Spain: 5 ways to tell if your property developer is breaking the law

Drafty buildings, mouldy walls and poor insulation rotting away to the sound of the neighbour’s TV and footsteps on the landing are but the PG horror stories of Spain’s development disaster. The abominable breaches of local planning laws and on-going legal strife for foreign buyers are lasting testimonies to fly-by-night developers of the last property boom. Tens of thousands found themselves locked in a battle to save their homes from demolition as Spain moved to crack down on illegal construction. The disaster reached such heights in the UK that the government had to publish an online guide to buying property for sale in Spain with legal advice.

Thankfully, the Spanish off-plan market 2.0 displays a heightened sense of developer liability and scrupulous legal and property representatives working hard to protect the new wave of buyers. Research and due diligence are key to making a sensible buy in this Iberian state. To safeguard your investment and peace of mind, here are my top recommendations and questions to get answered before putting pen to paper.

How to choose your lawyer

Hire an independent, qualified and registered lawyer specialised in Spanish land law. Qualified means they passed their law exams and registered that they passed their bar exam. Don’t go cheap and do ask for some recommendations. Legal experts who sell their skills at cut-price don’t have the competence or experience to do an excellent job. If they did, they would charge the going rate. The lawyer’s role is to consult the state registers and review the paperwork for planning permission and ownership.

Avoid lawyers suggested by your developer who may have a hidden agenda: the previous scandals with developers implicated both local authorities and lawyers. Don’t choose a notary, their job is to represent the state, finalise the sale and make sure you pay your taxes.

This is an essential step called due diligence and these documents will be used in court if there is a dispute or claim!

Top five essential questions

1. Does the developer have planning permission?

   Planning permission is called “licencia de obras.” Correct planning permission is essential to the development project. Unfortunately, in the past, corruption between developers and local authorities led to projects built without this golden grail of construction permits.

2. Is the construction plan in accordance with the land type?

   Spain has three land types sanctified by law with strict rules on what can and can’t be done:

   • suelo urbanizable: land to be developed. It does not have connections to public networks of water, sewage, electricity… In order to develop this land, authorisation must be obtained from local authorities;
   • suelo urbano: urban land. It has full connection to public networks, footpaths, roads and access public amenities (schools, healthcare, commercial activity, etc.). The construction must fall in line with the specific “development plans” determined by local authorities;
   • suelo rústico: agricultural land. This land is reserved for agriculture, livestock and in some instances, national parks. There are strict regulations on construction.

   Due to the complexity of local planning laws and regulations, only a qualified local expert will be able to advise you on whether the developer has obtained the correct permission to build.

3. Is the plot registered to the developer?

   The hay day of off-plan projects last time saw the rise of fraudulent developers who didn’t own the plot of land they were developing but only had the option (limited in time) to buy. Among the household names of criminal developers was Aifos, eventually forced into bankruptcy, but not before being implicated in cases of corruption with local authorities, development without planning permission and lack of ownership. The Spanish Land Registry can confirm whether the developer is correctly registered as the plot owner or not.

4. Does the commissioned property have a Licence for First Occupation?

   The LFO or “Licencia de Primera Ocupación“ confirms that the property is fit for human habitation and allows you to legally inhabit your purchase. It shows that the project has received all the correct planning permits and complies with building, health and safety regulations. Spanish law authorises the sale of property without an LFO. However, should there be disputes in the future, you as the owner are liable — not the developer.

5. Does the purchase agreement have all the necessary information?

   There are two “signings” when purchasing off-plan: the purchase agreement and the final signing and transfer of property ownership upon completion. The initial purchase agreement must include:

   • timetable for building completion;
   • penalty clauses for non-completion, delays, faulty building work, etc.;
   • bank guarantee (“aval bancario” ) with provisions, sums paid, beneficiary and guarantor. This can be issued by an insurance company or a bank and protects you against non-completion of the development. It should only expire upon delivery of the LFO. Check if it is for individual buyers or a collective plan, in which case you will not have the same protection. The bank guarantee should name you as the beneficiary and include information about the exact sums invested. Protect your payments by making sure they are deposited into an escrow account.

Just remember that for every despicable story of developer abuse, there are hundreds of satisfied buyers. Many of them are probably enjoying the view from their Spanish terrace as you read this. Simply put, there are sensible precautions to take when you invest your hard-earned money and the aim of this advice is to maximise your peace of mind, property value and overall satisfaction. Foreign laws in foreign languages are not something to be messed with. It might cost you a bit more to get a good lawyer but this one-off investment will guarantee you get the property of your dreams without the heartache!

Leigh Stewart