BUYING OFF-PLAN IN SPAIN: DO NOT TAKE ANY RISKS! FREQUENT PITFALLS TO BE AVOIDED AT ALL COSTS.
Spain has a unique appeal to foreigners. With its enviable climate and year-round sunshine, coupled with the relaxed, easy going Spanish life style, makes it quite tempting. You might have probably read on the news that Spain’s property market is in good shape and it continues to recover fast, amidst continuous amelioration in economic conditions. In fact, all indicators confirm that the trend will continue throughout 2018, especially off-the-plan properties. However, if you have the intention of acquiring a property in Spain, you need to know all that is necessary, so that your dream do not turn into a nightmare.
Complex Planning Permission Local Laws
First of all, urban law is very confusing and unfair to the buyers. It is confusing because there is a maze of complex legislation, – not only national legislation (that covers the whole of Spain), – but each autonomous region and town halls have their own legislation as well.
Likewise, it is unfair and harsh, because when faced with an infringement, (which many foreign buyers have fallen victim to), government authorities will hold the buyers/owners who bought in good faith accountable for the infringements, fines and/or demolitions, without considering that the buyers are the real victims, and the ones actually being defrauded by an unscrupulous agent or builder.
Impunity for corrupt Builders and Offenders
In the second place, Spain’s criminal law does not protect those who are victims of it, and the fines/penalties against the real offenders (the developers) are very lenient. To seek for compensation might involve protracted litigation, sometimes with little chance of success for example if the developer might go into liquidation.
This factor clearly acts as an incentive for corrupt and unscrupulous agents and developers to continue with their illegal activities and defraud innocent foreign buyers with almost total impunity. Taking the above into consideration, remember that it is always better being safe than sorry and know exactly what to look for in order to avoid making critical mistakes in the first place, that might turn your dream of living in Spain into a real nightmare. Remember that time is in your side. Therefore, please find below some useful advice and recommendations:
1º) Legal Checks on the Property
First. – Check the ownership and any charges, encumbrances or liens registered on the “land registry certificate” of the property as well as planning permission.
Searches will determine whether there might be any hidden charges or encumbrances over the title of the property that might need to be addressed prior to signing any purchase contract. All the property searches and investigations must be thoroughly performed to identify potential legal property issues, before any deposit is paid in advance to the Developer or agent.
2º) Be very careful with Purchase Agreement produced by the Developer
Second. – Verify that the purchase agreement is 100% legal and it doesn’t contain abusive clauses.
Many unscrupulous Builders might try to mislead you into signing a purchase contract containing abusive clauses. Do not fall into the trap! The contract must include a comprehensive description of the property, land registry details, vendor’s details, plans of the property as well as an accurate outline description of the materials, fixtures and fittings, etc.
More examples of abusive clauses are charging the buyer for builder’s electricity & water supply or forcing the buyer to pay for a multitude of extra charges including damage repair, finishing incomplete work, etc
On the other hand, time is of the essence when buying off-plan. Consequently, the contract must state a clear and specific completion’s date, and never a generic or vague one. This must always be considered as an essential term or condition of the purchase contract, in case the Builder might fail to deliver the dwelling in the stipulated deadline.
3º) Keep record of all the stage payments
Third. – Keep a careful record of all advanced stage payments, and verify that all the money paid to the Developer is allocated in a special bank account, which is mandatory in accordance to the Act 57/68.
4º) Request for a bank guarantee
Fourth. – Request for ORIGINAL BANK GUARANTEE CERTIFICATES on all the deposits paid, including the initial reservation deposit as well.
What is a bank guarantee?
A bank guarantee is truly a document of crucial relevance for off-plan purchasers, (they are not however applicable to resale or self-Built Properties). Its basic aim is to secure the stage payments in off-plan properties, should the developer for example, fail to complete the development on time, or might file for bankruptcy, etc.
We cannot sufficiently emphasize the importance of attaining a bank guarantee by all off-plan purchasers. In fact, our Firm has managed to successfully recover for many clients, their deposits in full plus legal interests, thanks to the fact that the bank issued bank guarantees to each single individual buyer, securing the full amount of deposits paid to the developers. Consequently, do never accept a “generic collective bank guarantee document”, because at the event of dispute, it will be much more difficult to claim the money back from the bank.
Who must grant the bank guarantee?
Likewise, bank guarantees should only be issued by a Spanish bank, or alternatively by a Spanish insurance company fully registered and regulated under the Spanish law. Be extremely careful with this requirement, because we have recently detected a real case of a new luxury off-plan development in Alicante, where a well-known developer is currently issuing guarantee’s documents issued by an unregulated Canadian company. This is extremely hazardous, because if at the worst scenario, the developer might default, it will be highly unlikely for the off-plan purchasers to get their money back, from a dubious scam investment scheme or “fly-by-night” operation.
Also, the bank guarantees will be valid until the town hall grants the dwelling the License of First Occupation. This is explained more fully in the next paragraph.
5º) Request for the LICENSE OF FIRST OCCUPATION ON COMPLETION
Finally. – Handing over of the property without being completed, or with faults that affect habitability of the house or the whole urbanization is extremely risky. Subsequently, do NOT sign the title Deed at the Notary, until the Developer gives you the 10-year Building Guarantee as well as the License of First occupation.
Some developers might exert pressure on you by compelling you to sign the title deed upon reception of the Certificate of End of Construction (CEC) instead of the License of First Occupation. (LFO). Beware of this illegal practice, as it might have dire consequences for you in the future. (Impossibility to hire the utility bills, planning permission’s infractions, pending unpaid urbanization charges, etc, etc). Bear in mind that the CEC, is just a private certificate produced by the own architect’s developer, which does not imply that the development might be deemed as legal. Remember, only the LFO does, because it is always issued “officially” by the local town hall’s Planning Department.
Moreover, carefully review before completion the book of the building, that must include an accurate description of the property’s code regulations concerning noise; humidity/dampness; thermal insulation, handicap access and for elderly people, etc…
In short, buying off-plan property in Spain, has undoubtedly significant advantages (i.e., important discounts or premiums compared to a key-ready resale dwelling), but it also involves potential risks. We keep noticing that many foreign buyers blindly keep paying up front deposits to dubious agents and developers, but without double checking very carefully the legal situation of the property in advance, and without signing a proper and well-written purchase agreement.
Beware of this perilous practice and remember that without proper and independent legal representation at the onset to negotiate your rights as a buyer, you could fall short of securing critical terms and agreements on the title deeds and contracts, such as the ones described before. Always avoid “low cost” Solicitors or the use of solicitors that are on the developer’s payroll, as they will protect the vendor’s rights, not yours.
When buying off-plan (or resale property) in Spain, it is absolutely crucial to put your trust only in an independent Solicitor, – like our Firm, – fully conversant on all aspects of the property conveyancing’s process.
In conclusion, we would like-if we may- to stress the point that buying a property in Spain is a serious matter. Considering how much is at stake (most of the life savings of many private investors) and the huge number of swindles and frauds committed by unreliable builders and agents in Spain over the past few years, do not be rushed into paying a deposit up front, just because the agent or developer is exerting a huge pressure on you. Bear in mind that when buying an off-plan property in Spain, you are granted with inalienable rights that cannot be waived by the vendor party in any circumstance.
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Thank you very much again for your attention and we look forward to giving you a personalized service and the benefit of a high quality and cost-effective advice.