Buying Off Plan? Some points to consider
We asked our legal expert Adolfo Martos Gross for a few pointers for clients considering buying off plan.
Is your money safe?
Promoters are obliged by law to guarantee the return of the amounts paid during the construction process in the event building works don’t commence or have not been completed on the date contractually agreed Likewise, they are obliged to deposit this money in a special bank account, which is to be used exclusively for the costs directly related to the construction. The bank must also show vigilance in maintaining this account and have a signed insurance contract, or some form of collateral, to guarantee the return of the payments advanced by the buyers. All this falls under the Additional Provision of the Building Law Regulation.
However, the ‘guarantee’ only comes into force once the building licence is obtained. This is very important to know, as most of the promoters start signing contracts for purchase reservation agreements before obtaining the above licence. This means that the amounts paid by buyers for ‘reservation’purposes will not be guaranteed, except for the solvency of the promoter. Nor is the promoter obliged to deposit said payments in a ‘special account’. Be careful with any agreed extras. They also should be guaranteed in the same way as the original purchase price.
Play it safe
It is common practice for promoters to provide the guarantee or certification several days after a client signs the purchase agreement and receiving payment from the buyer. Adolfo´s advice is to demand it simultaneously, as required by law (section Three, last paragraph, of the D.A. 1st. of the LOE), because only then will you have full coverage. Promoters are usually reluctant to do things this way, because the bankorinsurerdemands that this money is first deposited previously with them.
Another precaution that you should take is to check thatthe insurance company guaranteeing the refund is authorised to operate in Spain (as required by law). You can do this by consulting this registry.
In the previous decade it was very common to work with insurers not authorised to operate in Spain, some of which in fact did not return any of the amounts to the buyers. In many of these cases, the promoter’s directors were responsible for their negligent behaviour when contracting these companies, knowing that they do not have any authorisation to operate in Spain.
Buyers must also keep payment proof of the amounts delivered to the promoter, because if this can’t be legally certified, and even if the contract says that they have been paid, the Insurer or the bank can refuse to reimburse you. This is stated in sectioni) of section 2 of the D.A.1ª of the LOE and is relevant because sometimes, the form of payment is not indicated and over time it can be forgotten or lost.
I also advise buyers to demand the following before signing anything: identification of the insurance company or bank that is going to guarantee the return and a certificate from the bank identifying the ‘special account’ opened by the seller. It is not advisable to simply trust what the promoter tells you.
The guaranteed amount should cover not only the amount that has been delivered to the account, but also the interest that is generated from the date of delivery until the promoter’s estimated delivery of the project. This usually does not present problems, as it is usually expressly indicated in the endorsement or guarantee certificate.
Finally, as a buyer you should exercise caution regarding any extensions of the home handover;if the developer does not renew the insurance policy or the bank has not guaranteed to extend it to the new planned delivery date, the guarantee or insurance will not cover the amounts paid by the buyer during that time.
Adam Neale | July, 2019