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 construction in the event building works don’t commence or have not been completed on the date agreed.
Likewise, they are obliged to deposit money in a special bank account, to be used exclusively for costs directly related to the construction.
The bank must be vigilant in maintaining this account and have a signed insurance contract, or some form of collateral, to guarantee return of payments advanced by the buyers.
However, the ‘guarantee’ only comes into force once the building licence is obtained.
This is very important, as most promoters start signing contracts for purchase reservation agreements before obtaining the 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 bank or insurer demands that this money is first deposited previously with them.
You should also check with a registry that the insurance company guaranteeing the refund is authorised in Spain.
In the previous decade it was very common to work with insurers not authorised to operate in Spain.
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 section i) 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 generated from the date of delivery until the promoter’s estimated delivery of the project.
This is usually fine, 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.