Know Your Rights in Spain

Helping the ex-pats community to have a safer stay

Buying off-plan gets more risky
Wednesday, July 22, 2015 @ 2:03 PM

Last 14th july the Spanish Parliament issued Law 20/2015 (published in the Official Gazzete wednesday 15h july 2015), which contains the new regulation for the insurance sector.

Of course, there would be lots to comment on the new insurance regulation, but this is not the aim of this forum, nor of this post. In fact, we would not mention Law 20/2015 in this blog, being the only reason to comment it the deep changes this Law implies for off-plan property buyers.

Hidden in an Additional Provision of the said Law 20/2015, we can find two relevant decissions that affect seriously the rights of the buyers:

1) Law 57/1968 is abolished

2) Law 38/1999 is modified, and the obbligatio to issue BGs or Insurance just comes since the building licence is issued to the promoters.

It seems the pressures from the Banking and Insurance Companies lobbies have been succesful because this means a significant cutting on buyers rights.

Law 57/1968, that was ratified by Law 38/1999, had operated as a Consumers' Protection regulation, protecting off-plan buyers from losing the monies paid in advance for the properties in case they weren't built or finished and/or the promoter came to insolvency.

Now, with Law 57/1968 out-of-game and Law 38/1999 modified, the protection to the off-plan buyers is limited, as far as now the obbligation to issue guarantees for the advanced payments comes out only since the building licence is granted.

For us it's really a nonsense regulation, as far as the Supreme Court is, in the latest judgments, highlighting the protective nature of Law 57/1968 and ruling in favour of the buyers' rights, and this new regulation comes to erase all the safeguarding system stated by that Law, pointed by the Highest Court as the lead to follow.

If this new regulation would have been in force within the latest years, buyers of such famous developments as Trampolin Hills, Fortuna Hills or Santa Ana del Monte would be absolutelyunprotected.

Fortunately, this new regulation just will operate since 1st january 2016, so the former off-plan buyers would be still under the protection of Law 57/1968 and Law 38/1999.

But, should you be interested in buying an off-plan property, you shouldn't make any payment until the building licence is granted to the promoters, unless you want to risk to be unprotected for the advance payment.

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5 Comments

Spanishpunter said:
Wednesday, July 22, 2015 @ 5:12 PM

In normal market conditions there is an element of common sense in the change as with the benefit of hindsight a buyer off plan should not contemplate anywhere in the world, not just in Spain, paying a deposit on a speculative development which doers not have building and planning approval: that applies in London as well as on the Coast of Spain!
However I do feel that buyers and their Lawyers should insist that a Bank Guarantee is handed to buyers simultaneously to handing over the money
Hopefully in the future the problems of the last 8 years or so with deposits and lack of bank guarantees will not be replicated as everyone involved in such sales will do their jobs properly and in accordance with the law

LucasAsociados said:
Wednesday, July 22, 2015 @ 7:20 PM

Thanks for your interesting comment.
We have to say that we always required guarantees against payments. That made us a bit "unpopular" amongst the agents as we were quite strict on this point. So that, we had not so much conveyancing work as some Firms (now disappeared), and have much now litigating against banks and promoters.
We hope everybody learnt from the experience os these years.

ads said:
Thursday, July 23, 2015 @ 1:28 PM

This ironically has the potential to bring negative attention to the Spanish real estate industry due to the fact that it will be perceived as a manipulative ploy by the Banks /insurers to lobby and remove law intended to protect against abusive malpractice. It only reinforces mistrust of financial institutions which is already at an alltime low.

I would like to know if this has been a legal oversight or if it was a cynical manipulative ploy by the Banks/Insurers/ Government?

This law was put in place to protect from abuse so why remove it? History has demonstrated that sadly you can't depend upon "hope", you have to have effective regulatory constraints in place to ensure compliance. To create an alternative law that already has a loophole open to abuse, begs the question as to its intent. Perhaps you can clarify.

James Front said:
Tuesday, December 13, 2016 @ 12:16 PM

I would say that depending on who you buy from and the due diligence you ensure is done, buying off plan is less risky than you may thing. Especially now going in to the new year. Building projects are a lot tighter and safe guarded. See more details about off plan in Marbella here: marbellapads.com/en/off-plan-and-new-homes/

LucasAsociados said:
Tuesday, December 13, 2016 @ 12:49 PM

Of course, with the right legal advice and a proper Due Diligence avoid any risk.

A serious independent solicitor will always advice not to give any money without a B/G, regardless it's or not compulsory to give it by the promoter.