Marbella: Thinking of buying “Off Plan”?

Gecko Towers

There is a simple truth is that Marbella property is selling – and, I am told, selling fast. With the decline in available stock more developers are entering the market offering new “off plan” prospects.

For “off plan” read “yet to be constructed” but this expression may also mean “yet to be licensed”. Here lies an important distinction.

Recent disappointing experiences of certain clients buying an apartment “off-plan” has prompted me to visit the topic with the aim of assisting you to avoid any stand-off between the developer and, you, their buying client.

Just to be clear, I will variously use the expressions Developer, Promoter and Sales Agent of the Promoter. The Developer is the party responsible for drawing up the plans, funding, building and obtaining all of the licenses required to build the development – be it an apartment block, a street of town houses or a complex of a villas. The Promoter is essentially a marketing agent tasked with attracting Estate Agents and their buying clients to view the Developer’s plans. The Sales Agent of the Promoter is usually the first person you meet when taken to the location of the development by your Estate Agent.

This is a simple Checklist for the purchase of a not yet completed Spanish property.

1. Ensure there’s no conflict of interest between your selected Spanish Lawyer (Abogado) retained to represent your best interests and the Developer, Promoter and/or its Sales Agent. It’s vital that you are given comfort that your Abogado will solely represent your best interests, with transparency and vigour.

2. Ask for a translation of Private Purchase Contract (PPC) into your mother tongue – which may carry an additional costs – and an explanation of terms – particularly terms relating to the existence or not of planning permission (Town Hall licenses etc) to build the development/property. Ask your Abogado to conduct basic due diligence on the developer, promoter and development to ensure, as best they can, that they are currently financially sound and are continuing construction.

3. Ask whether any of the terms of the PPC can be negotiated? This is not a given. Some developers will argue that they want all of their buying clients to sign the same PPC, so they may be unwilling to make any material changes. The Promoter may be ambivalent as they may have other willing buyers for the same unit. If there can be some negotiation this is potentially a vital step in your protection as you may be able to secure concessions on how and when the total purchase price for the property being bought is paid over. Again, I must stress this is not a given and many refuse to engage in any negotiations despite your Abogado’s best efforts.

There will be typical stage payments that are often due following the delivery of various stage reviews. The Developer’s financier will release funds to continue building upon the reports of the Developer’s Architect. To sustain their funding model it will be usual for the Developer to call upon, you, the Buyer, for next stage payments. These will typically be X% at the outset, X% at a certain stages of the works and X% on completion.

Again, your Abogado’s assistance in resolving the precise wording of the PPC, may well be hugely important. We understand that the “off plan” process may take anything up to a couple of years to complete. It may be that at the beginning of the process that you possess the full funds for your purchase plus the total of the buying costs. What you may not have foreseen is that when called upon to make later payments your resources may have dried up and you simply cannot continue to adhere to the payment schedule. Here the wording of the PPC is critical. Could you afford to forfeit the amounts invested thus far? Of course, not.

So what’s the alternative. Prior to signing the PPC you need to be very clear on what you could do in the event that you cannot complete the payment schedule. To reduce the worry about this issue your Estate Agent and your Abogado could go into bat and suggest acceptable wording that should you find yourself in the position outlined that you should be able to sell on your “option” to purchase the unit you have selected to an acceptable third party who will take over and hopefully complete your obligations under the PPC.

It is not automatic or guaranteed that the Developer will accept such a provision as proposed by your Estate Agent or Abogado and the argument that is often made is that if the Developer still has units to sell they don’t want those holding the “options” to purchase units to be able to offer their prospects for sale, quite possibly in competition with the Developer. That said, it is vital you get the opportunity to explore these solutions before you commit to purchase.

Additionally, the PPC may say that the Developer is not obliged to acknowledge any third party as the “Buyer” and thereby will seek to frustrate your plans to sell on. It really is worth getting your Abogado to double check and clarify with the Developer if you have this in mind or if there’s a chance that your circumstances may materially change over the time-frame of construction.

Recent debate has focussed on the final stage and the process of snagging. It is clear that if the buyer has paid over all of the sums due under the PPC, up to and including “completion”, access for a thorough review of the property’s final condition and an expectation that the developer with remedy any “snagging” issues may be severely compromised. The issue is that the Buyer may have lost strength in negotiation if they no longer owe any of the purchase monies to the Developer. A more an unscrupulous Developer – and they are certainly not all branded the same – may simply ignore a reasonable snagging list as there is no longer any real incentive to keeping the customer satisfied.

A viable remedy to this may be to explore an “escrow arrangement” whereby the parties agree that a bank account should be nominated as the “escrow account” – over which, hopefully, your Abogado’s firm should have joint control with developer’s advisor – and into which say 5% or 10% of the completion funds should be lodged. This account should remain blocked until the parties agree that all the snagging issues have been satisfactorily completed. Again, in the current climate, this is not something that a developer is compelled to agree to. It will certainly require persistence, and both parties acting reasonably, but success is more likely where the buyer’s hand in negotiation is stronger.

A buyer simply refusing to complete based on the property not yet being deliverable or in an unfit state to be delivered may bring its own problems including the risk of already paid over funds being forfeited as per the terms of the PPC.

4. Are all the particular “deals” offered by the sales agent specified in detail in PPC? These may include additional equipment over and above the usual specification, particular wall, bathroom fittings or floor finishes, perhaps a furniture pack or a sports club membership.

5. I am told that the Spanish law requires that your deposit and stage payments are guaranteed – such surety is often provided by a financing bank – so tend to be called “Bank Guarantees”. Ask your Abogado – and make sure he/she receives – the original Bank Guarantee bearing the Developer’s and bank’s signature.

Also ask your Abogado to check and advise when, and if, the Bank Guarantees expire? Does the Bank Guarantee need to be renewed at any point either because it will expire before completion of the building or because of further stage payments by you? Will the Bank Guarantee expire “on completion of the building phase” even though the required “Licence of First Habitation” and/or “Fin d’Obra” may have not yet been granted?

6. Double check plot/apartment numbers as stated correctly on the PPC.

7. Check to see whether your deposit due to be paid under the PPC is refundable. If so, in what circumstances will it be repaid? What if the property doesn’t receive full building and pre-completion licenses? What happens if the property takes an excessively long time to be built? If the deposit is refundable what rate of interest will be payable on your funds paid over to the Developer/Promoter in such circumstances?

8. Check to see who is the receiving party of your deposit? Is it the Promoter’s Sales Agent, for example? If so, check that your Abogado obtains confirmation from the Developer/Promoter that they have your funds or at least they are in control of your funds.

9. Following your signature of the PPC check that your Abogado has the original copy of the PPC bearing the Developer’s original signature.

10. Take photocopies of all important documents and keep them handy at home.

Naturally, buying an “off-plan” property means that until it’s constructed and properly completed you wont get to enjoy your chosen property. That said, many can attest to the process of an “off-plan” purchase delivering a property that is not only new and finished to your taste, but also compares very well in terms of value with neighbouring and comparable properties. By getting in early the buyer of an “off-plan” property is paying “today’s prices” for a property that won’t be finished for circa 12 -24 months by which time values will, hopefully, have increased and building costs will almost certainly have risen.

It’s clear that there is only so much viable development land for residential use. However, traveling along the Costa del Sol from Sotogrande in the West towards Marbella, via Punta Chullera – overlooking the beach, to Casares, into Estepona – mountain and beach – to the new Golden Mile to Atalaya, through to San Pedro de Alcantara and onwards to Marbella and beyond there are many, many new developments springing up to satisfy the almost insatiable demand for homes. If you’ve decided now’s the right time, let us become part of your team to realize your ambitions.

Should you be interested in discussing the process involved in buying a property in the Marbella region, we would be delighted to assist you. Please contact me to discuss your precise requirements.

Please note that our posts are for general interest. There is no substitute for proper advice tailored to your specific circumstances as provided by a qualified Abogado who is experienced in the application of the Spanish Law.

Nothing contained in this article should be seen or taken as the writer or the publisher providing legal, tax or financial advice. All details have been reasonably fact-checked and all efforts have been taken to ensure that facts are accurate as at the date of publication.

My details: Mark FR Wilkins, during usual business hours on +34 600 343 917 or e-mail me at mark@therightsgroup.com

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