Hidden defects
ON occasions when one purchases a property, its external appearance appears to be good but, nevertheless, what are known as hidden faults or defects appear afterwards. We are going to try to give a little guidance on this subject which does not always have a clear solution and almost always needs a full expert’s report and in many cases ends up in the Courts which are in charge of interpreting the case in question.
Without prejudice of special legislation such as, for example, consumer law, the Spanish Civil Code states that hidden defects are those defects of a serious nature which prevent the use or full enjoyment of an asset. They can affect both movable and immovable goods. The law establishes a series of obligations for the seller, such as the obligation of taking liability for hidden defects and the legal and peaceful possession of the assets transferred.
When the sale is made by public deed, the execution of the deed is the equivalent to the handing over of possession, unless the deed itself makes it clear that this is not the case. The seller must deliver the thing sold in the condition in which it was at the time of the conclusion of the contract.
If the property sold is encumbered, without the deed mentioning it, with a charge or encumbrance that is not apparent and which has such a nature that it must be presumed that the purchaser would not have acquired the asset had they had known about it, a request for the termination of the contract may be made, unless compensation is preferred. During one year from the execution of the deed, the purchaser may exercise the right of rescission or request compensation.
The obligation to remedy hidden defects is applicable when the defect is of such a nature that it prevents the natural use of the thing or that, if it had been known about, it would have determined that the sale was not carried out or that it was carried out under different conditions. As such, a defect is considered to be of this nature when:
■ the buyer would not have acquired the asset if he had known of the defect.
■ or, in the case of rentals, when a lower price would have been negotiated if the existence of the defects had been apparent.
On the other hand, and as can be understood from the name itself, hidden defects must not be perceptible to the naked eye. The key is that the buyer cannot detect them at the time of the handing over of possession. In certain cases, case law has considered that the buyer's professional experience may invalidate the appreciation of the existence of a hidden defect. For example, it is understood that a fault in the engine of a car may not be a hidden defect for a mechanic, or that a structural defect in a house may not be a hidden defect for an architect. In general, the statute of limitations for claims for hidden defects is six months from the delivery of the goods.
It is also worth highlighting the answer to a consultation sent to the General Directorate of Taxes (DGT V2083-21, DE 12/7/2021) which states that the payment of compensation for hidden defects, provided that the payment is real and the amount is justified, in the sale of a property entails; (i) For the buyer, a reduction in the purchase price and; (ii) For the seller a reduction in the transfer value with respect to the change in assets produced by its sale.
The Tax Agency established however that "The amount paid by the taxpayer to the purchaser - in response to the latter's claim for the repair of hidden defects in the property transferred - will have an impact on the determination of the loss or capital gain resulting from the transfer, which will occur from its consideration as a reduction in the sale price and provided that the existence of the hidden defects and their concordance with the amount paid are proved. The evidencing of the said circumstances may be made by any of the means of proof admitted under Law.