In the following article we give the keys to understand why the bank guarantee is a safeguard for property buyers in Spain. Keep reading to learn more about the protection that this guarantee offers to potential home buyers in Spain.
Spanish law protects buyers of off-plan properties, and to this end, on the one hand, it obliges developers who are going to receive amounts from purchasers during the construction of the properties to:
- Receive these payments of the buyers in a special account, the funds of which may only be used for the construction of the properties
- Guarantee the refund of these amounts if the construction of the dwellings is not started or is not completed within the deadlines agreed in the private purchase contract. This guarantee can be provided through a bank guarantee or an insurance contract.
In addition to these guarantees, there is the obligation that the Law imposes on the banks, which, when opening this special bank account for the promoter, must check that the promoter has contracted bank guarantees, normally with the bank itself, or an insurance policy to guarantee the payments of the buyers during construction, and if this is not done, the law itself sanctions the promoter by holding him liable to the injured parties.
All these guarantees come into play during the construction of off-plan properties, so it is essential that the project has a building permit, and as long as there is no building permit, a reservation contract can be signed with a deposit, but a private purchase contract should never be signed, nor should any payments be made on account of the price of the property.
In order to increase the protection of buyers, the law also establishes a mandatory content for all private purchase contract for off-plan properties, so contracts must include the following statements:
- That the developer undertakes to return the down payments made by the buyers plus the legal interest rate in the event of breach of contract.
- A mention of the bank guarantee or insurance contracted, indicating the name of the guarantor bank or insurance company.
- Designation of the special account where the purchaser must make all payments.
At Imont Legal & Taxes our primary objective is to advise international buyers on the purchase of a property in Spain, ensuring compliance with the law and making the process of buying and selling a property in our country a totally secure and stress-free experience.