Buying off plan in Spain: guarantees on your deposits

Who the rule applies to

The first additional provision of the LOE applies to natural persons and companies that promote the construction of “toda clase de viviendas”, including those built by a community of owners or a cooperative, and that intend to take money from buyers during construction. The provision was last amended by Act 20/2015 (in force 1 January 2016).

The two conditions the developer must meet

A developer who wants advance payments must, under paragraph One:

1. Guarantee the refund, from the moment the building licence (licencia de edificación) is obtained, of the sums paid plus legal interest, by a surety insurance contract (seguro de caución) with an insurer authorised to operate in Spain, or by a joint bank guarantee (aval solidario) from an authorised credit institution. The guarantee covers the case where construction does not start or is not completed within the agreed delivery period.
2. Collect the advances through a credit institution, in a special account kept separate from any other funds of the developer. The developer can use the account only for the needs of building the homes. The institution, under its own responsibility, must require the guarantee when the account is opened.

The guarantee extends to the sums contributed by buyers, including the applicable taxes, plus the legal interest on money.

What the guarantee must look like

For a surety insurance policy, paragraph Two lists requirements, including these:

• an individual policy for each buyer, identifying the property;
• an insured sum that covers the total sums advanced under the sale contract, including applicable taxes, plus legal interest from the actual payment until the planned delivery date;
• the developer is the policyholder and pays the premium; the buyer is the insured;
• the insurer cannot raise against the buyer the defences it has against the developer, including non-payment of the premium;
• the policy lasts at least as long as the commitment to build and deliver, and if an extension of delivery is granted the developer may extend the insurance and must tell the insured.

If construction does not start or is not completed in the agreed period, the insured may claim from the insurer after a formal demand on the developer for the refund. If the developer does not pay within 30 days, the insurer must pay within 30 days of the claim. The insured can claim directly from the insurer when a prior demand on the developer is not possible. For a bank guarantee, the beneficiary has a parallel route against the guarantor, and the guarantee lapses two years after the developer’s breach if the buyer has not demanded the rescission of the contract and refund.

What the buyer must receive

Paragraph Three says that contracts providing for advance payments must state expressly:

• that the developer undertakes to return the sums received, including applicable taxes, plus legal interest, if construction does not start or finish in the agreed periods, “o no se obtenga la cédula de habitabilidad, licencia de primera ocupación o el documento equivalente que faculten para la ocupación de la vivienda”;
• a reference to the surety insurance contract or bank guarantee, with the name of the insurer or the guarantor;
• the credit institution and the account into which the buyer must pay.

When the sale contract is signed, the developer “hará entrega al adquirente del documento que acredite la garantía, referida e individualizada a las cantidades que han de ser anticipadas a cuenta del precio”. Adverts for such a development must also state that the developer will follow the requirements of the Act, naming the insurer or guarantor and the credit institution where the special account is held (paragraph Six).

If the home is late or not built

Paragraph Four gives the buyer a choice if construction has not begun or the home has not been delivered: rescind the contract and recover the sums paid, including applicable taxes, plus legal interest, or grant the developer an extension recorded in an additional clause of the contract, with the new completion and delivery date.

The guarantees are cancelled once the competent body issues the habitability certificate, the first-occupation licence or an equivalent document, and the developer proves it has delivered the home to the buyer; the same happens if the buyer refuses to take delivery. See the guide on the habitability certificate and occupation licence, which varies by region.

Penalties

A breach is a consumer-law infringement under the general sanction system and the regional rules. Failure to set up the refund guarantee carries a sanction of up to 25% of the sums whose refund must be secured, or the amount set by the autonomous community’s own rules. Penalties under building law may be added.

Ten-year structural insurance

Article 19.1.c of the LOE refers to a damage insurance, surety or financial guarantee covering, for ten years, material damage caused to the building by defects originating in or affecting foundations, columns, beams, floor slabs, load-bearing walls or other structural elements, if they directly compromise the mechanical strength and stability of the building.

The second additional provision makes this guarantee compulsory for buildings mainly for housing, except for an individual self-builder of a single detached house for own use; if such a self-builder sells within the statutory period, the guarantee must be taken for the time remaining to complete ten years. Under art. 19.2 the policyholder is the developer, and the insured include the developer and successive buyers of the building or part of it. The minimum insured capital for this cover is 100% of the final cost of the physical execution of the works, including professional fees (art. 19.5). The same article lists a one-year guarantee for finishing defects and a three-year guarantee for defects affecting habitability requirements; the second additional provision says a royal decree may make them compulsory for housing, and this guide did not read one.

What to check before paying

These are checks on the documents, not a legal opinion:

• Is there an individual guarantee naming you and the unit, and does the insured sum include taxes and legal interest?
• Does the contract name the insurer or guarantor and the special account?
• Are the delivery date and the habitability or occupation document stated?
• Ask for the proof of the 10-year structural cover when the building is finished.

For the deposit contract used at an earlier stage, see the arras guide.

Which professional to consult

A lawyer registered with a Spanish bar association (colegio de abogados) can check the guarantee document, the contract clauses and the special account before you pay. See the page on the property lawyer. An architect can review the plans and the works; see the architect page.