In many countries the final payment for the purchase of a property will be done via a Bankers Draft. Having typically paid a reservation fee or initial deposit to secure the property and having hopefully instructed an independent lawyer to conduct all of the required legal work to ensure the purchase and the client is safe to proceed with the sale, the buyer would transfer the balance of the purchase price to their account in, say, Spain and then would arrange for their bank to issue a Bankers Draft. That Bankers Draft is physically handed over to the seller at the time of signing the Title Deed at the Notary.
So what is a Bankers Draft?
Quite simply it is a cheque that the Bank issue from your account. The Bank will immediately ring-fence the money to honour that cheque and therefore the person receiving it knows that the Bankers Draft won’t bounce, which is a possibility if they accept a “normal” cheque.
So why use a Bankers Draft when buying a property abroad?
The reason for this is a combination of the fact that the title deed is signed at the Notary Public and the fact that that they don’t have “undertakings” for example in Spain. An “undertaking” is a professional promise between Solicitors in the UK. On the sale of a property in UK for example the purchase price will typically be transferred to the Client Account of the seller’s solicitor and the buyer’s solicitor will, in return, receive an undertaking to the effect that this money will not be released to the seller until completion takes place and that it will be returned if completion does not happen.
In Spain however, the seller has to declare in the title deed that they have received the money for the sale. They won’t do this without having received the money. The buyer doesn’t want to transfer the money to the seller before signing the title deed. Effectively neither party trusts the other and therefore they use a Bankers Draft as it is effectively as good as handing over cash at the time of completion.
So why use a Bankers Draft when buying a property abroad?
The reason for this is a combination of the fact that the title deed is signed at the Notary Public and the fact that that they don’t have “undertakings” for example in Spain. An “undertaking” is a professional promise between Solicitors in the UK. On the sale of a property in UK for example the purchase price will typically be transferred to the Client Account of the seller’s solicitor and the buyer’s solicitor will, in return, receive an undertaking to the effect that this money will not be released to the seller until completion takes place and that it will be returned if completion does not happen.
In Spain however, the seller has to declare in the title deed that they have received the money for the sale. They won’t do this without having received the money. The buyer doesn’t want to transfer the money to the seller before signing the title deed. Effectively neither party trusts the other and therefore they use a Bankers Draft as it is effectively as good as handing over cash at the time of completion.
How much does a Bankers Draft cost?
If you have just opened an account with the bank (as most people have done when buying a property in Spain) then you would normally expect the bank not to charge for a Bankers Draft. If, on the other hand, you have had the account open for a while then the Bank is likely to charge. The bank can charge 0.5% of the amount of the value of the bankers draft. Whilst this may seem expensive it is possible to negotiate this with the bank. In any event, this cost is relatively small compared to the potential risk of losing the money by transferring the money to the seller in advance.
Clearing a Bankers Draft into a UK account – time / several weeks if not months
If for example you are selling a property in Spain and wish to pay the Bankers Draft into your UK account you should be aware that;
- It can take several weeks (sometimes a couple of months) for a Spanish Bankers Draft to clear through a British Bank account. It is therefore normally quicker to pay this into your Spanish Bank Account and then transfer this to your British account when it has cleared.
- The exchange rate that you will receive from a high street bank in the UK may not be as favourable.
If you would like to know more about how Bankers Drafts can assist you in a foreign property purchase then you can contact our international legal team
Disclaimer – International legal issues are a complex area of law and this information is no substitute for independent legal advice on an individual basis taking into consideration your personal circumstances and legal requirements. This information is provided to provide general information only and was correct at the time of publishing. The legal position in relation to international transactions can change frequently and this page may not have been updated following any changes in the law. You should therefore not rely on this information and should seek legal advice in relation to your personal circumstances.