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. It can benefit both parties well, but of course there is a risk for the buyer that the property will not be built after they have paid upfront, either due to unscrupulous builders, or developers going bust.
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.
So, is it possible to buy a property off-plan in Spain, safely? 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 in the event that it does not.
Find out more about buying property in Spain after Brexit.
New rules on bank guarantees when buying off-plan property in Spain
In a move to provide extra protection to purchasers, new rules were introduced amending the law in relation to bank guarantees: Law 20/2015 (of 14 July 2015) replaced the Law 57/1968 and stated 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 had 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.
Find out more about Spanish property law.
What you should do if you need to reclaim a deposit for an unbuilt off-plan property in Spain
If you purchased a property off-plan and it was not completed, help is at hand. It may be possible to reclaim the deposit that you paid from the bank that provided the guarantee, or from the developer if the company remains solvent.
For more information on reclaiming deposits for unbuilt off-plan properties in Spain, please click here.
Buying property off-plan in Spain – how it should work
When buying a property off-plan in Spain you will generally follow the process below:
- As a potential purchaser you are shown the proposed development, either by being shown around a show home, or shown presentations and architects designs.
- You agree a price with the developer and then the developer provides a contract proposal setting out the structure of the deal; the payment schedule; and what rights and obligations both parties have. Make sure you agree with the seller everything that will be included in the build before signing, including things such as air conditioning units, electrical points, appliances etc.
- The developer must provide your lawyer with a copy of the proposed bank guarantee and a copy of the planning permission prior to you signing the agreement. Make sure this is done.
- Once you are happy with all of the terms, both sides sign a written agreement and you pay your deposit. Make sure any deposit is covered by the bank guarantee, whether paid on signing of the agreement, or prior to it being signed.
- Between payment of deposit and completion of the purchase you will normally be required to make payments as per the payment schedule in the agreement and then, a few weeks before completion, you should be invited to visit the property, or view photos of it in order to provide a snagging list of issues that need rectifying. Make sure all these snags are carried out prior to completion. Your lawyer should include reference to snagging in the written agreement between you and the developer.
- At the completion meeting any balance owed by you will be paid and you become the owner of the property! Don’t forget that you will need to pay purchase tax shortly after completion and that, as you will be buying a new property, you will have to pay VAT of 10 per cent of the purchase price, plus stamp duty of between 0.5 and 1.5 per cent.
Some expert tips when buying property off-plan in Spain
Finally, here are some tips based on our 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.
Find out more about conveyancing in Spain.
What to do if you are thinking about buying a property off-plan in Spain
If you are considering buying a property off-plan in Spain, then preparation is key. You should engage an independent Spanish lawyer to advise you on all stages of the transaction.
We will be very pleased to discuss your potential purchase with you. Please feel free to contact us.
A version of this article appeared in the January 2016 issue of A Place in the Sun Magazine
