At the Pérez Parras Economists and Lawyers Firm we act as lawyers in numerous client sales / purchases transactions, whether they are flats, buildings, holiday rentals and others, with prices from several hundred thousand euros, to millions of euros. Likewise, if you are a foreign citizen not belonging to the European Union, buying your home in Malaga, or just investing for a value equal to or greater than €500,000 will make it easier for you to obtain the best possible residence permit in Spain (Golden Visa, or Residence Permit for Investors ), with which we can help you process it in this professional law firm. But, have you ever thought about what happens if you are going to make a sale or purchase at a fair price, or at a ridiculous price (conveyancing with fair price, or ridiculous price)? And what effects would it have if a ridiculous price was set to sell or buy a property? Could the sales contract be null (invalid)?
As you know, the purchase or sale contract (conveyancing contract) is the one that must be signed between a buyer and a seller, by which the seller is obliged to deliver a certain thing (furniture -painting, motorcycle, etc- or real estate -apartment, villa, chalet, building, business premises, hotel, etc-) to the buyer, forcing the buyer to pay a price for that thing, as established in article 1445 of the Spanish Civil Code. And one of the essential elements (as defined by the Civil Code) in a sale is the price, especially for the seller, who enters into the contract to obtain a price in exchange for delivering a good to the buyer, who pretends to acquire it.
Buyer and seller can, according to the Spanish Civil Code, agree on the purchase price as they want. Although, the spanish jurisprudence establishes that setting a very low purchase price (ridiculous price) can cause the nullity of the contract later, in Court. Get advice from expert lawyers in buying and selling your property, flat, building or villa in Spain to avoid problems.
Any price is valid in a purchase-sale transaction?
In other words, a purchase-sale transaction with a fair price is valid, but would a purchase or sale with a derisory price be null for legal purposes? Is any price valid when selling or buying your property to meet what we already know is a necessary requirement (the price) in the purchase-sale transaction? Can a ridiculous price mean the nullity of a sales contract?
Article 1445 of the Spanish Civil Code itself establishes that a specific price must be set in a sale or purchase of a property or any other asset. But does the price agreed have to be fair? Obviously, the price set in a sales or purchase contract is of great importance to the buyer and the seller, but does it have more legal effects?
For example, let us think that if, through a purchase-sale contract, the seller gives the ownership of an asset (an object, be it a flat or another type of object) to a buyer, the future relatives/inheritors of the deceased seller, or possible seller’s creditors (to whom the seller owes money) may be harmed if the seller sells the property for less than what is considered fair. There could even be criminal consequences, which we will not go into in this article.
In addition, when we speak of the fair price of a property, we would be referring to the market price of the property and the valuation or appraisal of the property at a given time.
But, mainly, what we are interested in knowing in this case is whether the buying and selling parties can freely agree, at their will, on the purchase price they wish, or if this is not the case and they are conditioned by the requirement that it must be set a fair price of the asset.
In a purchase-sale operation of real estate or personal properties, our spanish Law does not stablish the need for a fair price to be set
In other types of operations, for example in a mortgage operation, the banking entities condition the granting of the loan to the fact that the property is previously valued / appraised, but in a real estate purchase and sale operation, our legislation does not establish the need for having to set a fair price for the sale. And, as we have already seen, article 1445 of the Civil Code requires that a certain price be set, but it does not require that the price set be, for example, balanced or fair, but rather that could therefore well be derisory.
If our Civil Code does not establish anything about a sale-purchase operation with a fair price (conveyancing with fair price), or with a ridiculous price, can I set any sale price then?
Pues la realidad es que, si nos fijamos únicamente en nuestra legislación española, sí se podría fijar cualquier precio de compraventa de inmueble, porque si bien nuestro Ordenamiento no obliga nada al respecto del precio, ante dicha ausencia ha sido nuestra jurisprudencia la que reiteradamente se ha pronunciado al respecto. Por ejemplo:
Well, the reality is that, if we look only at our Spanish legislation, it is possible to set any real estate purchase price, because although our Law does not oblige anything regarding the price, in the absence of this, it has been our jurisprudence that has repeatedly has spoken about it. For example:
- Judgment 452/2013, of November 18, of the Provincial Court of Asturias (Section 7) states:
«… Section 6 of this Provincial Court, in March 2013 has declared: In addition to this, the circumstance that the price agreed and paid in this case for the real estate, may be in some case lower than the market price alone does not give rise to this cause of nullity by simulation, when, as here happens, the agreed and effectively paid cannot be qualified as vile, this is, ridiculous or insignificant to the point of being able to be equated to the absolute absence of the same, but in its case to the exercise of the corresponding action …». «the main indication is therefore referred to in this case to the low price agreed in relation to the market price, but in relation to it, as is well argued in the appealed based on the jurisprudential doctrine that transcribes in its fourth legal ground that is not reproduced here for the sake of brevity, this by itself cannot justify the nullity of the contract, when as it happens here it cannot be described as vile, this is, as merely symbolic because it is ridiculous or insignificant, comparable to the absence absolute price, not constituting more than an indication that in this case, considered in isolation or considered together with the previous ones…. In any case, the price is valid, insofar as it was not merely symbolic or vile, it existed, it was effectively delivered and at the the fair price requirement is not demanded in our law»
- Judgment 267/2018, of May 28, of the Provincial Court of Valencia (Section 8) states:
«… It is stated that the concurrence of price in civil purchase-sale operations is an essential element for its full validity, in accordance with articles 1445 and following of the Civil Code, without it being necessary, as contractual essentiality, that said price has to be fair and therefore, it operates as effective and sufficiently determined if it is inferior to the real one, but with proven existence and even if it is disproportionate to normal, it is inconsequential, since in our law the pretio vilari facti does not generate radical invalidity of the contract, since it does not conform this single circumstance full proof to destroy the presumption of the existence and legality of the cause of the business, since its effectiveness does not depend exclusively on the appropriate price or the most suitable for the market in relation to that set by the parties, and this is what the spanish Supreme Court jurisprudence has declared inDecember 19, 1990, September 16, 199, February 3, 1992 and February 25 and July 20, 1993».
CONCLUSION: We can affirm that a price lower than what can be estimated on the market, even if it is notably disproportionate, does not imply a lack of cause or, therefore, the possible nullity of the contract. Therefore, there would be no simulation of the contract as long as the delivery of the price was certain. Obviously, if it is not true, we would enter into a simulation and the contract could be without cause. In other words, even if the price set is very low, as long as the price has actually been delivered, the sale transaction will be legal, at least if we look only at our legislation.
How much is my house worth? Setting a very low price for the sale of your property or apartment, garage, storage room, etc., can cause the subsequent nullity of the sale operation. The ridiculous purchase price can cause the nullity of the operation. Get advice from an expert lawyer in buying and selling in Malaga, Nerja, Axarquia, Costa del Sol, etc., to sell or buy your home, flat, property, garage or parking space.
Could we then set a very low price in a purchase-sale transaction?
Once again, the spanish jurisprudence evaluates this situation, and concludes that if a ridiculous price has been set in the purchase-sale transaction, this in itself does not imply an illegality (in Law, what is known as a contract with lack of cause), but it is the indication that it is possible to be before a simulated contract and, therefore, again, with lack of cause. In other words, it follows that a totally ridiculous price is a true sign of simulation and the action to declare a sales contract null and void in Court could prosper.
And when can it be considered that the price is ridiculous?
Well, not only do the Courts and Tribunals take into account a price that has been set disproportionately low, but they also take into consideration, in each particular case, factors such as whether the buyer and seller are related, which is why, in good faith, a disproportionate purchase price may be set.
If you want to buy or sell a property, business premises, building or parking, or sell an asset, at the Pérez Parras Economists and Lawyers Firm we are experts in the purrchase-sale operations of properties, commercial premises, hotels and other assets in general, with a team of lawyers and economists who can advise you to avoid surprises . Do not hesitate to contact us and ask for a quote to accompany you in the process of buying or selling your real estate. We will prepare and review your deposit contract after ensuring that the purchase you wish to make is viable and safe, without hidden charges, and we will help you and process all the taxes associated with your purchase-sale operation, optimizing, for example, the IRPF tax to be paid if the property comes from an inheritance, advising you until the end of your purchase or sale of real estate, including the tax return submission and any other necessary procedure with the Spanish Administration or Registry of Land. You should also know that with the purchase of your property worth at least 500,000 euros we can help you process your residence permit for investors (Golden Visa), for you and your family members.
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