Legal BUYING OFF-PLAN IN SPAIN: DO NOT TAKE ANY RISKS! FREQUENT PITFALLS TO BE AVOIDED AT ALL COSTS Posted on 7th June 2016 16 min read Dear Readers, clients and friends, You might have probably read on the news that Spain’s property market is in good shape and it continues to recover fast, amidst continuous amelioration in economic conditions. In fact, house prices are moderately falling, (Spanish house prices dropped 3.56% during the year to end-June 2015), and property demand has already picked up, thanks primarily to UK homebuyers. After a period of poor sales in 2007 and 2010, it is undoubtedly excellent news that foreign investors have started to return again to the Spanish property market since the crisis hit in 2008. In fact, all indicators confirm that UK property buyers will be leading the way in 2016. However, we are detecting that some developers and estate agents, are still using the same dubious tricks and bad practices, that ultimately lead to all those horrible cases of land grab, demolition orders, illegal properties never built, etc, that have sadly taken place in Spain over the past few years. As a matter of fact, we are dealing with several court cases where some unscrupulous builders and developers have tried to rip off innocent foreign buyers. Likewise, we keep noticing that many UK buyers still blindly pay high deposits up front to the agents, but without double checking carefully the legal situation of the property in advance, and without signing a proper and well-written purchase agreement. Buying off-plan property in Spain, has undoubtedly significant advantages (i.e., important discounts or premiums compared to a key-ready resale dwelling), but it also involves potential risks. Therefore, please find below some useful tips that will prevent that your dream of living in Spain might turn into a real nightmare: I.- Check the ownership and any charges, encumbrances or liens registered on the “land registry certificate” of the property as well as planning permission. Searches will determine whether there might be any hidden charges or encumbrances over the title of the property that might need to be addressed prior to signing any purchase contract. All the property searches and investigations must be thoroughly performed to identify potential legal property issues, before any deposit is paid in advance to the Developer or agent. II. Verify that the purchase agreement is 100% legal. Many unscrupulous Builders might try to mislead you into signing a purchase contract containing abusive clauses. Do not fall into the trap! Likewise, the contract must include a comprehensive description of the property, land registry details, vendor’s details, plans of the property as well as an accurate outline description of the materials, fixtures and fittings, etc. On the other hand, time is of the essence when buying off-plan. Consequently, the contract must state a clear and specific completion’s date, not a generic or vague one. This must always be considered as an essential term or condition of the purchase contract, in case the Builder might fail to deliver the dwelling in the stipulated deadline. III. Keep a careful record of all advanced stage payments, and verify that all the money paid to the Developer is allocated in a special bank account, which is mandatory in accordance to the Act 57/68. IV. Request for ORIGINAL BANK GUARANTEE CERTIFICATES on all the deposits paid, including the initial reservation deposit as well. A bank guarantee is truly a document of crucial relevance for off-plan purchasers, (they are not however applicable to resale or self-Built Properties). Its basic aim is to secure the stage payments in off-plan properties, should the developer for example, fail to complete the development on time, or might file for bankruptcy, etc. We cannot sufficiently emphasize the importance of attaining a bank guarantee by all off-plan purchasers. In fact our Firm has managed to successfully recover for many clients, their deposits in full plus legal interests, thanks to the fact that the bank issued bank guarantees to each single individual buyer, securing the full amount of deposits paid to the developers. Consequently, do never accept a “generic collective bank guarantee document”, because at the event of dispute, it will be much more difficult to claim the money back from the bank. On the other hand, the bank guarantees should only be issued by a Spanish bank, or alternatively by a Spanish insurance company fully registered and regulated under the Spanish law. Be extremely careful with this requirement, because we have recently detected a real case of a new luxury off-plan development in Alicante, where a well-known developer is currently issuing guarantee’s documents issued by an unregulated Canadian company. This is extremely risky, because if at the worst scenario, the developer might default, it will be highly unlikely for the off-plan purchasers to get their money back, from a dubious scam investment scheme or “fly-by-night” operation. Also, the bank guarantees will be valid until the town hall grants the dwelling the Licence of First Occupation. This is explained more fully in the next paragraph. V. Do not sign the title Deed at the Notary, until the Developer gives you the 10-year Building Guarantee as well as the Licence of First occupation. Some developers might exert pressure on you by compelling you to sign the title deed upon reception of the Certificate of End of Construction (CEC) instead of the Licence of First Occupation. (LFO) Beware of this illegal practice, as it might have dire consequences for you in the future. (Impossibility to hire the utility bills, planning permission’s infractions, pending unpaid urbanization charges, etc, etc). Bear in mind that the CEC, is just a private certificate produced by the own architect’s developer, which does not imply that the development might be deemed as legal. Remember, only the LFO does, because it is always issued “officially” by the local town hall’s Planning Department. In conclusion, for clients buying off-plan (or resale property) in Spain, it is absolutely crucial to put your trust only in an independent Solicitor, like our Firm, fully conversant on all aspects of the property conveyancing’s process. “Ricor Abogados&Solicitors” has a strong legal team with proven extensive experience in all areas of law. We run an independent and cost effective Law Firm helping clients across a range of legal services in Spain, from corporate and individual civil&criminal litigation, property conveyance, inheritance, to business transactions, we continually provide complete and “home-made” tailored solutions to individuals and businesses alike. Our high rate of success is subsequently explained by the fact that after conducting a background legal investigation about the property, we invariably prepare for our clients a written comprehensive LEGAL REPORT, which will contain accurate legal information about the legal situation of the dwelling. Our Legal Reports offer independent and transparent advice, and we ensure that relevant searches are rigorously carried out at the local town hall and land registry, tracking all property records and investigating any possible local urbanization plans affecting the property. In short, our Reports will confirm whether the property might be subject to any current or known future urbanization plans or licenses issued by government, or affected by any hidden charges or encumbrances. Likewise, we can also provide advice on contracts and Spanish Wills, and/or assist with the transfer of the funds to your new Spanish account. How taxes operate and property registration will also be covered in our services. To sum up, our fully comprehensive legal reports have fortunately saved many of our clients from being the victims of frauds and as a result, our clients have been able to save thousand of euros in protracted litigation. If you kindly check our testimonials section of our website www.ricorbogados.com, you will find plenty of testimonials form real clients who put their trust in our Firm and they are all now all extremely grateful to our Firm for the excellent work and protection offered, which fills us with a lot of professional proud. Finally, we would like-if we may- to stress the point that buying a property is a serious matter. Considering how much is at stake (all the life savings of many private investors) and the huge number of swindles and frauds committed by unreliable builders and agents in Spain over the past few years, do not be rushed into paying a deposit up front, just because the agent or developer is exerting a huge pressure on you. Bear in mind that when purchasing a property in Spain, you are granted with inalienable rights that cannot be waived by the vendor party in any circumstance. Remember that time is on your side and to protect yourself adequately, ALWAYS seek the help provided by a bilingual regulated Lawyer, who should be totally independent of the local vendor or property developer, like Ricor Solicitors&Abogados! Thank you very much again for your attention and we look forward to giving you a personalized service and the benefit of a high quality and cost effective advice. Yours sincerely, Mr. Oscar Ricor Morales. “NON-PRACTISING ENGLISH SOLICITOR IN ENGLAND AND WALES”, under the “Solicitors Regulation Authority” (SRA) SRA number 519196 and practicing Spanish Solicitor under the “Colegio de Abogados de Orihuela”.