The procedure when buying a property from a developer in Spain differs significantly from buying from a private party, which is why the subject requires its own article as the pitfalls vary meaningfully from one another.
The Deposit Contract
It is important to remember that, in most cases, you are paying a deposit on a property which does not even exist yet and will not be completed for a couple of years. New constructions have an inherent element of risk associated to them, entirely different to that of resale properties.
Developers or real estate agencies will often encourage you to sign a deposit contract, which takes the property off the market for a pre-agreed period of time (usually around 30 days). The deposit contract is a succinct document and the amount paid will be deducted from the final purchase price at completion.
It is highly recommended that you hire an independent conveyance lawyer from the outset (prior to signing a deposit contract), rather than the lawyers recommended by the developer, much less use their own lawyers. You must remember that it is the developer’s best interests they will be concerned with, not your own, and this can be an expensive mistake in the long run.
Furthermore, no deposit should be paid unless the developer or estate agency have supplied you with an approved building licence. If there is no building licence it could void the bank guarantees securing your stage payments, that is to say that you would lose all your money without any legal recourse.
In addition to all of this, reservation deposits are normally non-refundable unless the contract expressly states otherwise.
Finally, before buying any property in Spain you will need and NIE number (for more details on this and other general information on buying in Spain see our article “Conveyancing in Spain: If you a buyer or a seller be”).
Signing a Private Purchase Agreement
Before the period set out in the deposit contract is up you will be expected to sign a private purchase agreement.
By this stage your lawyer should have already supplied you with a report on title, so you are fully aware of the legal situation of the property you have decided on buying before signing the private contract. This report on title will allow your lawyer to ascertain whether:
- The developer is creditworthy
- The developer owns the land where the property is to be built
- A valid building licence has been issued by town hall
- There are any challenging planning issues surrounding the development
- The construction site complies with Spain’s Coastal Law
Ordinarily, on signing a private purchase agreement you are expected to make a down payment, as well as approximately 35% of the final sales price in the stage payments, which will be deducted from the final sales price upon completion. This amount of money is non-refundable, in the same way as the deposit.
It is of the utmost importance that the deposit and all stage payments should be secured by bank guarantees. This will safeguard your money in the event the development is not finished or should the developer file for bankruptcy.
Bear in mind that a developer cannot amend the delivery date of a property as agreed in the private contract without the buyer’s written authorisation.
The signing of the title deed before a Notary Public is what is referred to as completion, and it is when the balance owed on the property is paid off. If mortgage finance is required a second deed is also signed called a mortgage deed.
It is strongly advised never to complete the sale before having a copy of the Licence of First Occupation. Otherwise it will mean you are unable to take out a mortgage, unable to benefit from official utility supplies, unable to rent the property, potentially responsible for planning illegalities and reduced offers from future prospective buyers.
Employing an experienced and impartial lawyer pays for itself with all the money you stand to save by avoiding the most common pitfalls involved in buying a property in Spain.
Make sure you are assisted on your house-hunting by reputable experts (such as a long-established real estate agency, a reliable mortgage broker or a seasoned lawyer) to benefit most from the wide range of available bargains.
And finally, it is important you are not pressured into completing and take your time to fully assess the information you are being given.
Gabriella Mary Trussler Rowland
4408 Ilustre Colegio de Abogados de Almería