Client’s Situation
A foreign investor planned to acquire a commercial property in Spain valued at €900,000. The seller assured that: the property was fully free of encumbrances, there were no outstanding debts, the premises were ready for immediate commercial use, all required documentation was in order. A deposit agreement (contrato de arras) had already been signed, and the buyer had paid €180,000. Only three weeks remained before signing the public deed (escritura pública) before a notary. The client contacted us to conduct a final legal review prior to completion.
What We Discovered During Due Diligence
Formally, the property had no registered mortgage. However, we identified a registry annotation relating to ongoing litigation connected to a previous building renovation. We requested information from the local Town Hall. It was revealed that: part of the renovation works had been carried out without full licensing, there was a risk of administrative penalties, authorities could require restoration of the property to its original condition. After reviewing the debt certificate, we discovered unpaid community fees, outstanding extraordinary contributions for façade renovation works. The review also revealed potential adjustments related to local property tax (IBI), risk of reassessment of capital gains-related taxes.
Our Protection Strategy
We formally notified the seller of the identified risks and suspended the signing process. Based on the detected irregularities, we prepared a detailed legal opinion, demonstrated the material significance of the risks, demanded either remediation of the issues or a price adjustment. The agreement included arras penitenciales. We demonstrated that the discovered risks constituted a material breach of the principle of contractual good faith.
Result
The purchase price was reduced by €160,000. The seller undertook to settle outstanding debts. Legal guarantees were provided regarding administrative issues. The transaction was completed under secure conditions. The client avoided potential risks exceeding €300,000.
