Anyone wishing to purchase a hotel, hotel asset, or plot of land in Spain for use in a tourism project will have first studied the feasibility of the investment and reviewed the property from both a technical and a legal standpoint. If the potential buyer or investor is also a foreign national, it should be checked whether they are subject to the rules governing areas and facilities of interest to national defense, especially the restriction on access to property in some of those areas.
Despite its age, Law 8/1975 of March 12, 1975 on areas and facilities of interest to national defense, remains fully in force. Its purpose is to safeguard national defense interests and ensure the security of military organizations and facilities. Royal Decree 689/1978 of February 10, 1978 implements this law and defines areas of restricted access for foreign nationals. These are areas in which, by reason of national defense requirements or the free exercise of the State’s sovereign powers, it is considered appropriate to prohibit, limit, or impose conditions on the acquisition by foreign nationals of property or other real rights. Consequently, real estate investments (and therefore hotel investments also) in certain areas are subject to special control rules that apply where the investor is a foreign national and the property is located in a restricted area. This control requires military authorization to be applied for and obtained before a foreign national can acquire ownership or other real property rights over properties located in restricted access areas.
The term “foreign national” as used in this legislation needs to be clarified. Under the General State Budget for 1991 (Law 31/1990 of December 27, 1990) introduced an additional provision whereby nationals of what was then the EEC (now the EU) had to be treated in the same way as Spanish nationals and therefore were exempt from the obligation to obtain that military authorization. Therefore, for the purposes of this article “foreign national” means individuals or legal entities that do not hold the nationality of an EU member state. Only foreign nationals — not EU nationals — are required to obtain prior military authorization to purchase real estate in restricted areas.
In view of this distinction, some foreign investors (as defined above) might consider channeling their investment through a Spanish company or a company incorporated in an EU member state to avoid these restrictions. However, the law shuts down this option: military authorization continues to be required where more than 50% of the company’s share capital is owned by foreign nationals (as defined above), regardless of where the company is domiciled.
It is the secondary legislation — i.e. Royal Decree 689/1978 —that expressly defines the areas of restricted access to property by foreign nationals, which include: all islands and islets under national sovereignty (including the Balearic Islands and Canary Islands), the Spanish enclaves in North Africa (Ceuta, Melilla, and other Spanish strongholds known as “plazas de soberanía”), together with extensive stretches of the peninsular coastline, including the Cartagena area, the Strait of Gibraltar, the Bay of Cádiz, the Galician coast, and certain areas of the Mediterranean coastline. Moreover, certain peninsular areas bordering Portugal and France are also classed as restricted-access areas.
The purpose of these restrictions is to ensure that, in these areas, the cumulative percentage of properties owned by foreigners does not exceed certain limits relative to the total area. For any hotel investor evaluating the acquisition of a property or a plot of land in these areas, verifying whether the property is located in a restricted area is a necessary step in the due diligence process.
However, non-border urban areas and their developed or expansion areas that already existed when the rules took effect are exempt from these restrictions.
The procedure for interested parties is to file an application with the Ministry of Defense accompanied by documents evidencing their identity and personal circumstances, a criminal record certificate, a description of the property, proof of the legal right to purchase, and site plans of the property. If the applicant is a foreign legal entity or a Spanish or EU company with more than 50% foreign capital, it must also provide a notarized copy of the articles of incorporation and bylaws, as well as a certificate from the director as to the percentage of foreign ownership of the company’s capital and participation in its governing bodies. The application is processed through the relevant Defense Office, which has two months to forward it, along with its report, to the Ministry of Defense; the Ministry, in turn, has another two months to issue a decision.
To ensure compliance with these requirements, the law imposes strict control rules. Notaries cannot authorize public deeds for transactions subject to authorization unless evidence is provided of that authorization, and property registrars are prohibited from registering them. Furthermore, article 21 of Law 8/1975 requires these transactions to be registered with the property registry within 18 months following their execution; failure to do so renders the transaction null and void as a matter of law.
All in all, foreign investors wishing to acquire hotel assets or land for tourism development in any of the restricted-access areas must be familiar with these national defense rules. This also applies to anyone involved in financing any such acquisition or development if it involves creation of a security interest. Military authorization is not a minor formality. It is therefore essential to seek specialized legal advice from the earliest stages of the project to verify whether the property is located in a restricted area, anticipate the length of the administrative process (which can take over four months), and ensure compliance with all requirements before signing any binding agreement.
Teresa Obrador
