If you are buying off-plan property in Spain, it is imperative that you have the correct protection in place. This means off-plan property bank guarantees and insurance policies. These things protect your money in case the developer does not complete the property. Here we look at off-plan property bank guarantees and insurance policies in more detail.
What are the obligations of the Property Developers?
There are specific conditions that property developers in Spain must meet:
- To guarantee the repayment of buyer’s funds through insurance or a bank guarantee if they fail to either start to finish the construction work.
- To take all payments before building approval, during construction and at any other time, through an account completely separate from other accounts that may be in the developer’s name. These financial entities are to ensure an adequate insurance policy or guarantee is in place before the account opens.
- Ensure the guarantee covers all buyer payments (this includes legal interest and taxes).
Surety Insurance Requirements
Surety insurance policies as guarantees for your payments must meet these criteria:
- The insurance policy must name the property and the buyers.
- The policy must cover the entire amount invested, including taxes and legal interest.
- The developer must be the policyholder, and they are responsible for paying for it. The buyer is the beneficiary.
- The validity period of the policy musts covers the length of the entire project. This can be extended if construction completion is delayed.
- The beneficiary can claim a refund if construction does not start or complete within the stated time. If the developer does not reimburse them within 30 days, they can claim the money owed through the insurance.
- The beneficiary will not be refunded for amounts not paid.
- The insurance company may reclaim any refunds made from the developer to the buyer.
- The developer cannot sell the property until they have paid the insurance company the required amount.
Bank Guarantee Requirements
Off-plan bank guarantee must meet the following criteria:
- The guarantee must cover the entire pre-payments, including tax and legal interest, from the initial payment date to the completed property date.
- If construction does not begin or is not completed within the stated time, a refund should be claimed by the beneficiary from the developer. If this refund is not paid out within 30 days, the beneficiary can claim it from the bank.
- The guarantee ends four years after the developer default date if the beneficiary has not claimed a refund.
For help with Spanish law, contact Spanish Legal Matters on 0208 1502010.
