that a significant sum – about 10% of the total price – has to be paid when signing the preliminary contract.
This surely favours and guarantees that the consumer’s will is duly formed.
Moreover, the buyer is not obliged to sign the preliminary purchase contract and may see a notary directly for the final purchase of the property.
The main purpose of the preliminary contract is to RESERVE the property in the buyer’s name.
6 - How can I obtain financing? Directly from the banks? Through brokers?
In Andorra, there are no brokers. However, Andorra has a highly developed and efficient banking and financial system.
As a result, a buyer who needs financing turns to his/her bank to obtain the money to cover the purchase, taxes and other expenses.
Andorran banks are very efficient and modern and financing can be obtained in just a few days.
7 - What form does the financing agreement take?
The financing agreement for the purchase of real estate in Andorra normally takes the form of a notarised loan agreement with a mortgage against the same property.
This agreement is generally signed by the bank and the buyer at the time of purchase before a notary. In this way, the sale price is paid exactly through the loan.
8 - What do I need to do once I have obtained financing? Who draws up the loan agreement? To whom will the loan be paid?
As mentioned earlier, a notary generally drafts the loan agreement.
After the sum of the loan has been deposited into the buyer’s account and after the latter has requested from his bank the issue of a bank cheque drawn on the account held at the same bank, the buyer gives this cheque to the seller as payment for the purchase.
The notary then notifies the municipal land registry of the purchase, pays the transfer taxes, notifies the Register of Foreign Investments of the sale (if the sale involved foreigners not residing in Andorra) and records the sale on the seller’s original title. In this way, the seller will never be able to use his title again, since he/she is no longer the owner.
9 - What are the usual types of guarantee requested to finance a residential real estate purchase?
The usual types of guarantee requested to finance a residential property purchase are above all mortgages against the same purchased property.
Clearly, the financing value has to be lower than the value of the purchased residential property.
Sometimes, Andorran banks finance the purchase without a mortgage, either because the buyer has a very good financial position or there are other guarantees, such as the personal guarantee of another person or a pledge of the bank account. However, these are quite infrequent.
10 - How do I constitute a mortgage/other type of security?
In the Principality of Andorra, a mortgage or other type of security is constituted by means of a notarial public document.
Indeed, this is the only way of constituting a security having universal effect, applicable to anyone (according to Latins with “erga omnes” effect).
11 - What are the consequences of this mortgage for me?
The mortgage guarantees the fulfilment of the debtor’s duties towards the creditor, by directly securing the debtor’s obligation against the property.
The mortgaged or pledged property is “excluded” so as to speak from the debtor’s assets and the latter’s obligation is secured against it.
However, this does not change anything for the debtor: he/she keeps on retaining enjoyment and possession of the property. When he/she wishes to sell, first of all it will be necessary to settle the obligation using the proceeds of the sale too, before using them for any other purpose. Of course, if the sale price is not sufficient to settle the outstanding obligation, the mortgage remains in place until it is fully repaid.
12 - What types of information/documents are required for a real estate sale? Concerning the parties? Concerning the property sold?
Concerning the parties: official I.D. documents (passport, national identity card) inclusive of a photograph, the Residence Card, in the case of foreign nationals residing in Andorra; domicile and civil status –married, unmarried-, and the property regime are requested. If the seller(s) is a (are) not Andorran national(s) or non-nationals residing in Andorra, he/they need to be accredited and his/their rights recorded in the Andorran Register of Foreign Investments. Likewise, if the buyer(s) is (are) non-Andorran nationals or cannot be accredited as a foreign national(s) residing in Andorra, he/they will need prior authorisation from the Register of Foreign Investments.
Concerning the property to be sold: notarised ownership document, certifications of lack of debts towards the Community of Owners and the Municipality. If the property in question is an apartment or a house, then the certificate of habitability too. In the case of land, then the Land Registry Certificate to know its conditions and use. Sometimes, a drawing of the property is welcome, if the parties agree.
13 - Who collects the information/documents?
Normally it is the real estate agency that collects all these documents from the parties concerned, the Government and the Municipality, the Manager of a Building in Co-Ownership, etc., and delivers them to the notary who centralises, examines and incorporates them in the notarised deed.
14 - How long does it take to obtain this information?
Normally, not long (a week, ten days). However, it is different in the case of the government’s prior investment authorisation for non-Andorrans or foreigners residing in Andorra. To obtain this authorisation, it is necessary to submit a certified copy (with The Hague apostille of international Legalisation, if the authorising authority is not Andorran) of the personal documents and the Court certificate attesting that the person in question has not committed any crimes.
This information is subject to close scrutiny by the Andorran Government to avoid the entry of potentially dangerous persons in the national economy.
As a result, the scrutiny of all this information may take one month or more.
In the meantime, of course, one can concomitantly request any other document needed for the sale.
Signature of the contract
Signature of the act
1 - Is there a compulsory form for the sale agreement (e.g. notarised)?
If the act involves a buyer who is not an Andorran national or a resident in Andorra, the Law on Foreign Investments in Andorra establishes that the sale agreement must be signed before a notary, otherwise it will be considered invalid, and that the notary has to be Andorran (owing to his knowledge of Andorran legislation, especially regarding Foreign investments, and the certainty that he/she will notify the Register of Foreign Investments of the sale).
Strictly speaking, under the Andorran legal system, Andorran nationals or residents in Andorra are not obliged to sign a sale agreement before a notary, but I believe that the percentage of agreements signed before a notary in Andorra is almost 100%, because notaries assure a very high-level legal service and, moreover, entry of the sale in the Notarial Register of Sales, since they are the only ones who have access to this Register.
2 - If several forms are possible, are some more secure or more risky than others?
Clearly, the signature before the notary offers increased guarantees to the sale agreement.
If the agreement is not signed before a notary, one cannot be sure that the property is in the seller’s name in the notarial Register, that the sale is not subject to limitations or that there are no charges over the property. If all this information is not in the notarial registers and nobody can prove it, these limitations are not applicable to the purchase.
Moreover, there is still public faith that protects notarised acts (and not others), and the guarantee that the act has been read out and that the parties have agreed to it.
3 - What is involved in the signature of the act?
Normally, at the notary’s practice there are at least three rooms: one for the contingent settlement of any mortgage(s) against the property to be sold; the other, for the sale; and lastly, the third for the contingent financing of the purchase.
If there is only the sale to be performed, the notary reads out the documents, the parties ask questions that the notary answers and lastly they all sign in agreement.
If financing is involved, the procedure is the same but takes place in another room, with the bank, to safeguard notarial secrecy.
Likewise for the settlement of any mortgage(s) against the property to be sold.
In Andorra, when you purchase property, normally there are no charges over it, since mortgages are settled prior to the signature of the sale agreement.
4 - What are the resulting rights and obligations?
In Andorra, the notarised sale agreement entails,
For the seller:
* Handing over possession, which generally occurs concomitantly with the same act, by means of a specific clause. In this case, the buyer has all the possession rights handed over by the seller, he/she has the same right as the seller to access the property.
* The guarantee offered to the buyer:
* Of possession, that is to say, the seller owns the property and can therefore transfer it without any problems; in the opposite case, the buyer always has the possibility to claim it.
* Hidden flaws, including legal (mortgages and other charges) and material (humidity, construction flaws…) ones;
* so that the seller can guarantee the buyer that the property has no flaws.
* For the buyer:
Pay the sale price, generally done concomitantly when signing before the notary. Otherwise, the sale agreement sets out in detail the payment terms and related guarantees, both personal guarantees and security and a mix of the two.
Performance of the contract
Implementation of a certain number of public rights applicable to the sale
1 - What rights must generally be implemented for a real estate sale? Right of first refusal? Preferential right? Compulsory administrative document or authorisation? Who fulfils the formalities for the implementation of these rights?
In Andorra there are no public rights (of first refusal, preferential) applicable to sales.
2 - How and at what point does the buyer become the owner of the property?
In Andorra, in application of Roman law, ownership is transferred to the buyer when the notarial agreement is signed, through two legal institutions: the title (the sale agreement) and mode (the transfer, at least symbolically in the sale agreement, of ownership of the property to the new owner).
3 - At what point is the payment made? By the buyer? To the seller?
Normally, in Andorra the buyer pays 10% of the price when signing the preliminary purchase-sale agreement and then pays the seller the rest of the price when signing the final agreement before the notary.
Certainly, it is also possible that the property has already been paid fully when signing before the notary. In accordance with the Andorran money laundering law, this has to be backed by banking documents, as is also the case when payment is made concomitantly with the signature of the sale agreement.
Otherwise, the price may be paid, either fully or in part, after signing before the notary. This option, scarcely used, does not affect the buyer’s duty to justify the source of the money used, in accordance with the law on money laundering. This payment may be guaranteed personally or by means of security, such as a mortgage against the purchased property.
4 - How must I make the payment?
In accordance with the Andorran money laundering law, the sale price has to be paid and justified by means of supporting bank documents, such as bank cheques, bank certificates, deposits into the account, etc..
Furthermore, all the banks involved in the transfer have to be either Andorran or from a country not on the laundering alert lists.
5 - How can I guarantee that the mortgages taken on the property against the seller will disappear?
In Andorra, mortgages taken on sold property are generally removed immediately before the sale. The notary makes sure there is no mortgage when the sale agreement is signed and the buyer purchases without mortgage.
One can purchase WITHOUT prior MORTGAGES, without prejudice to the fact that, after the sale, the buyer may constitute other mortgages against the property.
6 - What taxes are usually payable on a real estate sale? Are the rates available on an official website?
In Andorra, the taxes due for the sale of real estate are:
- For the seller, value-added tax (VAT).
- For the buyer: Real Estate Transfer Tax (ITP) or the General Indirect Tax (IGI). One or the other, not both.
- The value-added tax, paid always by the seller, taxes the difference between the transfer price and the purchase price, and this by using discount coefficients.
- It drops from 15% of this difference the first year to 1% the ninth year. Starting from the 10th year since the transfer and acquisition, the value-added tax is no longer applied. For those involved in the transfer of property who do not reside in Andorra, there is also a withholding tax amounting to 5% of the total value of the transferred property, throughout the period of application of the tax (10 years) as a guarantee of the final payment of the tax. This guarantee is then paid back at the seller’s request.
- For the buyer, the rate is 4% of the sale price, in the case of Real Estate Transfer Tax; and 4.5%, in the case of the General Indirect Tax.
- One or the other of these taxes is applied, depending on whether the person transferring the property is a professional or not. In the first case, the General Indirect Tax is applied, while in the other, the Real Estate Transfer Tax.
- All the rates are derived from applicable Laws. As a result, they are all published in the Official Bulletin (BOPA), freely accessible online (www.bopa.ad).
7 - How and by whom are the taxes calculated?
The taxes are calculated using software provided by the Government.
8 -When and where is the tax payment due?
This software is provided to notaries who are in charge of the settlement, collection and payment of real estate taxes. If, exceptionally, the tax is applied to a private agreement (e.g. preliminary agreements prior to the signature before the notary), the Government is in charge of tax collection
9 - At what point can the new owner take possession of the property (handing over of keys) ?
In Andorra, the seller grants possession of the property to the new owner (handing over of keys) immediately after the signature of the sale agreement before the notary.
In this way, the transfer is finally formalised and the buyer becomes the new owner, with a title (sale agreement) and mode (granting of possession).
10 - What is the procedure for publication of the sale agreement?
The notary notifies the sale agreement to the Ministry of Finances, as well as the Municipality(ies) where the property is situated (Land Registry), the notarial archive of titles and charges and, if foreigners not residing in Andorra are involved, the Register of Foreign Investments.
11 - Who conducts the formalities of publication of the new ownership?
The notary sees to all these notifications. However, the buyer has to go to the municipal office to provide his/her bank details in order to easily and conveniently pay the property taxes due.
12 - What are the consequences of this?
The notarial title used by the seller is cancelled by the new title of the buyer. In this way, the seller cannot sell the property again or dispose of the sold property in any other way.
Moreover, registration in the Land Registry allows Municipalities to apply the yearly property taxes.
Lastly, the Register of Foreign Investments makes it possible to have increased control over this sort of investment.