Gecko Towers
Buying “off plan” – and it is important to note that we are talking here about a yet to be built developer constructed and/or promoter promoted multiple apartment, villa or town house type development – may not be for everyone but its seems they are fast becoming a favourite flavour for many overseas property buyers on the Costa del Sol.
It appears that different rules apply – particularly in relation to the long-term insurance-backed guarantees needed to enhance subsequent buyer protection – so, if you plan to buy a plot and become the developer of your own property, then that is outside the scope of this post.
I am told that much of the law relating to such construction comes from and is regulated by the Spanish state law known as the “LOE” (Ley de Ordenación de la Edificación) of 5/11/1999 but I believe it has been materially enhanced and varied to take account of an evolving market.
Given the importance to the Spanish economy of incoming property purchasers, there is little doubt that the Spain has tightened up the protection of, at least, the monies paid by the buyer during the “build-out” phase of an off plan purchase. These protections include bank or insurance company backed “guarantees” for the sums introduced by the buyer and paid to the developer.
In addition, developers are now under an obligation that monies paid by the buyers, towards an off-plan purchase, may only be used for the purposes of the planning and construction of the development in respect of which they have been received. Historically, they were permitted to mix incoming funds – including buyers’ deposits and stage payments – with their own funds, which meant they risked being used, for example, for the running costs of the developer’s business.
We have previously covered the start of the off-plan process, including attempts to build in more levels of buyer protection – see here Is buying an “off plan” Marbella property on your radar? Here, we are looking at the post-delivery position once your off-plan is “legally” finished and you take delivery of it.
A pre-build contractual element – not covered previously – that I would like touch on and which should be addressed in your off-plan Private Purchase Contract (PPC), is the question of increased costs of construction during the build out of your off-plan purchase. Currently, the world over there are appreciable increases on a regular basis in the cost of materials, supplies and manpower. How should this be dealt with?
There are obviously only two parties who could be called upon to shoulder, perhaps more extreme, increases in the costs of building. They are either the developer or the buyer.
On the one hand the developer will be skilled in the process of pricing the finished article taking into account contingencies to in an attempt to cope with the vagaries of price increases whilst preserving, though perhaps adjusting, the “developer’s margin” – their profit.
Dwelling more on the purchaser’s protection, the PPC may include a clause specifically dealing with building costs increases which needs to be carefully reviewed in detail by your Abogado. It needs to be thoroughly understood by you as its effect may be to increase the purchase price. It may well be that the development offers great value for money but its best to address the risk of such surprises upfront.
If construction cost increases are not specifically referred to in the PPC it may be advisable for your Abogado to raise this with the developer’s advisors to be clear on the issue.
Though it may feel a little like it, the “off-plan” property market should not be the Wild Frontier. It has long been the model in Spain, where pro-consumer protection legislation has been introduced, and there is often a sound investment case to be made for getting into a development early.
I appreciate that client’s may be apprehensive about the process of making payments over several years awaiting the delivery of the finished property but the majority, in my experience, seem satisfied with their purchase. However, we are keen to explore here, by virtue of their purchase of an off-plan property, what protection(s) does a buyer obtain against a poorly built or finished property.
As the time for completion approaches it is likely that the developer/promoter will advise you that they are planning to complete. At this stage they may invite you to visit the site to inspect the property to draw up a minor defects “snagging list”. This may include poorly fitting doors, less than expected quality of painting and any leaky taps.
You may prefer to retain the services of a professional team experienced in managing such matters in Spain – it may well be money well spent. It is important that the developer should be apprised of your “snagging list” and acknowledge its contents. This will amount to a checklist for the developer to undertake the remedial elements raised on it.
May I suggest that it really is vitally important that your comprehensive “snagging list” is brought to the developer’s attention and they start to act on it, in advance of you making your final payment under the PPC. I have dealt with this in our previous post – see above – but I cannot over-stress the loss of any real leverage to get “snagging” resolved once the final payment has been made.
The Architect in charge of the site, once they are satisfied that all of the construction elements are complete, will issue a Certificate of Completion called a “Certificado de Fin de Obra”. With this the developers will approach the planning authorities at the relevant Town Hall and seek a Certificate called the “Licencia de Primera Ocupacion” (“the Licence of First Occupation” (LFO) also known as a “Certificate of Habitation”) that confirms that the newly constructed property is fit to be lived in and that it fully complies with the relevant planning and building regulations.
The existence – or not – of an LFO is very important. Without it the ability to borrow from a bank to create a mortgage over the property is limited. The lack of it will hamper your ability to resell the property and to seek to connect to utilities who will want to see a copy of the Certificate before agreeing to supply you with water, electricity and/or an internet connection.
By law, I am advised, that the buyer – and now new property owner – has, from the date of delivery of the property, a period of one year in respect of any minor defects – such as the “finish” – that become apparent during that years use of the property. Just what “minor defects” is defines as is somewhat open but it is widely regarded as including damp, paint failures, surface cracks and the like.
During the period of three years from delivery of the property the buyer benefits from a further commitment from the developer et al against issues that are regarded as causing the property to be “unsuitable for habitation”. To some great extent this focuses on the ingress of water. So it is often defined by reference to the waterproofing of roofs, external walls and terraces. It may also embrace problems with the building’s design and workmanship where the damage results in the property’s habitability being compromised. It is not mandatory for the developer et al to obtain insurance against these eventualities but “Seguro Trienal” (three year insurance) is available and a conscientious developer may see it as an attractive offer to buyers.
In the process of taking delivery of your new property, in tandem with your Abogado, you should seek to obtain a copy of an in force insurance document called a “Decennial Insurance”. This is an “Inherent Defects Insurance” and is intended to cover the costs associated with the repair or compensation for damage caused by defects that affect the operation of the building or its stability.
Since May 6th 2000 such insurance has been mandatory and, I am told, that the law imposes an obligation on the developer and the Architect, to provide such a guarantee that the most important structural parts of the build, including the foundations, will be secure and free from damage for not less than ten years.
As identified above, this “guarantee” is typically covered by such an insurance policy. The level of the insurance cover should be for the total costs of the build, the fees of those involved in the build, the applicable license and taxes.
It is important to note, that, I understand, that any formal action in respect of the above may be initiated within two years of the damage being identified provided always that the damage complained of occurs within the relevant ten, three and one-year time periods stipulated above.
For those keen to explore the prospects of an “off, I hope the above has added “more meat to the bones” of the current debate as to whether an “off-plan’ purchase is right for you and your family
Photo credits: Kronos Homes – “The Edge” and Round Hill Capital Spain – “Palo Alto”
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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