Home News Legal BUYING OFF-PLAN IN SPAIN: DO NOT TAKE ANY RISKS! FREQUENT PITFALLS TO BE AVOIDED AT ALL COSTS

BUYING OFF-PLAN IN SPAIN: DO NOT TAKE ANY RISKS! FREQUENT PITFALLS TO BE AVOIDED AT ALL COSTS

Spain has a unique appeal to foreigners. With its enviable climate and year round sunshine, coupled with the relaxed, easy going Spanish life style, makes it quite tempting. But, if you have the intention of moving here to live, you need to know all that is necessary so that your dreams do not turn into nightmares. Spain, as we know, is suffering a property crisis, we do not know its roots but it runs very deep. 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.

For example, we have recently saved a very good client of our Firm, from a ruinous investment regarding a PROPERTY located in the MURCIA PROVINCE, which was AFFECTED BY A VERY SERIOUS URBANIZATION CHARGE (of more than 70.000 Euros).
Luckily, we prevented on time the Developer to commit a serious FRAUD&SWINDLE against our clients. In fact, if they had not hired our services at the outset of the case and they had subsequently relied on the misleading opinion given by the developer and agent, our clients would have ended up buying a property affected by a huge encumbrance that it would have turned their dream of retiring in Spain into a real nightmare. ( please see below real photograph of the certificated issued by the town hall confirming the urbanization charge).

Moreover, 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 foreign 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.

URBAN LAW IN SPAIN IS CONFUSING AND CAN BE HARSH

Why so confusing? There are in general three tears of legislation. A national legislation that covers the whole of Spain, then each autonomous region (county council) also as its own legislation, and lastly, each local town hall. Why so harsh? If faced with a violation or infringement of urban law, (which many foreign buyers have fallen victim to), national, regional and local legislation is not easy to combat all at the same time. Conviction or retribution for an infringement is a time consuming process. Many times, local government officials hold the buyers/owners accountable for the infringements, fines and/or demolitions, without considering that the buyers purchased in good faith, or that the buyers are the ones being defrauded by an unscrupulous builder.

SPAIN’S PENAL LAW FAVORS THE ACTUAL CRIME AGAINST URBAN LAW AND DOES NOT PROTECT THOSE THAT ARE VICTIMS OF IT!

Spain has this problem because urban and property crimes committed are difficult to prove, and the fines/penalties against the offenders are low.

This factor acts as an incentive for corrupt and unscrupulous constructors to continue with their illegal activities and defraud innocent foreign residents with almost total impunity. Taking the above into consideration, the question is: even though this problem clearly exists, should one still take legal action (denounce) against urban fraud? The answer is: YES ALWAYS, but better yet, know what to look for in order to avoid making those critical mistakes in the first place.

PROPERTY DEVELOPERS IN SPAIN GENERALLY WORK AGAINST THE PURCHASERS BY NOT MEETING THEIR LEGAL OBLIGATIONS

Without legal representation at the onset to negotiate your rights as a buyer, you could fall shot of securing the following important terms and agreements on the title deeds and contracts:

  • Guarantee of deposit and refunds by developers who default on their time of completion.
  • Guarantee of imdemnization for possible damage to the premises.
  • Building to code regulations as stated by law, concerning noise; humidity/dampness; thermal insulation, handicap access and for elderly people, etc…
  • Charging the buyer for builder’s electricity & water supply. This is prohibited by law.
  • Providing a license for the work and a license for first occupancy. Without these, the buyer will not be able to contract electricity, water & gas supply.
  • Signing contracts that are previously written with abusive clauses against the buyers.
  • The use of solicitors that are on the developers payroll, obviously not having the buyers interest as a priority making proof of payment more difficult.
  • Handing over of the property without being completed, faults that affect habitability of the house or the whole urbanization.
  • Paying for a multitude of extra charges including damage repair, finishing incomplete work, legal action, contracts, disputes and reclamations.

CRITICAL MISTAKES TO AVOID MAKING:

Example 1.- PURCHASING A NEWLY BUILT RURAL HOUSE ON RUSTIC LAND WITH LESS THAN 10.000 SQUARE METERS

Don’t do it, as the property will be ILLEGAL! The Town Hall can impose high fines because of the urban code violations, and eventual demolition order, to which the buyer, having bought the property even in good faith is held fully accountable.

  • The Town hall will deny the license of first occupancy (Licencia de Primera Ocupación).
  • The Town Hall may not only opt to possibly demolish the property but make you pay the fines and the costs of demolishment as well.
  • They will deny your registration on to the padron (similar to the electoral roll). The padron is an extremely important document to have in Spain. Without your padron, you will not be able to transfer your social security benefits, register your children in schools, purchase a vehicle, etc…
  • Possible re-classification or land grab: If the land is Rustic (country land) and it is decided by the town hall to re-classify the land as an urbanization, then the buyers will be obliged to pay the costs of this procedure. These costs will be registered as debt against the property with the land registry until paid. If the debt remains unpaid, a charge can be put on the property and forced sale is a possibility.
  • You will be UNABLE to contract services with the companies supplying electricity and water
  • Problems with the legally registered land owner: Those rustic lands that are passed on from fathers to sons working in agriculture will have problems with the Land Registry Office. They are often missing registration on one or some of the owners. The size of the land is Often times incorrect, and the square meters declared are wrong as the land registered may have more or less area than has actually been sold or, there is no record of the land having ever been registered with the Land Registry.

Example 2.- PURCHASING A RUSTIC PROPERTY APPARENTLY LEGAL BUT LOCATED IN AN AREA AFFECTED BY FLOODING CONDITION

If you purchase a property and plan to build, the town hall can declare that it is in “floodable area” even though it has more than 10.000 square metres. A little known fact that pertains to the Comunidad Valenciana in particular, is that the area is vulnerable to periodical serious floods. There is a law that defines the level of flood danger in each area, which also specifies what this land may or may not be used for, to avoid deaths and damage. If you are in this situation, you must take all the necessary precautions before paying any money to the seller.

In short, 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.

FIVE STEPS YOU SHOULD CONSIDER TAKING:

Therefore, please find below some useful tips that will prevent that your dream of living in Spain might turn into a real nightmare:

1º.- 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.

2º.- 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.

3º.- 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.

4º.- 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.

5º.- 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 always prepare for all our clients a written comprehensive LEGAL REPORT, ( please see below a real sample pg Nº1 out of 7), which would contain accurate legal information about the legal situation of the dwelling. Our Legal Reports offer independent, clear and accurate 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 land grab problem, hidden charges or encumbrances.

Likewise, we will also provide you expert advice on Spanish Wills, and we will 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.englishsolicitorinspain.com, you will find plenty of testimonials form real clients who put their trust in our Firm and they are now all extremely grateful to our Firm for the excellent work and protection offered, which fills us with a lot of professional pride.

Finally, we would like-if we may- to stress the point that buying a property in Spain 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 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,

Oscar Ricor. Solicitor

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BUYING OFF-PLAN IN SPAIN: DO NOT TAKE ANY RISKS! FREQUENT PITFALLS TO BE AVOIDED AT ALL COSTS

Spain has a unique appeal to foreigners. With its enviable climate and year-round sunshine…