Off-plan property bank guarantees and insurance policies form a fundamental part of purchasing a new property in Spain. Between them, they provide protection for your money should the developer fail to start construction or complete the property.
It is therefore essential that this protection is in place when you buy off-plan property in Spain. To do so, take professional advice from expert lawyers who will ensure that the bank guarantee or a surety insurance policy meets all legal requirements. The Costaluz Lawyers legal team includes such experts – get in touch with them now.
The information on this page outlines the main requirements for developers, bank guarantees and insurance policies. However, we have provided it for information purposes only, and it is no substitute for expert legal advice.
Read our comprehensive (and free!) guide to buying property in Spain
Property developers’ obligations
Property developers in Spain are obliged to meet the following conditions:
- Guarantee the refund of payments made by buyers plus legal interest through an insurance policy or bank guarantee issued by an insurance or financial institution with authorization to operate in Spain. This guarantee will come into play should the developer fail to start construction or complete the property.
- Property developers must take payments from buyers through financial entities in a specific account that must be entirely separate from any other accounts in the developer’s name. In turn, the financial entities must ensure an insurance policy or guarantee is in place before the developer opens the account.
- The guarantee covers all payments made by the buyers, including those made before approval of the building licence, all applicable taxes and legal interest. The maximum amount covered may not be less than the total.
Requirements for surety insurance as a guarantee
If the off-plan developer offers you a surety insurance policy as a guarantee for your payments, it must meet the following requisites:
- The policy must be for you as individual buyers and name the property you are buying.
- The policy must cover the total amount of pre-payments, including applicable taxes. This amount must also include legal interest from the day you make the first payment to the date of delivery of the completed property.
- The policy holder must be the developer, who is, in turn, responsible for paying for the insurance throughout the policy’s validity. The beneficiary of the policy is the buyer(s) named in the purchase contract.
- The policy issuer may not pass any of the holder’s obligations to the beneficiary. For example, the developer’s failure to pay for the policy is never a reason to oppose providing cover.
- The policy’s validity period must never be less than the scheduled time for construction and delivery of the property. If completion is delayed, the developer may extend the insurance policy and must inform you, the beneficiary.
- The insurance company may check the documentation and updates from the developer relating to the obligations contracted with the beneficiaries.
- If construction fails to start or complete within the agreed period, the beneficiary should claim a refund (including taxes and legal interest) from the developer through the correct channels. If they do not receive reimbursement within 30 days, they may claim the amounts from the insurance company. For their part, the insurer must refund the full amount within 30 days of receiving the request.
- No refund will be made for any amounts not paid by the beneficiary, even though they may be included in the total cover.
- The insurance company may claim refunds made to buyers from the developer.
- If the insurance company has refunded the buyer for an event covered by the policy, the developer may not sell the property to anyone else without having paid the insurance company the required amount.
Find out more about how to buy with complete peace of mind (aka our conveyancing services)
Requirements for a bank guarantee
If the off-plan developer offers you a bank guarantee, made sure it meets the following requirements:
- The guarantee must include the total amount of pre-payments, including applicable taxes. This amount must also include legal interest from the day you make the first payment to the date of delivery of the completed property.
- If construction fails to start or complete within the agreed period, the beneficiary should claim a refund (including taxes and legal interest) from the developer through the correct channels. If they do not receive reimbursement within 30 days, they may claim the amounts from the bank.
- If the developer fails to meet his obligations and you have not claimed a refund of pre-payments made, the guarantee comes to an end four years after the date the developer defaults.
Get professional advice before you buy
At Costaluz Lawyers, we are pioneers in Spain in defending off-plan buyers’ rights. Our legal team works tirelessly to ensure our clients only sign contracts that meet all legal requirements and defend their interests.
Given the complexity of off-plan law and developers’ propensity to skip some of their obligations, we’d advise always taking legal advice when buying a new property. If you’d like a consultation on how we can help you, contact us here or fill in the form below.
Maria Luisa Castro
