Key considerations when buying off-plan property in Spain

Buying off-plan property in Spain can offer modern features and flexible payment terms, but it also carries significant risks. You should always instruct an independent lawyer to carry out due diligence and ensure that the developer has obtained all necessary building licences and provided proper protection for your stage payments.

Before signing any contract or paying any money to the developer, do consider the following:

1. Ensure the essential documentation and verifications are in place

• Bank guarantee (aval bancario): Under Spanish law, developers must provide either a bank guarantee or surety insurance. This protects your deposits if the project is delayed, abandoned, or the developer becomes insolvent.
• Special account: Make sure all deposits are paid into a segregated account opened specifically for that development, rather than into the developer’s general trading account.
• Building licence (licencia de obra): Do not sign a reservation contract or pay a deposit until the local Town Hall has formally granted the building licence.
• Land Registry search: Check the Spanish Land Registry (Registro de la Propiedad) to confirm that the developer owns the land and that there are no undisclosed debts, charges, or other title issues affecting it.

2. Review the contract and financial terms

• Specification sheet (memoria de calidades): This is one of the most important legal documents. It sets out the agreed materials, fixtures, finishes, and specifications. Marketing brochures are usually not legally binding; the memoria de calidades is.
• Specific delivery date: The contract should include a clear date for completion and handover of the keys, together with compensation or termination rights if the developer exceeds the agreed timetable.
• Total price and taxes: Make sure the contract clearly states the total purchase price and the taxes payable. For most new-build residential properties in mainland Spain, this will usually include 10% VAT (IVA) and AJD stamp duty at the rate applicable in the relevant region.

3. Understand what to do prior to completion

• First Occupation Licence (licencia de primera ocupación): Issued by the Town Hall, this confirms that the property is legally fit for occupation. You should not complete the purchase or sign the title deed (escritura) before this has been granted.
• Snagging list: Before completion, inspect the property with a suitably qualified professional so that any defects, missing items, or unfinished works can be identified and recorded for the developer to rectify.

4. What if the developer delays or breaches the contract?

Spanish Supreme Court case law has confirmed that, where an off-plan property is not delivered on time or the developer becomes insolvent, the buyer may be entitled to recover advance payments together with legal interest, depending on the facts and the protections in place. The core legal positions are as follows:

• Direct bank liability: In some cases, a buyer may be able to pursue the bank directly, rather than first bringing a claim against an insolvent developer, where the bank received the funds and the statutory protections were not properly implemented.
• Legal interest: A successful claim may include not only repayment of the sums advanced, but also legal interest running from the date each payment was made.
• Supreme Court guidance: Spanish case law has also established that a bank may still be liable even if no individual guarantee certificate was issued, if it accepted buyer funds for the development without ensuring the required legal protections were in place.

That said, any claim against a bank will depend on the specific facts, the documentation available, and whether the legal requirements for liability can be established.

5. Additional factors to consider

• Mandatory guarantee or insurance: Developers must protect advance payments by way of a bank guarantee (aval bancario) or insurance policy.
• Bank liability: If the developer failed to use a designated special account and the bank accepted deposits into an ordinary account without ensuring the required guarantees were in place, the bank may be liable to refund the buyer.
• Residential purpose: The protection available under this area of law may be narrower where the purchase was genuinely speculative or commercial in nature. The intended use of the property can therefore be important evidence in any claim.

6. Be aware of crucial deadlines

• Limitation periods and contractual deadlines can be complex and fact-specific. You should take legal advice promptly to avoid missing any deadline for bringing a claim.
• Acting quickly is often essential, particularly where a developer is in financial difficulty or where guarantee documents contain time-sensitive provisions.

6. Consider these next steps and action plan

• Take legal advice: You should have the documentation reviewed by an independent Spanish-qualified lawyer before signing anything. If you are already facing delay, non-completion, or another breach by the developer, legal advice will help you assess the best route to protect your position and recover any payments made.
• Spanish Power of Attorney and Will: These can be very important when buying property in Spain. A Power of Attorney allows a trusted representative to deal with practical steps on your behalf, such as signing documents, applying for an NIE, opening a Spanish bank account, and dealing with utilities or local taxes. A Spanish Will is not legally compulsory, but it is strongly recommended for anyone buying Spanish real estate, as it can simplify matters for your heirs and help avoid delay and additional cost.
• Review your UK Will: Buying property in Spain does not automatically update your existing Will. Although your current Will may remain valid, a new property purchase can change the value and structure of your estate, which may affect how your assets pass on death if your arrangements are not reviewed.

If you are considering an off-plan purchase in Spain, or are already dealing with delay or breach by a developer, we would be happy to review your documents and advise you on the best next steps. Please contact Yolanda Perez Berges at yolanda.perez@theburnsidepartnership.com.