The Licence of First Occupancy (LFO, for short) is a crucial document on buying off-plan property in Spain that draws a line between what is legal and what is not, in general terms. A LFO does not (usually) apply to resale properties.
A Licence of First Occupation is a certificate issued by a town hall which confirms that a newly-built property (off-plan) fully complies with all planning and building regulations and is fit to be used as a dwelling. It assures compliance with Health, Access, Safety, Planning and Construction laws, and that the property has been fully completed, with no outstanding works.
The LFO allows off-plan purchasers to dwell in a property legally. A LFO is also known as Habitation Licence or Certificate of Habitation and in Spanish, Licencia de Primera Ocupación or Cédula de Habitabilidad.
It is important mainly for four reasons:
It provides a check on the planning legality. A LFO means the developer has built the dwelling in accordance with the original town hall’s Building Licence as well as with all Planning laws. The inspection to grant this licence is carried out by town hall’s chartered technicians who certify the dwelling is deemed apt for human habitation.
It is required by utility companies to have access to official supplies: water, electricity and gas. Spanish law requires the granting of a LFO to hook up the dwelling to the supply grid.
Lenders will ask for it if you require finance. Banks will also be asking you for a LFO. Even on reselling the property, your buyer may request a copy for his own lender.
Holiday lettings. If you are looking to buy as an investment (buy-to-let), a LFO is required by Regional Tourist Authorities to rent out your place on a short-term. If your property hasn’t attained a first occupancy licence, you will not be able to legally rent out your house and may be landed with humongous fines if caught red-handed. The fines for non-compliance are six-figures in some regions of Spain.
5 reasons to invest in real estate in Spain
- Store of value. In times of political instability, which lead to stock markets in upheaval, gold and real estate have traditionally been a safe haven where affluent ploughed their money capping off the storm.
- Security. Real estate is a tangible asset which you can touch and see, unlike cryptocurrencies and other intangible assets where thefts are rife.
- Capital appreciation. Real estate increased by one digit over the last four years in Spain, in some areas even by two digits. Some experts even talk of a new property boom underway. On the long run real estate always trumps any other asset class, including stocks.
- Soaring rental yields. Rental yields in Spain have soared by two digits over the span of three years. Spain is the world’s second tourist destination creating a huge demand for holiday accommodation.
- New laws passed in Andalusia allow ultra-low inheritance and gift tax. April 2019 saw the approval of a new spate of laws in the region of Andalusia which, for the first time in 40 years, allow owners to pass on their properties to their beneficiaries without having to pay hardly any tax, or no tax at all in most cases.
Be wary of anyone downplaying the importance of a LFO on off-plan property claiming it is unnecessary.
You’d do well to follow my draconian advice: do not to complete without a Licence of First Occupation.
Larraín Nesbitt Lawyers is a law firm specialized in conveyancing, taxation, inheritance and litigation. You can contact us by e-mail at [email protected], by completing our contact form or by telephone on (+34) 952 19 22 88.