Due diligence for Spanish real estate projects: which documents to request

Due diligence for a Spanish real estate project is the investigation you conduct before committing capital, not after the agreement has been signed. It consists almost entirely of documents that are public or can be requested, and relative to the amounts involved in this segment, it costs a fraction of the investment.

In practice, it often happens the other way around. The proposition is evaluated based on the return percentage, and the rest is assumed. This page explains which documents to request, in what order, and exactly what to look for in them. The investigation is divided into four layers: the property, the company, the project, and your own position within it.

What due diligence for a Spanish real estate project entails

Due diligence is not a legal formality but a check on assumptions. Every proposition contains several: that the property is free of encumbrances, that the selling party is the owner, that the permits are in place, and that the budget is realistic. Four of these assumptions can be verified with a document.

The goal is not to reject a project. The goal is to know which part of the story is documented and which part relies on trust. That distinction determines how you read the rest of the proposition.

A second point carries equal weight. You should conduct this investigation yourself or have it done by your own advisor, not by an advisor suggested by the provider. This is not a matter of distrust, but a matter of maintaining clear roles.

Layer 1: the property

The first layer concerns the property itself. Without a clearly identified object, it is impossible to determine what your capital is tied to.

The nota simple

The nota simple is an extract from the Registro de la Propiedad and the most important document of the entire exercise. You can request it online via the Spanish registrars' portal for approximately 9 euros plus VAT, and you will usually receive it within a few hours.

You can read five things in it: who the owner is, how the property is described, what encumbrances are listed under the 'cargas' section, the order in which they were registered, and the date the extract was issued. The latter point is most often overlooked. A three-month-old nota simple says nothing about the current situation.

How to assess the 'cargas' section and why the order of priority carries more weight than the mere existence of a registration is explained in the article on mortgage security in Spain.

The Catastro and the structural condition

The Catastro describes the property physically and fiscally: surface area, location, year of construction, and cadastral value. It says nothing about ownership or encumbrances. Its purpose is for comparison. If the registered surface area differs from what is stated in the proposition, there is something that needs explaining.

In addition, there should be a structural report prepared by an independent party. For a property in the higher segment, such a report typically costs between 500 and 1,500 euros. If it is missing, the renovation budget is merely an estimate based on what was visible.

The permit status

For a renovation project, the permit is the document that supports the planning. Ask for the issued licencia, the date, and whether the work falls within the scope of that permit. How the Spanish permit procedure works and what delays do to the result is explained in the article on building permits for a Spanish renovation project.

Layer 2: the company

The second layer concerns the party with whom you are entering into the agreement. A claim against an empty company is an excellent claim that is worth nothing.

The extract from the Registro Mercantil

The Spanish commercial register is public. You can use it to verify the incorporation, share capital, corporate purpose, and the directors along with their powers. If someone is signing based on a power of attorney, ask to see it and read its scope.

Also, pay attention to the corporate purpose. A company that is not statutorily set up for the purchase and exploitation of real estate will lead to a discussion you do not want to have after the money has been transferred. How such a company is structured is described in the article on investing via a Spanish S.L..

The annual accounts and equity

Spanish companies file their annual accounts with the commercial register. From these documents, you can read the equity, the debt position, and whether they have filed at all. A company that fails to meet its filing obligations provides information that you should take into account.

The ultimate beneficial owner

Spanish companies record annually who ultimately holds or controls 25 percent or more of the entity. Request this declaration and compare it with the individuals who have appeared in your discussions. Discrepancies between the two are worth asking about.

Layer 3: the project

The third layer is about the calculations. This is where there is the most room for optimism and the least hard documentation.

The budget and the contingency fund

Ask for the budget broken down by purchase, renovation, financing costs, fixed costs during the term, and sales costs. Then look at the contingency fund. A renovation budget without such a line item is not a budget, but a wish.

Also, pay attention to the fixed costs that continue during the construction phase: IBI (property tax), community fees, insurance, and management. They are modest per month but become decisive if the project timeline runs over.

The justification of the selling price

The selling price should be derived from completed transactions in the same segment and neighborhood, not from asking prices on portals. Ask for these comparisons and for the average time on the market for similar offerings. How these assumptions affect the outcome is detailed in the article on returns on Spanish real estate.

The planning and the exit strategy

Ask for the schedule per phase and for the scenario in which the sale takes place six or twelve months later. A provider who can show that scenario immediately has thought it through. A provider who has to come up with it on the spot has, too.

Layer 4: your own position

The fourth layer is about what you actually receive. This is the layer that is most often looked at only at the end, even though it determines what the first three layers are worth.

Concretely, this involves four documents: the draft investment agreement, the company's articles of association, proof of the promised security, and the reporting arrangements. These documents should align with one another. Which provisions in the agreement truly define your position is explained in the article on the investment agreement for a Spanish real estate project.

Also, consider the tax side. The form in which you participate determines how your position is treated in the Netherlands, and that difference is greater than most investors estimate in advance. It is detailed in the article on Spanish real estate and box 3.

The document checklist at a glance

These are the documents you should request before making a commitment. The list is short enough to send in a single email.

• A current nota simple for the property, no more than a few weeks old
• The cadastral extract from the Catastro
• The building survey report from an independent party
• The issued permit or the application with the submission date
• The extract from the Registro Mercantil for the project company
• The most recently filed annual accounts
• The declaration of ultimate beneficial owners
• The project budget, including the contingency line item
• The justification of the selling price using comparable transactions
• The draft investment agreement and the articles of association

What due diligence costs and what it yields

The direct costs are low. A nota simple costs roughly 9 euros plus VAT, and an extract from the commercial register is in the same price range. A structural survey typically costs between 500 and 1,500 euros. If you have the documents reviewed by a Spanish lawyer, add approximately 1,500 to 3,000 euros, depending on the size of the file.

For an investment of 250,000 euros, the total comes to roughly 1 percent of the amount. This is not insurance against setbacks, and it does not eliminate project risk. However, it does provide the difference between a decision based on documents and a decision based on a presentation.

Common mistakes

Five mistakes consistently recur among investors performing this due diligence for the first time.

• Relying on a nota simple provided by the counterparty that is months old
• Mistaking the Catastro for proof of ownership, when it only provides a physical and fiscal description
• Ignoring the company and only looking at the property, while you are acquiring a claim against that company
• Assessing the budget without looking at the contingency line item and ongoing fixed costs
• Requesting documents only after a verbal commitment has been made, thereby giving away your negotiating position

Frequently asked questions

These are the questions that arise most frequently when an investor takes on this due diligence themselves for the first time.

Can I request these documents myself from the Netherlands?

For the most part, yes. The nota simple and the extract from the commercial register are public and can be requested online. For the interpretation of the 'cargas' section and the articles of association, knowledge of Spanish law is useful, so have those documents reviewed if you are in doubt.

How long does a full due diligence take?

You can usually obtain the public documents within a few days. A structural survey and a legal review together typically take two to four weeks. Count on that timeframe and do not let yourself be pressured by deadlines.

What if the provider refuses to supply documents?

Then you have your answer. You can request some of the documents yourself without their cooperation because they are public. For the budget, the articles of association, and the draft agreement, you are dependent on the counterparty. A refusal without a substantive reason is, in itself, a result of the investigation.

Is due diligence also necessary for a small participation?

The investigation does not scale with the amount. The questions are the same, and the costs of the public documents are negligible. For a smaller amount, you could consider limiting the legal review to the agreement and the security.

Who pays for the costs of the investigation?

In this segment, the investor typically bears their own investigation costs. This makes sense, as the investigation serves your interests and the outcome belongs to you.

Does due diligence replace a risk analysis?

No. Due diligence establishes what is currently the case. A risk analysis is about what could happen and how that affects the outcome. A good proposal includes both, and the risk analysis should at least cover acquisition, construction, permits, market, liquidity, and structure.

Next steps

Follow this order for your due diligence: first the nota simple, then the commercial register, then the budget and the justification for the selling price, then the agreement and the security, and only then the return on investment. If you start with the percentage, you won't read the rest with the same level of attention.

Would you like to see what a concrete project proposal looks like with all supporting documents, including register extracts and the project budget? Schedule a personal appointment.

This article is general in nature. Past results and market developments offer no guarantee for the future.