Gecko Towers
There is currently a stone-cold reality that on the Costa del Sol, particularly in the Marbella area. There is insufficient available property stock to satisfy the huge demand that local estate agents are experiencing from clients keen to buy here. The natural bed-fellow to a lack of stock is the burgeoning of “off plan” prospects. Broadly, this is where a developer identifies a plot of land, that has generally has consent for the kind of property that the developer is keen to or experienced (or both) in delivering.
The expression “off plan” comes from the simple fact that the developer seeks to sell some or all of the units being developed from the architectural plans that have been drawn up to show the distribution of properties within the development. One bed, two bed, three bed penthouses their orientation, square meterage and details of the materials to be used to finish the apartment/town house or villa.
Buying “off plan”, is the purchase of a developer/promoter offered property that is yet to be constructed and will be paid for in contractually agreed stages up to and including completion/delivery of building. Such a process may not be for everyone but its seems to be fast becoming a favourite flavour for many overseas property buyers who are keen to own on the Costa del Sol.
You may have seen the wonderful rendered images of finished properties at a Property Show, often in your own country, on the developer’s website or in the Sales Agent’s office. You are drawn to the idea of getting in early, on the ground floor, of this fabulous new development. And why not? Such “off plan” developments often present really good value for money and, as you are getting involved early, pre-construction, you are potentially making real savings against the ultimate value of the property.
You are ready to buy.
We know from Divorce lawyers that moving house can be extremely stressful. Purchasing a overseas property introduces further levels of confusion and upset borne out of cultural or linguistic barriers that can send your blood pressure soaring.
Once you have made your decision that the prospect of an “off plan” property is right for you and your family, my first suggestion is to obtain independent professional advice and proactive input from a bi-lingual, local and highly-experienced Spanish lawyer (an Abogado) before parting with any cash or swiping a credit card by way of a deposit against your “off plan” purchase.
Given the importance to the Spanish economy of incoming purchasers of property, there is little doubt that the Spanish state has tightened up the protection of, at least, the monies paid by the buyer by way of a deposit and 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.
Most reputable developers will provide you with a sales pack containing the Private Purchase Contract (PPC) – which may be in English as well as Spanish – relevant details about the property number you wish to reserve, details as to the stage payments that you’ll need to make and either dates or events that will trigger to making of these payments over several months. The PPC may also include details of the complex to be built, details about the materials to be used in finishing the apartment and, importantly details of or a copy of a Bank Guarantee (“Aval Bancario”) document. You will need your Abogado’s careful advice and comments on the precise terms of the PPC and the Bank Guarantee so you fully understand the implications.
The PPC may include a clause specifically dealing with building costs increases which needs to be carefully reviewed by your Abogado. It needs to be thoroughly understood by you as its effect may be to ultimately increase the purchase price if the costs of construction materials soar. 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 lawyer’s to be clear on the issue.
Another element requiring careful consideration is the question of “assumed” mortgages. Some developer’s, for those clients seeking mortgage finance to fund their purchase, may seek to bind the buyer into taking the mortgage-backed developer funding that they have received from a lending bank to complete their build. This may well be unattractive to you for a number of reasons. It may well be more expensive than that you could get on the open market. Additionally, in an attempt to dissuade you from seeking your own funding the Bank may have imposed a premium, or more accurately termed – a penalty, on the developer – based on a percentage of the available funds to cancel the funding – which in turn the developer may seek to pass onto you under the terms of the PPC. Beware, you may be required to agree that the penalty is added to your costs of purchase if you elect not to take the “assumed mortgage”.
Having received advice from your lawyer that the “off plan ” development is not at risk from any legal or planning flaws, which may prevent it being built, you may now be ready to sign the PPC and to hand over between 20%-30% deposit (calculated on the agreed sales price) required to secure your chosen apartment/town house/villa.
Legally, a Bank Guarantee must be supplied by a developer to the purchaser to cover all of the amounts paid by you both at signing of the PPC and the various stage payments released by you during the build out phase of construction. Whilst this is a legal requirement, it will fall to your Abogado to push the developer’s lawyer into receive written confirmation of the precise level of the guarantee. The effect of this is to protect the purchaser’s investment should the developer go out of business before the property’s completion. You should also seek clarification as to the coverage of the Bank Guarantee – or additional guarantees – to cover the stage payments you are obliged to make under the PPC.
The Bank Guarantee should be from a reputable Bank and needs to clearly state that your cash will be held in their accounts and will only be released to the developer under certain conditions. In addition, it must provide that if, for whatever reason, the developer fails to build the complex that you will receive your cash back – together with – hopefully, interest calculated on the amount lodged by you.
We have seen situations where buyers have been told that a Bank Guarantee exists but they have not asked to see it. Clearly without the actual Bank Guarantee your funds are at risk. So make sure your Abogado obtains a copy of the Bank Guarantee and you receive professional advice on precisely what it says.
In eighteen months to two years after placing your deposit – if all goes well, and Spanish builders do tend to build quickly – and following your agreed and made stage-payments, you will be given notice by the developer to complete the purchase. You must be ready and willing to complete as failure to do so may well leave you forfeiting your deposit.
Hearing from your Abogado that the developer of your “off plan” property is ready for delivery may fill with apprehension. The excitement that you are about to take delivery and start to enjoy your long awaited Spanish home is often tempered by a certain caution. But, it needn’t become a saga which sours the joy associated with acquiring your Place in the Sun.
Your purchase price will be fixed – subject to the above – at the PPC stage, but you’ll need to have available additional funds to cover the buying fees, taxes and costs – please see Guide 6 in our Series – that you’ll need to pay at the legal completion of your property purchase.
It is highly recommended, prior to even commencing your search in Spain, that you obtain an indication, from our contacts at the local branches of major Spanish banks, given your personal circumstances, what you would be able to borrow. We have seen mortgages approved in Spain within 25 days but that is the exception. It will usually take between six weeks and two months, particularly if you are seeking one of the more attractive lower rate mortgages, and the more time you give yourself the better.
So plan ahead and give yourself some time. You’ll need to collate a pack for the bank or mortgage broker comprising, as a minimum, the following:
– A copy of your – and any other joint borrowers – passport or residence card
– Copies of NIE for all those comprising “the Buyer” – a registered number needed for a foreigner to make a purchase in Spain
– The Nota Simple – the extract of title from the Land Registry for the property for a pre-existing property. For an off-plan property we’d suggest you start by providing a copy of the PPC that you signed when you paid your deposit and started to make your stage payments. The bank lender will need to know that the property is completed – see below.
– The last year’s bank statements showing income or your last two P60’s or last tax returns
– An employment contract (for the self employed you’ll need copies of you last three years’ of accounts and bank statements showing income)
When called upon to complete your purchase you need to be satisfied that the description of the property you think you are purchasing equates to the property being delivered by the developer. In order to achieve this you should ensure, at a minimum, that the description of the property, its precise location within the complex, its external and internal finish etc. as set out in the PPC correspond to what the developer is seeking to deliver.
It is really very important that your comprehensive “snagging list” – identifying any obvious inaccuracies in the property description, quality of finish, materials used etc. is brought to the developer’s attention and that they acknowledge its contents and start to act on it, in advance of you making the final payment under the PPC. I cannot over-stress the loss of any real leverage in failing to get “snagging” resolved ahead of the final payment being made.
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. Your “snagging list” will amount to a checklist for the developer to undertake the remedial elements raised on it.
Should your developer fail to address these your issues formal notification should be given – through your Abogado – to the developer asking them to resolve all listed problems. Hopefully that will have the desired effect. There may be other opportunities to “delay” completion but these will usually depend on your precise circumstances.
The Architect in charge of the site, once they are satisfied that all of the construction elements are complete, will be asked to 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) which is also known as a “Certificate of Habitation”). This 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 water, electricity and/or an internet connection.
By law, I am advised, that the buyer – who is now the new property’s 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 year’s 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 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 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 insurance, amounting effectively to 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. 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 claim 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-plan” property purchase in the Marbella area, our aim is to contribute to the current debate as to whether an “off-plan” purchase may be right for you and your family
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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