IMPORTANT: New Regulations affecting off-plan property buyers in Spain

THE QUESTION

 Is it safe to buy off-plan property in Spain after 1st January 2016?

Background

In the recent past, one of the most important elements of the huge property bubble consisted in all the new complexes, urbanizations and buildings of apartments which were sold off-plans by the developers to individual buyers.

Normally, the buyer paid a certain amount of money in advance to the developers in accordance to the different stages of the construction which were certified by the Architect. Those payments were made before the house/apartment was completed and the corresponding licenses obtained.

In many cases, the first payment was made when the developer did not even have the building license and there was only a plot waiting for building permission. This was particularly a common practice when the developer was a cooperative and used the money coming from different buyers to buy the land to be constructed.

Nevertheless, those payments had to be necessarily and legally guaranteed either by a Bank or an Insurance company, even before obtaining the building license. Therefore, the risk was minimum for buyers, because if there was something wrong for continuing the building works, the construction was never finished, or the licenses were never granted or even and when there was an insolvency case, the buyer could have his money refunded by the bank who issued the guarantee or the Insurance Company through the insurance policy. A legal interest was also added to those guarantees, so that when all the payments were legally guaranteed, the risk was practically non-existing.  ** (please see comments below)

The regulation was contained in one of the most important laws in Spain: the royal decree 57/1968, ratified later on by another relevant law in 1999 (Act 38/1999).

Therefore, the two mentioned regulations operated as a Consumers' Protection regulation, protecting off-plan buyers from losing the monies paid in advance for the properties in case they weren't built or finished and/or the promoter came to insolvency.

HOWEVER,

Last 14th july the Spanish Parliament issued Law 20/2015 (published in the Official Gazzete wednesday 15h july 2015), which contains the new regulation for the insurance and construction sectors.As a consequence as from 1^st January 2016:

• Law 57/68 is abolished

• Law 38/1999 is modified, and the obligation to issue a bank guarantee s or Insurance just comes since the building license is issued to the promoters.

The amendment of the Spanish Building Act (Ley de Ordenación de la Edificación) threatens to have a great significance for those who decide to buy an off plan property in Spain since next year.

Basicly, the law states the following:

"... 1. Natural and legal persons who promote the construction of all types of housing, including those made under a community of owners or cooperative society, which seeks to obtain deliveries of money from purchasers for its construction, must meet the following conditions : 

a) Guarantee, since obtaining the building permit, the return of the amounts paid plus statutory interest, through an insurance contract signed with insurance companies authorized to operate in Spain, or through solidarity guarantee issued by credit institutions duly authorized , in the event that construction does not start or not reach a successful conclusion by the agreed deadline for the delivery of the property.  ..."

What means that in case the buyer advances money before the building permit is granted, since the beginning of 2016, has no insurance or the ability to claim the credit institution.

So, in case should you be interested in buying an off-plan property, you shouldn't make any payment until the building licence is granted to the promoters, unless you want to risk to be unprotected for the advance payment.

We must insist that this is a good moment to invest in Spain, but, more than ever, proper legal advice and precautions are needed. You have multiple choices for other homes that are already built with all the legal permissions and licenses. And we advice you not to take unnecessarily risks. Courts and Tribunals in Spain, even if you are right, are extremelly slow.

OUR COMMENTS

No doubt that the Spanish government has been "forced" to change the protected regulations for the individual buyers/consumer and construction and developing companies in FAVOUR OF BANKS AND INSURANCE COMPANIES. We need to question who really rules our countries.

To abolish a guarantee in favour of individual consumers is an attack, it means that we are going backwards instead of moving forward.

It is an attack to developing cooperatives especially which practically, as from 1st January will be suffering from the new laws. And, further more, it is an attack to the final buyers/consumer who will have to take a risk if they pay money in advance to the developers with no building license.

Nevertheless, you always have the choice and you can always make the better decision to protect your interests in whatever you do.

Anyway, in our next article we will write about the obligations and rights in particular when you buy a house off-plan, as there will still be a market, of course, for them. 

Better to be informed in advance.

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THANKS FOR YOUR INTEREST AND SEE YOU SOON

Sources: 

Premier law

The association of constructors and developers in Spain

The Act 38/1999 5 November 1999

The act 20/2015 17 July