Buying an off-plan apartment

Hello,

I am reaching out to see if anyone has advice/experience in buying an off-plan property in Spain.

I live in Andalucia and I am a permanent (fiscal) resident in Spain. I have my eye on an off-plan construction that is currently 30% sold, with a move-in date of late 2026/early 2027.

Some questions that spring to mind are:

1. Did you deal directly with the promoter or use your own estate agent?
2. Is it common to negotiate on an off-plan property or will the promoter normally wait for someone to come along who will pay full asking? (as in this case, there is still plenty of time for the promoter to sell it before it is ready for occupation).
3. Did you use a lawyer/solicitor to assist with checking the contract paperwork, licenses, planning permission, bank guarantee (aval bancario), etc?
4. If using a lawyer/solicitor, did you agree the fee to be based on a % of the purchase price or a fixed cost? What is a reasonable amount to expect to pay for a lawyer/solicitor when there is no mortgage involved?

Thanks in advance for any advice or comments.

1. The builder or promoter

2. There was no leeway on price when we bought but that was in 2007

3. Use an independent solicitor. Many stories of property being builty on illegal land, debts and utilities not paid etc. An independent solicitor woul be necessary to check all these things out. 

4. Ours was 1% of the cost.

As advised back in 2019....

A new law Ley20/2015 replaced Ley 57/68 for offplan properties and this law came into force as from the first of January 2016. So all those purchasing off plan property after that date must remain aware of the following.

The change in the law is that bank guarantees are only valid as from the time a developer attains a Building Licence from the town hall. Only as from that moment onwards are bank guarantees valid.

Many developers try to allay purchasers fears claiming they have an application for a Building Licence; well, that isn’t enough. Unless a developer has attained a Building Licence, all the money you have paid towards your new property is unsecured.

Should the developer go bankrupt or the development become stalled (for whatever reason) you will lose ALL your money. Even if you have been issued with bank guarantees rubber stamped by a bank, they are totally useless unless a Building Licence has been issued.

A conveyancing lawyer must therefore advise his client not to pay any deposit before a Building Licence is issued to a developer. 

To repeat, any interim payment you make prior to its granting will therefore be unsecured and you will be left financially exposed with a risk of losing your deposits. It must be stressed that deposits are NOT covered by a bank guarantee or insurance policy prior to attaining a Building Licence under this new legislation.

Buyer beware!

Thanks ads (and mariedav) for your comments.

I have spent the last few days looking into the new build/developer. I have contracted a conveyancing lawyer who is currently looking into it and will be advising me.

The building permit is expected to be granted at the end of this year. Naturally, the developer/promoter wants a deposit (€6,600) to reserve the apartment. It's quite a unique build (in an old area of the city) and therefore 70% (12 units) has already been reserved. I assume that the 12 people who have already reserved their units have weighed up the risks and taken the plunge. Also, we (lawyer and I) have been told that the deposit is 100% refundable (for any reason) up until the signing of the purchase contract (end of this year/early next year). We would have to make sure that was written in the reservation contract though.

In situations like this (pre-building permit), do developers sometimes get their own insurance policy to cover the period before being granted a building permit so they can assure the people paying deposits that their money is safe? Or will no-one insure a developer pre-building permit? I wonder if I could offer a lower deposit, perhaps €3,000 (my reasons being that there is no protection on this money)? 

By the way, I have asked my lawyer the above questions (amongst others) and I am waiting to hear back.

I'd be happy to hear any comments/thoughts from the forum users too though :)

If you are very lucky you might get what you are paying for in the glossy brochure.. but unfortunately Spanish Builders  / property developers have a history of going into administration before the project is finished.. speaking of past experience I personally would not advise anyone to buy off plan. 

Other important aspects to consider for those still wishing to buy offplan, despite the forewarnings....

In general, the advice is not to complete on off-plan property if your developer has not attained a Licence of First Occupation.

Definition

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.

An LFO allows off-plan purchasers to dwell in a property legally.

The Licence of First Occupation (LFO) is important for purchasing a property in Spain for two reasons:

1. Its granting means the developer has built the dwelling complying fully with the original Town Hall’s Building Licence (BL) as well as complying with all Planning laws. The inspection to grant this Licence is carried out by Town Hall’s chartered technicians who certify that the dwelling complies fully with Health, Access, Security, Planning and Construction Laws and is deemed as apt for human habitation.
2. It is also required by the property’s owner to have access to the official utilities (water, electricity, gas and telecommunications). Spanish law requires the granting of the LFO to hook up the dwelling to the supply grid. Although in some parts of Spain there have been cases of supply companies waiving this and connecting you without the said licence. In such cases the only requirement was showing the application of having requested the LFO from the Town Hall.

Banks normally require the LFO before they consider granting a mortgage loan against the property. The only exception would be the developer’s bank which has already underwritten the whole development and is able to offer a mortgage loan without it because they are eager to spread the developer’s default risk. Also, taking on the mortgage offered by the developer’s bank may have advantages as it reduces the legal set-up expenses borne by the prospective purchaser.

What are the Associated Problems of Completing on a Property without a LFO?

Although it is legal to complete in such a case, it has numerous legal and practical drawbacks which ought to be highlighted by your lawyer to aid you in making an informed decision. To name a few:

• Primarily, you will not be able to take out a mortgage on the property or remortgage it – if needed be- by any bank other than the developer’s.
• You will not be able to benefit from the official utility supplies; only from the developer’s supplies (water and electricity) with all the associated problems this has, namely that you may be cut off at any time as it is the developer who is paying for it and if they go into receivership you will be shut off. Besides, the site supply electricity doesn’t have the same strength and power surges are fairly common on simultaneously turning on various electrical appliances such as air conditioning.
• Any future prospective purchaser, or their lawyer, will haggle with you and only pay a lower purchase price if you lack a LFO in a newly built resale. In a resale, the purchasers in turn will undergo the same problems to secure finance by means of a mortgage loan. A lack of a LFO implies that you are actually reducing the base of potential purchasers for your resale.
• If there are planning issues, the Town Hall can set a charge against the property and you as the new owner of an off-plan –and not the developer- may be held liable to pay the fine for the planning illegality.
• Needless to say, you cannot let a property legally without a LFO.

-------------------------------------------

Also.... are you expected to pay additional instalments during the program of build?

Are these amounts fully protected in the event of developer insolvency/ administration? ( as rightly forewarned by Windtalker).

It would appear that there are still instances where Banks are contesting Bank Guarantees as they are challenging consumer law in instances where purchaser's "investor status" is being investigated. Suffice to say this also needs to be taken into consideration from the outset by good accredited INDEPENDENT conveyancing lawyers who should be able to further explain the many risks associated with offplan purchase. Education appears all in this scenario where all too many fail to comprehend the ongoing risks associated with offplan purchase. 

As an aside, it is important to recognise that sadly in the event of developer insolvency Spanish Banks continue to challenge Bank Guarantees at every opportunity, which ironically were intended to protect in the event of developer insolvency. During this last decade and beyond in that process they have sadly undermined not only the Spanish Justice system and trust in the Spanish Banking system's compliance, but also the rule of law. 
 

Don't do it 

Agree with the very sound advice re...DONT DO IT, atvleast until building permission in place.

As an aside HOW do you know , and PROOF thereof, that 70% of units have been reserved ?

Thank you so much 

doodle jump

Thanks all for your input/comments.

Yes, I agree with everything in this article, and I just want to say that it is a very nice and helpful piece. I will be sure to read more of your blog io games
 

FYI

The source of information were these two copyrighted articles by  Raymundo Larrain Nesbitt

Law 20/2015: Important new bank-guarantee legislation explained for offplan buyers – 21st September 2015

Licence of First Occupation – 8^th September 2018

Plus Maria de Castro has written all manner of other educative articles associated with BG law,  tax laws etc on EOS.... and answered many questions over the years on the EOS website. 

https://www.eyeonspain.com/blogs/costaluz.aspx

It's probably important to recognise that Spanish Law is highly procedural and complex so these educative articles are very helpful to at least try to grasp the complexities and procedures and thereafter put them into context relative to specific circumstance.

Suffice to say they are time consuming to develop and deserve recognition, and I for one have been immensely grateful for their endeavours to educate and where relevant identify ongoing legal changes or challenges that can unwittingly leave consumers at risk.

Likewise it is important to recognise and question the background detail relating to decades of delays in the Spanish administrative and legal system in order to put into context how the financial institutions and their legal teams have overloaded the Spanish Justice System via proliferation of appeals relating to BG law, which in turn have delayed SC doctrine and on occasion appear to have challenged the rule of law ( timely justice).

It would be so useful if the Bar Associations could recognise and effectively support their legal fraternity ( which in due course assist consumers) with regard to enhancing accountability by those who have undermined the Spanish legal system in this way.

 But consumers also need to support those trusted legal professionals who go the extra mile to educate and through their endeavours enhance accountability and strive for a Justice system fit for purpose for all our sakes. 

Thank you for sharing this valuable information! It’s so important for buyers, especially those considering off-plan purchases, to be well-informed about the intricacies of Spanish law. The articles by Raymundo Larrain Nesbitt and Maria de Castro have indeed been instrumental in educating consumers on complex legal matters like BG law and tax laws. I completely agree that their efforts deserve recognition, especially in a legal system as procedural and sometimes challenging as Spain’s.

The delays in the Spanish administrative and legal system are a real concern, and it’s clear that financial institutions have contributed to this by overloading the system with appeals. It’s crucial that Bar Associations step up to support their legal fraternity, which would ultimately benefit consumers by enhancing accountability.

As buyers, we should also be proactive in supporting trusted legal professionals who go above and beyond to educate us and fight for a more efficient justice system. I can speak from experience—when I was looking for the best real estate agents in Marbella, I made sure to consult legal experts who had a deep understanding of the local property laws to ensure my investment was protected.

I appreciate your insights and hope that more buyers become aware of the importance of staying informed and supporting professionals who truly work in their best interests.