How Are Advance Payments to a Developer Protected When Buying a New Build Property in Spain?
When purchasing a new build property in Spain, buyers often make advance payments to the developer before the property is completed. To protect buyers from financial loss, Spanish law provides several guarantees to ensure that the money paid upfront is secure and refundable if the developer fails to deliver the property.
These protections are outlined in Law 20/2015 and other regulations designed to safeguard buyers against potential risks.
1. How Are Advance Payments Protected in Spain?
A. Bank Guarantee or Surety Insurance
Developer’s Obligation: Under Law 20/2015, developers are legally required to secure all payments made in advance by buyers. This is done through:
✔ A bank guarantee (aval bancario): A financial institution guarantees that, if the developer fails to complete the property, the buyer will be refunded.
✔ Surety insurance (seguro de caución): An insurance policy that ensures buyers will recover their money, including interest, if the property is not delivered as agreed.
Key Points:
- The guarantee must cover all amounts paid in advance plus legal interest until the keys are handed over.
- If the developer fails to complete the project, the buyer can claim a refund through the bank guarantee or the insurance policy.
How Can a Lawyer Help?
- Verify that the developer has a valid bank guarantee or insurance policy before any payment is made.
- Review the contract to ensure it explicitly mentions the security measures in place for the buyer’s protection.
- Assist in claiming a refund if the developer fails to meet their obligations.
B. Special Bank Account for Payments
Developer’s Obligation: Spanish law requires all advance payments to be deposited into a special bank account designated exclusively for the construction of the project.
✔ Funds must be kept separate from other accounts used by the developer.
✔ Banks must supervise that the funds are only used for the construction of the property.
Important for Buyers: Before making any payment, the buyer should request:
- The bank account details where the payment will be deposited.
- A document confirming the existence of a bank guarantee or insurance policy.
How Can a Lawyer Help?
- Confirm that the payment account is legitimate and complies with Spanish law.
- Ensure that payments are only made when all legal requirements are met.
- Obtain and verify the developer’s guarantee or insurance coverage.
2. What Happens If the Developer Fails to Deliver the Property?
If the property is not delivered within the agreed timeline and the developer fails to meet their obligations, the buyer has the right to:
- Enforce the bank guarantee or insurance policy to recover all advance payments plus interest.
- Take legal action if the developer has not provided the required guarantees, demanding a refund through the courts.
How Can a Lawyer Help?
- Assist in filing a claim against the developer or bank to recover funds.
- Negotiate with the developer if delays occur, ensuring legal options are exercised.
- Represent the buyer in court if the developer refuses to refund payments.
3. Tips for Avoiding Risks When Buying a New Build Property in Spain
Before Making Any Payment:
- Verify the bank guarantee or insurance policy with the developer.
- Confirm that payments are deposited into a legally required special account.
- Ensure that the purchase contract includes explicit protection for advance payments.
If in Doubt:
- Consult a real estate lawyer before signing any contracts.
- Request legal documentation proving the developer’s compliance with financial protection laws.
How Can a Lawyer Help Throughout the Process?
- Conduct due diligence on the developer to ensure their financial stability.
- Negotiate contract terms to include buyer-friendly protections.
- Oversee the purchase process to guarantee compliance with Spanish regulations.
- Assist in recovering funds if the property is not delivered as promised.
In Spain, advance payments for new build properties are protected by law, but buyers must ensure the developer follows all legal requirements. Having expert legal assistance can prevent potential risks and guarantee a safe and secure purchase.
Thinking About Buying a New Build Property in Spain?
At Landcross Partners, our real estate lawyers provide expert legal guidance to ensure that your real estate purchase is fully protected. From contract review to due diligence and refund claims, we help you navigate the process safely and efficiently.
