BUYING OFF-PLAN

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COMPREHENSIVE GUIDE TO BUYING OFF-PLAN IN SPAIN

Thinking of buying an off-pan property in Spain? It truly is a good idea, but don’t rush the things. Take your time to think it through and ask as many questions as you may think of, no matter how silly or insignificant they may seem.

Once you have taken all the information you need, found the project that seems right for you and are ready to commit, don’t forget to negotiate all the important terms with the developer before signing any contracts (even if preliminary) or making any payments.

It is unlikely that you find a developer that likes giving discounts, but you certainly won’t get any if you don’t ask. Nowadays, that the property market has taken off after the quiet period, it may be more complicated to negotiate than it was in the near past, but you could be lucky and get a few % off of the listed price (helpful to cover some of the closing costs), or maybe more suitable payment terms, or an upgrade to the finishes, furniture package, fixtures… Something is always better than nothing.

One of the important things to have included in the contract is the possibility to withhold 5% approx. of the price at the signing of the deeds, to be paid after a specified snagging period when the developer has to put right any faults you identify.

You’d normally see several agents and developments in order to have a clear idea of what is there on the market. It also gives you more leverage during the negotiations.

In our case, we do take care about all this for you, we research the market, discuss for you with the developer, negotiate and have a clear idea of what alternatives are out there. We can also recommend lawyers to take care about all your legal rights, make all necessary checks and to represent you in the purchase. Therefore, once you take your decision, GLOBAL will do all the rest for you.

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Reservation contract – Documento de reserve

Upon reaching an agreement with the developer you will be expected to sign a Reservation Contract and pay a deposit which can start from as little as €6,000 Euros. The Reservation Contracts when buying off plan are usually short and vague documents that give you little protection whilst requiring you to pay a substantial amount of money for nothing more than the privilege of taking the property off the market for 30 days or so. It is therefore important to make sure it is clear that your reservation deposit will be fully refunded should you decide not to proceed with the purchase after the stated before initial period.

A Reservation Contract might be the only way to reserve a property in a hot market or in other situations where only a few last properties with desired by you specifications are left. It is always worth to have an insider with in-depth knowledge of the market who works for you and takes care of your needs and your money.

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due diligence

Regardless of whether you sign a Reservation Contract or not the next step is to sign a Down Payment Contract, which is obviously accompanied by the first down payment, often of 25% of the price plus VAT. Once the first payment is made, the rest depends on what you managed to negotiate for your payment plan. You may need to make some regular payments until the completion date or you may be able to make no payments at all until you sign the Deed when the property is completed. It all depends on the terms you have agreed with the developer.

Before you commit to a Down Payment Construction Contract (often called a Private Contract or Contrato Privado de Compraventa with the full name beingContrato de Compraventa de Vivienda en Construcción) you should have your lawyer to carry out a Due Diligence appropriate to buying off-plan.

Plans and Specifications

Detailed plans (Planos) and specifications (Memoria de Calidades) are a very important part that should be included in the signed contract. The more detail is there in Plans and Specifications the more likely you are to get what you are expecting. Less details, give developers more room to make changes to what they initially presented and you may end up with the property that is far from what you were expecting. With very vague Plans and Specifications you won’t be able to prove that you paid for one property and a completely different one was delivered to you and will have no rights to dispute. After signing the contract and paying the money, Plans and Specifications are your proof of what the developer is now supposed to do, so always do make sure they are very detailed.

Some of important specifications to be included in this part of the contract is: the built area (superficie construida),

useable area (superficie útil), and total area including common areas (superficie total). Note that in Spain, terraces are included in the figures at 50% of their surface area. Also ask to see technical plans that show the functional installations.

You should also make sure that you are given a plan of the building that clearly indicates the apartment you are buying. As in the case of full details of the property, it is better to have proof stating what you are buying to avoid finding yourself with middle floor apartment rather than with a corner penthouse.

Details, details, details… the more details you have, the more sure you can be that you will get what you paid for.

Surroundings

When buying a new property you obviously pay a lot of attention to the property specifications, but don’t forget about the surroundings and about the developer’s commitment to take care about it as well as about the property itself. The landscaping does have a significant impact on the quality of life and the development and it have happened that even on the most luxurious developments, the buyers had to finish the job that the developer failed to do, facing the landscaping bills for thousands of Euros per owner. So make sure that plans for the surroundings are well documented and, where possible, have them attached as an addendum to the contract.

Together with surroundings, make sure that all communal facilities mentioned at the purchase stage are included in the plan authorised by the Town Hall (Cédula Urbanística), and are clearly stated in the overall Deeds of the Project (Escritura de la División Horizontal).

We would also advise checking the Plan Urbanístico at the Town Hall for what can and can not be built on the land surrounding the project. If a block of apartments can be built on the surrounding land than you need to assume it will be. The views are not only beautiful but they also have their price, so check what is the views situation to either make sure you will have an unobstructed see views or to use it as a key point in your negotiations.

Facilities

If there are any communal facilities, such as a golf course, that are being advertised as an extra or at special conditions for property owners, then, again, make sure they are attached as an addendum to the contract.

Infrastructure

Check what infrastructure will be put in place and have your lawyer check the pans approved by the Town Hall and the Plan Parcial to confirm this. If the developer fails to provide an infrastructure that satisfies the Town Hall then the development may have problems receiving municipal services, which can make life on the development very inconvenient and expensive. Sorting out this kind of problems would lead to another extra stress and significant expense.

Make sure utilities such as water, electricity, telephone and gas will be delivered. There will be some developments outside of consolidated areas that will have no mains gas connections, but a lot of Spain runs on bottled gas deliveries which work perfectly and are likely to be cheaper if you are not buying your main home as you won’t have to pay a monthly fixed charge when not using the property hence it is not such a big problem. The main concerns are usually with water and electricity, which you simply cannot live without. Therefore you need to make sure that the development will have mains water and electricity connections and never take the developer’s word for it. Your lawyer will be able to check if the development has been fully approved by the Town Hall in this respect, and that the developer has an approved Construction Licence (Licencia de Construcción). The telephone line may not be the most important with mobile phones and satellite broadband connections, but it may happen that the reception is not the best in the area so it is always better to have a landline connected.

Community of Owners

The Community of Owners is usually formed once the development has been sold and most of the buyers have completed. Always check what role, if any, the developer will play in setting up the Community of Owners and establishing its bylaws. Find out when it will be set up and how you can participate in the process.

Mortgage

Most developers have a prearranged mortgage that you can take over when you complete. Developers save money if you take over this mortgage and are likely to encourage you to do so. It may be tempting, as is waiting there for you ready to be taken but you should never accept the developer’s mortgage without checking the conditions against other mortgages. Do your homework and take information with an independent mortgage advisor. There are some exceptional mortgage deals over there.

Land Classification

The land on which the development is being built must be classified for residential use. If the land is classified for ‘tourist apartments’ it can cause problems to buyers looking for main property.

The land classification can be checked with the Town Hall. It goes without saying that you should never buy on developments where the land is zoned for commercial or other types of use. Developers will not get building permission on this type of land, but that has never stopped the most unscrupulous developers in intensively growing areas like Marbella.

Developer’s Title to the Land

Check the Land Registry to confirm:

that the land belongs to the developer,
that the building project has been inscribed and
what debts or charges are secured against this property.

Most developer’s use mortgage financing so a debt against the land is not necessarily a problem. Your lawyer will know

Planning Permission

Check that the plans you are being shown have been approved (Proyecto Técnico Aprobado) and that planning permission (Licencia de Construcción / Edificación) has been granted by the Town Hall. This is a very important point. NEVER BUY OFF-PLAN OR ON A NEW DEVELOPMENT UNLESS PLANNING PERMISSION HAS ALREADY BEEN GRANTED.

Hundreds if not thousands of British buyers have made down payments of 30% or more for properties on developments that do not and never will have Planning Permission. These buyers have been told that planning permission is just a formality that will be obtained shortly without any problems just to find out years later that they are still waiting with their money tied up in a development that will never be built. If they are lucky they will get their money back and will have “only” wasted years of their time and possible growth of investment. This situation is more common on the Costa del Sol than in other areas. To avoid this problem have your lawyer confirm that Planning Permission has been granted for your specific building.

If buying in the Marbella area you may also need to check that the development complies with the Regional Urban Plan. Written confirmation of this can be requested from the Town Hall.

Stage Payment Guarantees

The developers accepting stage payment for off-plan properties are obliged by law to take out insurance(Póliza de Seguro) or a bank guarantee (Aval Bancario) to protect the funds and any interest they earn whilst in the developer’s possession. Before handing over any money to the developer or to an agent, request the vision of the insurance or bank certificate to make sure it has been arranged and with good conditions.

When signing down the Payment Contract you should also received a document from the guarantor confirming that your (with your name specified), not just client’s payments are guaranteed. In case of any doubts, check with your lawyer and, if necessary, contact the bank or insurance company providing the guarantee. Don’t make any payments until the arrangements are confirmed.

The developers are also required by law to isolate your stage payments in a special account and to use it only to pay for building work related to your property. You should find out if the developer has this type of account and, if possible, have a clause included in the contract that commits the developer to comply with this law.

REVIEW

Before you sign the contract (or make any payments) have your lawyer check it to make sure your interests are protected. Remember that lack of details always favours the developer.

Any contract you sign should include the following:

Detailed description identifying the developer
Detailed description identifying the buyer
Description of the project and the land, stating the developer’s title to the land and any debts inscribed with it. Also the constructor and technical architect should be identified.
Detailed description of the property you are buying, including plans and specifications.
The price agreed, specifying the VAT.
A detailed stage payment calendar giving specific dates or milestones, and the bank account details of the account to which payments should be made. In the case of building progress milestones there should also be detail on how these milestones will be certified (i.e. with an architect’s signature).
A specific date by which the property will be finished, an extension period (if any), and the financial penalty the developer has to pay for every day of delay beyond this period. The contract should also clearly state that the buyer can withdraw from the contract, receiving a full refund plus interests, if the developer fails to meet the deadlines specified in the contract.
A clause stating the percentage of the payments you will lose if you fail to complete (try and limit this to 40% or less).
Details of the insurance or bank guarantee arranged to protect stage payments, naming the financial institution providing the guarantee and the policy number.
A clause stating what information will be provided in the specifications manual (Libro del Edificio) that must be given to the buyer when the property is completed.
A clause listing the addendums to the contract.
A clause stating that the developer will meet all the transaction costs that typically correspond to the developer (for instance, the notary costs of declaring a newly built property known as the Escritura de Obra Nueva y Division Horizontal, and the Plusvalía).
A clause stating exactly how the costs related to setting up the utilities will be apportioned.
A clause stating the correspondence address and contact details of both parties, to which all communication must be directed during the life of the contract.