Off-Plan Property Purchase

A key issue and the subject of numerous legal claims in Spain has been the regulation regarding the obligation of developers to guarantee the amounts they charge in advance during an off-plan property purchase or a property under construction.

This regulation has been modified by Law 20/2015 of July 14 on the Regulation of Insurance Entities. Below, we will discuss the most significant changes that affect property buyers in Spain.

Until recently, this matter was governed by Law 57/1968. The real estate crisis of recent years and the damages caused to property buyers prompted this regulation to be complemented and clarified through numerous Supreme Court rulings.

The core of this regulation addresses the obligation of developers to guarantee the amounts paid in advance by buyers and the requirement to return these amounts if the construction does not begin or the property is not completed within the agreed timeline.

As before, the new regulation establishes that the buyer has the right to have the developer guarantee the refund of advance payments, either through an insurance policy or a bank guarantee.

Off-Plan Property Purchase: Private Purchase Agreement

The new regulation makes it clear, as established in multiple Supreme Court rulings, that all amounts specified in the private purchase agreement must be guaranteed, provided their payment can be justified.

However, the new legislation introduces a limitation: the obligation to guarantee applies only to amounts paid after the building permit has been granted. Under the previous regulation, all amounts paid by the buyer were guaranteed. This change represents a significant restriction for buyers, who must now be cautious and ensure that large payments are not made until the developer provides proof of the permit.

Therefore, it is essential for buyers to seek the advice of a specialized real estate lawyer who can review the contract and ensure compliance with all legal requirements.

Claims for Developer Non-Compliance

Another significant change for buyers is that the new regulation establishes a two-year deadline to claim the return of advance payments in cases of developer non-compliance. If this period expires, buyers lose their right to make a judicial claim.

Furthermore, before initiating any judicial claim, buyers must send a prior notice to the developer, bank, or insurer, granting them 30 days to refund the advance payments. Failure to comply with this preliminary step makes judicial claims impossible.

The new legislation also allows buyers to waive their rights, unlike the previous regulation, which prohibited such waivers. For this reason, buyers must carefully review any contract before signing it to ensure it does not contain clauses waiving these rights.

The Role of Insurers and Banks

Under the new legal framework, insurers and banks play a key role in guaranteeing the amounts advanced by buyers. However, it is the buyer’s responsibility to ensure that the developer has contracted the necessary guarantees. This can be done by requesting documentation proving the existence of the insurance policy or bank guarantee.

If the developer fails to fulfill their obligation to provide these guarantees, the buyer has the right to claim a refund directly from the bank or insurer, provided this is done within the established deadline.

Recommendations for Off-Plan Property Buyers

If you are considering buying an off-plan property, it is crucial to follow these recommendations:

• Ensure the developer has obtained the building permit before making significant payments.
• Request a copy of the bank guarantee or insurance policy that guarantees the advanced payments.
• Consult with a real estate lawyer before signing any contract.
• Verify that the contract does not include clauses limiting your rights or waiving legal guarantees.
• Establish a clear payment schedule tied to construction milestones and property delivery.

The Importance of Legal Advice

The current legal framework seeks to balance the rights and obligations of buyers and developers, offering greater protection to those purchasing off-plan properties. However, the limitations introduced by the new legislation require buyers to be well-informed and take additional precautions.

If you are considering purchasing a property under construction, obtaining support from a specialized lawyer can make the difference between a smooth process and one filled with risks and legal complications.

The Opinion of Carlos Baño Abogados

At Carlos Baño Lawyers, we strongly recommend that buyers of off-plan properties act with caution and seek legal advice before signing any contract. The current legislation provides tools to protect buyers’ rights, but it also requires a detailed understanding of the parties’ obligations.

We advise all our clients to ensure that the amounts paid are properly guaranteed through bank guarantees or insurance policies and to carefully review the terms of the private purchase agreement.

If you need legal advice for an off-plan property purchase or any other real estate matter, do not hesitate to contact us. You can also find us on Google Maps and visit our offices in Alicante for direct assistance.