What are Warranties in Off Plan Purchases?
In off-plan purchases there are a set of legal guarantees that protect the buyer when purchasing a property that is not yet built or is in the process of being built. This legal framework is designed to minimise the risks inherent in off-plan purchases and provide peace of mind for both the buyer and the developer.
In Spain, legal certainty in new construction purchases is articulated through four fundamental pillars that guarantee the protection of the buyer and their investments.
The 4 Pillars of Guarantees in Off-Plan Purchases
OFF-PLAN GUARANTEES
| SPECIAL ACCOUNT | BANK GUARANTEE | SURETY INSURANCE | BUILDING PERMIT |
|---|---|---|---|
|
-Exclusive funds Verify your guarantees before paying: our property lawyers in Málaga check every aval and policy. -Banking supervision -Transparency |
– 100% guarantee -Immediate execution -Financial support |
-Valid alternative -Lower cost -Flexibility |
-Legal authorisation -Urban planning guarantee -Regulatory compliance |
Special Account: The First Level of Protection
What is the Special Account?
The special account is a mandatory protection mechanism established by the first additional provision of Law (Disposición adicional primera de la Ley 38/1999) 38/1999 on the collection of advance payments in the construction and sale of homes. This account must be opened by the developer at a bank specifically for each real estate project.
Special Account Features
- Exclusivity: Funds may only be used for expenses related to the construction of the specific project.
- Control: Funds may not be used for other purposes.
- Protection: In the event of the developer’s insolvency, these funds are protected.
Advantages for the Buyer
The special account provides a first line of protection, ensuring that advance payments are used exclusively for the construction of the purchased home.
Special Account Protection Flow
| Advantages | Without a Special Account |
|---|---|
|
Protected funds |
Risk of misuse |
|
Banking control |
Without supervision |
|
Full transparency |
Opacity in the destination |
|
Guaranteed recovery |
Potential loss |
Bank Guarantee | Surety Bond
What is a bank guarantee?
A bank guarantee is a guarantee issued by a bank that undertakes to refund the buyer all amounts paid on account in the event that the developer fails to fulfil its contractual obligations.
Types of Bank Guarantees
- Guarantee on First Demand: The bank pays immediately upon request by the buyer. This type of guarantee ‘is not the most common’.
- Joint Guarantee: Requires proof of default by the developer.
Bank Guarantee Coverage
- Guaranteed Amount: Up to 100% of the amounts delivered.
- Validity: From the moment of payment until delivery of the property.
- Update: Must be updated with each additional payment.
How to Verify a Bank Guarantee
To ensure the validity of the guarantee, it is essential to:
- Verify the authenticity of the document.
- Confirm the solvency of the guarantor entity.
- Check that the coverage is sufficient.
- Review the conditions of execution.
GUARANTEE VERIFICATION CHECKLIST
| Verification of Bank Guarantee |
|---|
- Original document with stamps and signatures
- Bank of recognised prestige
- Amount equal to amounts delivered
- Valid until delivery of the property
- Clear terms and conditions
- Direct contact with the bank to confirm
COMPARISON: GUARANTEE VS. NO GUARANTEE
| Appearance | With Guarantee | Without Guarantee |
|---|---|---|
|
Risk |
Minimum |
Maximum |
|
Recovery |
Guaranteed |
Uncertain |
|
Timing |
Immediate |
Months/Years |
|
Cost |
Included |
Legal costs |
|
Peace of mind |
Total |
Null |
Surety Bond or Surety Insurance Policy
What is a Surety bond or Surety Insurance Policy?
It is an alternative to a bank guarantee issued by an insurance company. It offers similar protection but with specific characteristics unique to the insurance sector.
Differences with a Bank Guarantee
- Issuer: Insurance company instead of bank.
- Procedure: May require a more complex claims process.
- Coverage: Same as bank guarantee.
Building Permit: Quality Assurance
Importance of the Works Licence
The building permit is the document that legally authorises the construction of the real estate project. Its existence is essential for the legal security of the purchase.
Elements that must be included
- Project identification: Location and characteristics
- Technical specifications: In accordance with current regulations
- Execution deadlines: Aprobed schedule
- Urban planning conditions: Compliance with local regulations
Risks of Not Having a Licence
- Work stoppage
- Compulsory demolition
- Loss of investment
- Inability to obtain financing
Guarantee of Amounts Delivered: Comprehensive Protection
Legal Framework for Protection
Spanish legislation establishes multiple levels of protection for amounts paid on account for off-plan purchases.
Building Regulations Act (LOE)
Complement the protection with:
- Obligations of the developer
- Responsibilities of the agents involved
- Post-delivery guarantees
Protected Amounts
The guarantee must cover:
- Amounts on account: All advance payments
- Legal interests: From the moment of payment
- Management expenses: Derivatives of recovery
- Update: According to official indices
Recovery Procedure
In the event of non-compliance:
- Request to the developer: 30-day deadline
- Enforcement of guarantee: Application to the guaranteeing entity
- Required documentation: Normally: – copy of the contract, termination of contract and prior notice to the developer, and proof of payment of the amounts paid.
- Update: According to official indices
Legal Assistance: Your best investment when buying off-plan
Given the complexity of the process and the capital invested, hiring a specialist lawyer should not be considered an expense, but rather a fundamental investment that guarantees your peace of mind and protects your assets.
Are you considering buying an off-plan property?
At Mael Abogados, we offer you
-Exhaustive analysis of the project´s legal viability.
-Expert review and negotiation of the reservation and purchase contracts.
-Rigorous verification of all licences and permits.
-Confirmation and monitoring of the legal guarantees for all payments made.
-Comprehensive assistance up to the signing of the public deed and the handover of the keys.
Contact our lawyers
