Buying property off-plan is back in Spain again, with developers keen to sell properties before they are built and purchasers equally keen to buy at a lower price, pre-construction. So, here are some recommendation to take in consideration when buying a Property Off-Plan in Spain – Safely.
Laws were introduced to protect purchasers who are buying property off-plan in Spain, requiring developers to provide a bank guarantee for all payments made by the purchaser for the property. Essentially, the bank guarantees a full refund to the purchaser in the event that the build is not completed. These rules were updated in January 2016 and the government chose to apply the existing law with some amendments.
We take you through the rules, as well as sharing some expert tips so that you can be sure that your off-plan purchase in Spain goes smoothly and that you are protected if something would not go as planned.
Buying off-plan in Spain – how it should work
In a move to provide extra protection to purchasers, new rules have been introduced amending the law in relation to bank guarantees: Law 20/2015 (of 14 July 2015) replaces the Law 57/1968 and states that from 1 January 2016 bank guarantees can only be provided for payments once the developer has proved that he has obtained any necessary planning permissions. This means that the purchaser now has extra protection ensuring that all relevant planning permissions have been obtained as well as protecting any financial investment. Banks and insurance companies have until July 2016 to revise existing guarantees to reflect this amendment. Of course, this means that any payment that a purchaser may make to a developer prior to planning permission being granted will not be guaranteed. In addition, the new rules state that the bank guarantee will expire two years after any breach of contract if the buyer does not make a claim against the developer within that period.
Reservation and deposits
Once you have found your perfect property and are certain you want to go ahead with a purchase you will be required to pay a deposit to the developer to reserve the property you have selected until the private purchase contract is signed.
The initial deposit is normally between 3000 euros and 6000 euros for an apartment but can be as much as 50,000 euros to 100,000 euros for a large Villa. This deposit is normally non refundable and if you decide not to go ahead with the purchase you are likely to lose the money. After the initial reservation the purchase contract is generally signed within 14 days and you will be required to make the first of the advanced payments, which can be anything from 10% to 30% depending on the agreed payment schedule. For your protection any amounts paid to the developer in advance are legally required to be guaranteed by the developer either through a bank guarantee or an insurance policy.
The developer is required to give you a document proving the existence of a bank guarantee or the policy number and it should form part of the private contract.
Private purchase contract – (PPC)
The PPC is the contract between you the buyer and the developer who is the seller.
Your lawyer must check that the Private Purchase Contract includes the following.
- Details of the Bank Guarantee or Insurance policy
- Details of the developers dedicated bank account for all payments
- Confirmation that the developer has been granted a building licence
- Full details of the project and the property you have agreed to purchase
- The building specifications including materials etc
- Fill plans of both your property and the development
- Accurate and clear description of the property and also the development including communal areas and amenities together with the developers advertising material
- The price of the property and what is included i.e. garage, storeroom
- The property taxes and who is required to pay them
- The payment schedule including dates for payments
- The agreed completion date
- Penalty clauses should the developer fail to complete the project on time
Some expert tips when buying property off-plan in Spain
Finally, here are some tips based on years of experience in advising people buying property off-plan in Spain:
- Be certain to engage an independent specialist Spanish property lawyer to advise you in relation to the transaction, before you pay any deposit.
- A developer will often seek to include a clause in the purchase agreement allowing him the right to mortgage the property. This is often so they can raise funds for the development and, as owner of the property at this point, they have this right. Just make sure the mortgage is cleared by the developer either prior to completion, or simultaneously with completion of the transaction.
- Another common clause in the agreement is to be able to extend the completion date by a set period – usually three to six months – to provide the developer with flexibility should anything go wrong. Try to negotiate this time down as much as possible to reduce the overall time the project is likely to take to finish.
- Make certain before you sign the agreement that you know from your lawyer how to enforce the bank guarantee should you need to do so.
- Make sure that all works are carried out prior to completion – it will become very hard to get them finished once the completion documentation is signed and the monies are paid.
- And finally, don’t pay anything to the developer before you have sought independent legal advice.
If you are thinking of buying off-plan property on Costa del Sol, we at Status Homes will be happy to give you advice and show all the different options as we collaborate with most developers along the coast.