Legal Guarantees when purchasing new property in Spain
First of all I would like to congratulate all pour blog’s readers in this New Year. From Criado & Kraus we send our best wishes for this challenging 2016.
After a good number of years of virtually plain building activity in Spain, it’s now possible to see again a good number of cranes, a clear indicator that developments are being built again. There is no doubt that the demand for new built property is back.
When considering purchasing property abroad its important to not only think in life style, breath-taking views or delicious local foods. It is important to also think in which part of the world you will place your money. Legal security is essential and more, when talking about property investments.
Spain is, with no doubt, one of the most secure countries to invest or where to purchase property. Nowhere in the world it has been built so much and so fast and then find such a bad and deep economical crisis. These last years of crisis have put Spain under the best possible test, an unique scenario where developers where going bust due to the absence of sales and where banks found a level of unpaid mortgages never seen before. However the system worked. All the guarantees in place worked as excepted helping hundreds of property purchasers to cancel their purchases and then wait for a better moment invest again.
With this article I only try to provide some basic information about the legal guarantees in place in Spain for property purchasers. You can find those in different types of Laws, not only Laws passed by the central Government but also at Laws passed by regional Governments. Among the laws passed by regional government we can find very interesting ones like those that regulate the minimum contents of private purchase contracts or those who regulate how the purchase of new property must be offered to customers.
Additionally to those legal rules its is important to outline the work of local solicitors obtaining precedents in Law (jurisprudence). The work of many local solicitors at court cases has crystalized in the creation of new guarantees for customers. It is remarkable the precedents achieved to make developer’s banks liable towards property purchasers. Now a day all the parties that enter in contact with the moneys paid by property purchasers become responsible in some way. Banks are now required to control what is done with money from property purchasers and make sure that their clients (developers) provide end users the guarantees required by the laws (i.e. capital insurances).
Going into the matter, perhaps I could now explain what I mean by legal guarantees. Generally speaking we could divide them in two types: legal technical and economical / financial.
By LEGAL I mean those related with the purchase price it self and are mainly included into “customer protection laws”, including as briefly mentioned before the following ones among many:
- Minimum contents, information and annexes to be provided with to property purchasers at their purchase contracts.
- Marketing and publicity for new property on sale.
By TECHNICAL I mean those not directly related with the payments done by property purchasers such as:
- The 10 years insurance guarantee that is a compulsory insurance that the developer must retain otherwise will not be able to register his new properties at the Land register. This insurance provide with three levels of guarantee / cover to property purchasers. The first cover is up to one year (since the property is technically completed so ask your solicitor since when is the 10 years insurance activated) for snags, defects that can be seen at first sight. Up to 3 years for that equipment which cant be analysed at first sight like the conductions of electricity or plumbing. And finally up to 10 years for structural damages.
- The OCT. OCT means Office of Technical Control. This OCT is an INDEPENDANT quality control company that will control the developer’s work and guarantee the Insurer (for the 10 years insurance) that all is well done. The OCT are permanently in contact with builders and visit the building site on a regular basis though the work of OCTs starts quite before the developer has started moving lands.
Finally, at FINANCIAL / ECONOMICAL guarantees I include those directly related with the aments made by property purchasers, such as:
- Capital guarantees. Developer must provide to purchases with a guarantee for the moneys they pay. This guarantee can have the format of a bank guarantee or an insurer’s certificate. The amount guaranteed is not only the moneys paid but also some interest (what is called in Spain “the legal interest of money”). The guarantees are in place until the property is technically and legally built what happens when local town halls inspects the properties built and issue the “License of First Occupation”.
- Bank’s responsibilities: Banks must look after property purchasers when accepting developer’s as clients. There are many different obligations to follow. The most important one are :
A) The special bank account: Developers are legally required to have a specific bank account per development. At this account it will be received ONLY moneys from purchasers and the payments will be related ALWAYS to that specific development. This means that developers can’t mix their own moneys with the purchaser’s moneys neither mix the moneys from different developments.
B) Guarantees: Banks must demand their developer clients to provide evidence about the fulfilment of the financial guarantees to property purchasers (as said before bank guarantees or capital insurance certificates). It’s important to say that if banks neglect in these obligations they become jointly liable with developer towards property purchasers.
For all these reasons – and others not included at this post – it’s possible to conclude that Spain is one of the safest countries in the world to purchase property at.
If you are thinking on purchasing a new property in Spain, please let us guide you. Now, when we are have left the crisis, it’s a wonderful moment to purchase property. Property prices will begin to grow really soon.
Jose F. Criado
Abogado – Lawyer