Law 20/2015 supposedly includes more safeguards for the buyer. While under the existing law Bank Guarantees have to be in place to guarantee the amounts paid in advance by buyers and a special account has to exist for depositing these amounts, as from the 1st January 2016 the guarantees will now have to cover not only the advance payments, but the taxes and legal interest as well, which is indeed an improvement, because taxes were not previously included.
Another important change is that made to the Building Law and the putting in place of the protection of the amounts paid on account/in advance from the date on which the building license (planning permission) is granted, whereas previously, there was no such time limit. The problem is that most of the contingencies that lead to delays in the construction of a property happen before the building permission is granted. Law 57/1968 did not state a date but referred to the need to have guarantees "before starting construction, in favour of the buyer." Under the previous legislation it was understood that the amounts paid on account had to always be guaranteed.
Under the new law, in order to be able to open a restricted bank account, the amounts that will be received by the promoter must be guaranteed in advance, so therefore, the building permits for the development must have already been obtained.
In our opinion, this law doesn’t protect buyers who pay amounts of money prior to the building permit being granted, which is a very common situation at the outset of any building project. The most recent case law has been very protective and zealous towards the consumer’s rights, holding the banks and insurance companies responsible to the buyer if they had not issued insurance or a guarantee, however, in practice, our recommendation would always be to not pay any amount in advance until:
- The developer has the building permit
- A bank guarantee or an insurance policy is issued
- The special bank account is opened
The new changes in the law also affect legal proceedings for claims against insurers or credit institutions which fail to act in an executive and efficient manner and making what would normally be an ordinary process into a longer, slower and more complex process, having had an initial, credible demand from the promoter, which, if not resolved satisfactorily within 30 days, would then open the door to a claim against the guarantor institution.
In addition, the deadline for making a claim was reduced from 15 to 2 years which seems a term not susceptible to disruption i.e. that would expire.
In any case, and even with the most pessimistic comments, we believe that strict compliance with the law should not cause any harm to home buyers. To achieve this, additional criteria for the responsibility of banks should be established. Before obtaining the building license, banks should be responsible together with the promoter for the amounts paid in to the restricted bank account and after the granting of the license for sums advanced, which should be guaranteed by the financial institution, that in turn, would release the funds in the restricted account as needed for construction.