With the new construction boom in Spain, in recent years the number of real estate purchases has increased. The main risk for the buyer in this type of transaction is the possible loss of his advance payments to the developer towards the price of the real estate property. What happens if, once the buyer has paid money to the developer, the construction does not start, or does not finish, or is not finished by the agreed deadline?
To clarify this situation, we must turn to Law 38/1999, on the Regulation of Building, which was modified in 2016, through Law 20/2015, on the management, supervision and solvency of insurance entities. This Law establishes specific obligations for the promoters to safeguard the rights of the buyers in relation to advance payments to promotors.
What are the obligations of the promoter?
A special bank account: the promoter must deposit any payments towards the total real estate price in a special bank account, which is available only for the purpose of construction.
Guarantee: the promoter must guarantee the return of the money paid by the buyer plus the legal interest in the event that the construction does not start or is not finished within the period agreed for the delivery of the buyer’s home.
How should the promoter guarantee the return of the amounts received?
There are two alternative types of guarantee to be formalized by the developer:
Solidarity guarantee: issued by authorized credit entities.
Bond insurance contract: issued by authorized insurance entities.
When do the promotor’s obligations begin?
These obligations begin from the moment the promotor obtains the building license at the corresponding Town Hall.
When is the guarantee cancelled?
It is cancelled with the issuance of the Certificate of Habitability, first occupation license or other equivalent document that authorizes the occupation of the home by the buyer.
If the developer complies with these aforementioned obligations and the buyer exercises his rights in claiming the guarantees to which he is entitled, then the degree of risk regarding the loss of buyer`s advance payments to the developer diminishes or disappears. Logically, this provides greater security for all parties in the transaction.
At Martí & Associats, we advise promoters and buyers in all aspects of the sale of real estate under construction, so that both parties can carry out their transactions with maximum security and the best advice.
