New off-plan law favours institutions not buyers
An amendment to the law that came into effect on January 1st 2016 offers those who buy off-plan properties from developers less protection than before. As a result, there is now a greater risk of financial loss, as the changes shift the balance in favour of banks and insurance companies.
In the first instance, Ley 20/2015 concerns the organisation, supervision and solvency of insurance and reinsurance companies, but in redefining this it also has an impact on the property sector, and in particular the off-plan buying of new properties under construction. This, in turn, is something that has an important bearing on markets such as the Costa del Sol, where many of the properties bought by local and above all foreign buyers, fall into this category.
Specifically, the part of the law that affects real estate is an almost fifty year-old law about bank guarantees that has historically favoured the homebuyer in any ensuing disputes with developers, banks and insurers. To find out how this new law affects those who are thinking of buying property off-plan in Spain, we spoke with Adolfo Martos Gross, a partner in Costa del Sol law firm GAM Abogados, who provided some very useful advice about what you should do before handing over any money to a developer.
The first change concerns a homebuyer’s right to demand a refund of amounts paid in advance, which are guaranteed by a bank or insurance company in the event that a property developer runs into financial trouble. Before this was an unassailable right that had to be included in all relevant contracts and documentation, but the new provision gives unscrupulous developers the chance to insert a waver that unwitting buyers may not be aware of when they sign the purchasing contract and agree to its conditions.
Adolfo notes that while buyers are still protected against onerous clauses by prevailing consumer protection laws, there’s now a chance one could be included, so his advice is to read the small print very carefully. Working with an experienced real estate agent and a lawyer are important ways of protecting yourself against this, as where previously buyers were covered for all amounts advanced to a developer, even those paid prior to the granting of a building licence – which can take months to secure – now you can only recoup funds paid once a licence has been granted.
In addition, bank guarantees now only cover amounts paid on the books, subject to official receipts, as part of a wider campaign against money laundering. This potentially lets banks and insurers off the hook for under-the-table payments, so Adolfo recommends you retain proof of payment for any money that changes hands, and points out that payments in cash that are not declared are illegal and therefore constitute an offence and come with far more risk.
Rather than including all the buyers in a new development under a collective bank guarantee, developers are now required to give each buyer an individual guarantee, specifying the exact property being bought and the buyer’s full details, at the time the first payment is made, so don’t let go of your money without getting your certificate in return! And you don’t have to pay for the guarantee, either; it’s the developer’s responsibility.
Protect yourself, work with professionals
The right to claim back advance payments for instances such as when delivery of the property or project is delayed for whatever reason, used to be valid for up to 15 years, yet the current law reduces the period to a maximum of 24 months. Adolfo points out that this can create a practical problem, as it’s not uncommon for a developer to fall behind schedule. Keep a keen eye out on the progress of the project you have bought in. The sooner you claim when it is needed, the better.
Moreover, the procedure that enabled buyers to go to court to get a bank guarantee enforced, usually possible in a question of months, has also been eliminated and replaced by a much more long-winded process, with the possibility of having to wait years for funds to be recouped. As Adolfo points out, the legislation amended in 2016 leaves buyers in a significantly more vulnerable position, restricting their rights, curtailing guarantee periods and making the process of reclaiming money much more bureaucratic than before. His advice: work with professional agents and a good lawyer who knows the subject matter well.
By Adam Neale | Property News | July 23rd, 2019