Property News

If it’s too good to be true…

When developing property on the Costa del Sol, the best quote is not necessarily the cheapest and, often, a construction company who comes in under the competition may be built on shaky foundations.

Recently, a client came in to our offices with a fistful of quotations from contractors to build his new home. All the usual suspects were there, including the big three firms that, as a rule, anyone thinking of constructing a substantial property on the Costa del Sol would include on their short list.

The quotation process is pretty simple. An architect or project manager draws up a bill of quantities, based on the plans for the build and subject to minimum quality specifications, and builders draw on this data to provide their best price to secure the job.

Although the devil is always in the details, this should allow you to benchmark builders in the much same way you would compare apples. And, if you look carefully, to spot any bad ones in the bushel before taking a bite.

Do your research now to avoid problems later

As usual, there was little difference between five of the quotes, perhaps 5% here or there, as the actual costs of labour and materials are very similar for any company that does business legally in Spain, where, as in the rest of Europe, there are significant liabilities and overheads for professional builders.

The client then showed me the sixth quote he’d received. It was 40% lower than the highest and, on paper, would have delivered the build with the same qualities as the others. To be honest, I was flabbergasted. It was not from Pepe, a handyman from the hills recommended by your cleaner (and a close relative of his), but a company I had not encountered before that purported to be a serious developer of substantial properties.

So, I did what everyone should do before signing a contract with, and handing over money to, a company you don’t know well: I asked a lawyer (our regular go-to guy, Adolfo Martos Gross of GAM Abogados) to do some due diligence on behalf of our client to find out more about the company and the people behind the low quote.

Two things you should do before signing a contract

As a result of our client’s experience, if you are planning on developing a new property on the Costa del Sol, I’d suggest you carry out two basic steps before choosing a builder. Obviously, there are other things you can, and should, do – like talk to previous clients of the firm and visit properties they have built – but, before you get to that stage, do these things and save yourself time and hassle.

1. Check the financial health of the company you are considering using to build your new home.

Adolfo used information from a number of sources (the Companies Registry (Registro Mercantil), Axesor and similar online services, and Google, as well as the Official Bulletins of the State (BOE), Andalusia (BOJA), and Malaga Province (BOPMA)) to put together a comprehensive overview of the business in question, including any outstanding obligations as regards the Companies Registry, the Spanish Tax Agency, and Social Security.

Adolfo explains that you can determine if a building firm is active, has no legal problems with the authorities mentioned, and even inspect annual accounts to ensure it is free from debt and not running at a loss.

If a company was set up recently and has never made a profit, that should raise an alarm. Even if you have a bank guarantee in place, if the firm building your new home goes bust, goes M.I.A. or the build goes awry, you not only have to get your money back, but also find a new builder to take on an existing project and guarantee work they have not done, and, potentially, still find that the plumbing is connected to the lighting at too late a date.

2. Check the track record of the corporate officers.

By looking not just into the status of the company itself, but also at the individuals associated with it, you can decide whether they are the kind of people that you feel comfortable doing business with.

Adolfo points out that, with a little research into a firm’s current and former administrators and directors, you can find out about any bankruptcies, legal judgments, and pending claims in regard of those who have held positions of responsibility and, using the sources mentioned above, look back in time to previous roles they may have in other firms.

Some more useful advice for dealing with builders

Finally, Adolfo advises you always ask a company to prove they are up-to-date with their obligations to the Spanish Tax Agency and Social Security, and that they provide a bank-issued certificate of solvency. He also recommends payments are made against work done (and certified by the client’s architect or project manager, not the builder’s) and that 5% of every payment is retained for a period after completion, just in case.

For turnkey developments, where a single company is responsible for delivering the entire build, Adolfo says it is worth asking about and doing research into any subcontractors for the same reasons. And always ensure the contractor you choose applies for and obtains a building license from the local Town Council for architect-approved plans.

In this case, by the time Adolfo completed due diligence into the ‘cheap’ company, we’d uncovered seven other firms associated with the directors in the past, five of which had declared bankruptcy and one of which still had a pending claim against it. Suffice to say, the alarm bells were deafening and we definitively decided against using them for the build. Like our client said: “When it’s too good to be true…”

By Adam Neale | Property News | May 22nd, 2017

If it’s too good to be true…

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