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Extra risks buying property in Spain off plan

risks with the off plan property for sale in Spain
Changes in the Spanish Building Act

The amendment of the Spanish Building Act (Ley de Ordenación de la Edificación) threatens to have a great significance for those who decide to buy an off plan property in Spain since next year. (Take a look to the other possible hidden risks buying a property in Spain)

The publication of the Act on July 2015 has introduced a small change in the rules meaning that, since January 2016, any amount that a home buyer pays before the house developer or the cooperative have obtained the building license will not be guaranteed by law.

The new rule says exactly this:

"... 1. Natural and legal persons who promote the construction of all types of housing, including those made under a community of owners or cooperative society, which seeks to obtain deliveries of money from purchasers for its construction, must meet the following conditions :

a) Guarantee, since obtaining the building permit, the return of the amounts paid plus statutory interest, through an insurance contract signed with insurance companies authorized to operate in Spain, or through solidarity guarantee issued by credit institutions duly authorized , in the event that construction does not start or not reach a successful conclusion by the agreed deadline for the delivery of the property.

What means that in case the buyer advances money before the building permit is granted, since the beginning of 2016, has no insurance or the ability to claim the credit institution.

This change has a huge impact for housing developers and cooperatives since, as pointed out Juan Antonio Gomez-Pintado, president of the Association of Developers and Constructors of Spain (APCE),

"The housing developers never perceive advance payments until we have the building permit. We can not sell until the license is granted. You can reserve the property, that is, give a small amount to seal the purchase commitment, but not receive advancing money until the building permit exists" He says, while recognizing that this change "cause a major problem for cooperatives."

In any case, this change affects to the early buyers and to the cooperative members because only mandates the existence of guarantees or insurance since the moment of obtaining building permit, being precisely in this preliminary stage where the greatest number of accidents occurs. This means that the buyer, whether anticipates money before the building license is granted, is no longer neither covered by an insurance nor has the possibility of claiming the credit institution for its lack, this way the consumer will be more vulnerable.

Therefore, any amount that anticipates by buyer since the entry into force of this amendment, the January 1st, 2016, will be without coverage if do not exist a prior building permit.

So far the perception of sums advanced, by developers and cooperative managers, was obliged to be covered by an insurance compensating for breach of contract, as until the end of 2015 dictates the Act 38/1999 regulating the construction in Spain.

Problems for housing cooperatives

This change means, apparently, a problem for housing cooperatives, very active during this crisis because, unlike the developers, it is common for members of cooperatives give in advance money to purchase the land on which their future homes will rise. Amounts which since 2016 will no longer be insured. So far, however, they were covered by Act 57/1968 which regulated this matter.

The reality has shown in the past years that not all the housing developers in Spain had the mandatory insurance covering the money given in advance. However recent rulings from the Spanish Courts have condemned the banks who financed those developments to refund the amounts advanced when the works were not finished causing a breach in the contract.

With this recent change in the Spanish Building Act, the liability of the banks disappears for the amounts given in advance to the housing developer before having the construction permit.

Therefore, before delivering any amount buying a property off plan in Spain, seek legal advice and check that building permits are granted and your money guaranteed.

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