Off-plan property purchase

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

This regulation has been amended by Law 20/2015 of 14 July on the Regulation, Supervision and Solvency of Insurance and Reinsurance Companies. Below, we will discuss the most important changes affecting the property buyer in Spain.

Until recently, this matter was governed by Law 57/1968. The real estate crisis of recent years and the harm caused to homebuyers led to this regulation being supplemented and integrated with interpretations set forth in numerous Supreme Court rulings.

The core of this regulation addresses the obligation of developers to guarantee the amounts paid on account by buyers and the enforceability of their refund in cases where construction work does not begin or the property is not completed within the stipulated period.

As before, the new regulation establishes that the buyer has the right for the developer to guarantee the refund of the amounts paid in advance in the purchase, either by means of an insurance policy or a bank guarantee.

Off-plan property purchase: Private purchase agreement

With the new regulation, it is clear what the Supreme Court had already established in numerous judgments: all amounts reflected in the private purchase agreement must be guaranteed, provided that their payment is duly proven.

However, the new regulation introduces a limitation: the obligation to guarantee only applies to the amounts paid after the granting of the building licence. Under the previous regulation, all amounts paid by the buyer were guaranteed. This change represents an important restriction for the buyer, who must be careful and ensure that they do not pay large sums before the developer proves that said licence has been obtained.

Therefore, it is essential for the buyer to have the advice of a specialized lawyer in real estate law, who can review the contract and ensure that it complies with all regulations.

Claims for breach of contract by the developer

Another significant development for the buyer is that the new regulation establishes a period of two years to claim the refund of the amounts paid in advance in the event of breach by the developer. If this period is allowed to expire, the buyer will lose their right to bring a judicial claim.

In addition, before filing a judicial claim, it is mandatory to send a prior formal notice to the developer, the bank or the insurance company, granting them a period of 30 days to refund the amounts paid in advance. If this prior step is not fulfilled, it will not be possible to file a judicial claim.

The new regulations also stipulate that the buyer’s rights recognized in the law may be waived, unlike the previous regulations, which prohibited such waivers. Therefore, it is essential that the buyer carefully review any contract before signing it to ensure that it does not include clauses waiving these rights.

The role of insurance companies and banks

Under this new legal framework, insurance companies and banks play a key role in guaranteeing the amounts paid in advance by buyers. However, it is the buyer’s responsibility to ensure that the developer has obtained the appropriate guarantees. This can be done by requesting documents that prove the existence of the insurance policy or bank guarantee.

If the developer fails to comply with their obligation to guarantee these amounts, the buyer has the right to claim their refund directly from the bank or insurance company, always within the established period.

Recommendations for buyers of off-plan properties

For buyers interested in purchasing an off-plan property, it is crucial to follow these recommendations:

• Verify that the developer has the building permit before making any significant payments.
• Request a copy of the bank guarantee or insurance policy that guarantees the amounts paid.
• Consult with an experienced attorney specializing in real estate law before signing any contract.
• Make sure the contract does not include clauses that limit your rights or waive your legal rights.
• Establish a clear payment schedule based on construction milestones and the delivery of the home.

The importance of legal advice

The current legal framework aims to balance the rights and obligations of buyers and developers, offering greater protection to those who purchase off-plan homes. However, the restrictions introduced by the new regulations also require buyers to be well-informed and take additional precautions.

If you are considering purchasing a home under construction, having the support of a specialized attorney can make the difference between a positive experience and a process fraught with risks and legal complications.

The Opinion of Carlos Baño Abogados

From our experience at Carlos Baño Abogados, we consider it essential for buyers of off-plan properties to act with caution and seek legal advice before signing any contract. The current regulations offer tools to protect their rights, but they also require detailed knowledge of the obligations of the parties.

We recommend that all our clients ensure that the amounts paid are properly guaranteed or insured, and that they carefully review the terms of the private sales contract.

If you need advice on buying or selling an off-plan property or any other matter related to real estate law, please don't hesitate to contact us. You can also find us on Google Maps and visit us at our offices in Alicante for in-person assistance.