Off-Plan Construction Guarantees: Know Your Rights

Raymundo Larraín Nesbitt, November, 8. 2011

In this article I will focus on explaining the different guarantees and insurances in place that cover construction flaws in new build property. These are mandatory and are set out by Spain’s Building Act 38/99 (Ley de Ordenación de la Edificación, LOE for short).

By Raymundo Larraín Nesbitt
Lawyer – Abogado
8th of November 2011

 

 

 

Introduction

I will purposely exclude the issue of Bank Guarantees securing off-plan deposits in Spain as it is unrelated to the topic at hand and has already been dealt with at length in other articles of mine. The reason being is that BGs are unrelated to off-plan construction flaws as their scope is securing buyer’s deposits.

Spain’s Building Act, Law 38/99

Is a fairly important state law that is applied nationwide. One of the main goals of said law as its preamble explains is protecting Consumer’s Rights. It doesn’t escape anyone the importance the construction sector has had in Spain over the last decade and will foreseeably continue to have in the future. Some have even gone as far as labelling it as Spain’s economic heart along with tourism due to its important GDP contribution.

Said law identifies the different construction agents involved within the building process and their civil liability. If the individual responsibility cannot be ascertained they can all be sued jointly. I will refer to them broadly as “agents” as referred to in Arts 8 to 16 which broadly include among others: the architect(s), technical architect, structural engineers, developer, constructor, construction project director and materials purveyors.

To avoid any unnecessary confusions, “agents” is the generic term employed by said law, “agentes de la construcción”; it does not refer at all to Estate Agents or Real Estate Agencies.

Construction Guarantees and Ten-Year Building Insurance

Art. 17 of the LOE rules on the three different guarantees available as well as the time periods covered. A common problem is finding out as from what time does the period of protection start. This is covered further below under the heading “Guarantee Protection Timeline”:

1. Construction flaws: 1 year. 

Both the developer and constructor will be held jointly liable for a period of one year.

Examples of this would be: mismatching floor tiles, missing tiles, flaked painting, faulty door knobs, leaking faucets and in general all those related to shoddy workmanship or substandard materials (i.e. wooden carpentry, faulty window frames that let in heavy rainfall).

These flaws are apparent to the naked eye and are what one would normally pick up on doing a snagging list prior to completion. I advise hiring an independent professional snagging company which are fairly experienced at dealing with these issues, Lawyers do not write up snagging lists. My advice is not to complete until the snagging flaws are remedied or else practice a retention upon completion to secure the job is done within, for example, the next 6 months after closing. The reason being is that once you hand over the money at completion they may not be as “keen” to solve the flaws. Thus a retention or delaying completion, until these minor flaws are fixed, will allow you leverage on negotiating acting as an “incentive”.

2. Dwelling hazards: 3 years. 

The second batch of guarantees aimed at those flaws that directly affect habitation. These problems pose a threat to dwellers’ health, hygiene or even the environment itself. The guarantee period is three years.

Examples of this are: humidity patches in bedrooms (which may lead to aggressive mold growths if unchecked), faulty electrical appliances, leaking gas pipelines.

These problems are normally severe. Imagine you fly over to Spain on holiday and have invited some friends to show off your new property. On opening the door to your house the whole floor is flooded with large batches of green fungus growing on the walls. You cannot live in a property in such a poor state, never mind having to pay for alternative accommodation such as hotel lodging for you -and your friends- in high season…

3. Structural Problems: 10 year warranty. 

This is the famous “Seguro Decenal”, or ten-year warranty, you may have been quoted a myriad of times on buying. It covers serious structural problems compromising the mechanical stability of the building which may be life-threatening rendering the property inapt to be dwelled. An insurance company is hired and tasked with the role of overseeing the different stages throughout the whole construction process; from start to end until the property is delivered legally (Acta de Recepción) and it has fully verified the materials and build comply with our laws and construction specifications.

Examples of this are: landslides due to unstable foundations (heavy rainfall or quicksand) which may cause the entire structure to shift and crack, retention wall boulders falling off a cliff, huge cracks (in ceilings, walls, beams or pillars) compromising people’s life, collapsing roofs due to heavy rainfall.

Unfortunately the application of this ten-year insurance is fairly restrictive in practice. This insurance is mandatory for all new build property and must be submitted on applying for a Certificate of End of Construction. When in a development the Horizontal Division deed is drawn up this insurance will be one of the mandatory documents a Notary will demand from a developer in compliance with Spain’s laws.

Due to all the practical problems this caused, an amendment was brought about on by Law 52/2002 of 30th December 2002, additional disposition number two, which would be enforceable as from the 1st January 2003. This resulted in the exemption of self-developers that built just one dwelling for their own use to apply for the 10-year building guarantee. The underlying reason is that it is taken for granted they are actually going to live in the property themselves so it’s in their own best interests to secure the construction is carried out correctly. The loophole hear is that a self-developer may build a property to sell it on for a profit in which case the law establishes legal safeguards so a consumer buying this house is not deprived from such a vital insurance (but in practice this safeguard can actually be easily circumvented…).

It should be noted that self-developers are legally exempt from applying for a 10-year construction warranty.

Guarantee Protection Timeline

A fairly common blunder is to think that the above two guarantees and the ten-year insurance deadline actually start as from the time of completion at the Notary; which is when you hand over your money in exchange for the Title deed, right? Wrong. Think again!

From a layman’s perspective this seems ludicrously obvious as after all you are not an owner until you close on the property at the Notary and you are formally handed the Title deed. In practice it doesn’t work out like that and leads to interesting legal problems.

The above deadlines are to be counted as from the time the developer attains what is known as the “Acta de Recepción” (Art 6 and 17 of the LOE). This is when the constructor hands over the development to the developer considering his work concluded. By default, as this is often unknown, it is taken as from the time the Certificate of End of Construction (CEC, for short) is signed by the developer’s appointed architect and countersigned with the official seals of both the Architect’s regional College and Technical Architect’s regional College. This document, as its own name implies, means the development or construction phase within a development is regarded as finished pending the granting of a First Occupancy Licence (LFO, for short) by a town hall.

Once the developer attains the CEC he applies for a Licence of First Occupation at the local town hall’s Planning Department. In theory a LFO is issued within a few months of the developer submitting the CEC. But as we all know in practice this may take longer, as in much longer. In extreme cases even years because the development may not comply with legal requirements which hinder altogether the legal delivery of the property, that is, the issuance of the said LFO. The attainment of a LFO is the major milestone in the off-plan build process as from this moment onwards the property is regarded as legal and fit for human habitation. From that moment onwards one can request all official utility services (water, electricity, gas).

For example, let’s imagine a property with a CEC issued in 2000 which attains the LFO three years later. In 2003 Mr and Mrs Skyrim which had previously signed an off-plan Private Purchase Contract are required to complete by recorded delivery. It becomes apparent after having lived for a few months there are outstanding building flaws which ought to be dealt with. Unfortunately for them they can no longer claim either the one-year or the three-year guarantee as more than three years have elapsed already since the CEC was granted which is when the timer started off. They can still claim on the ten-year guarantee – if applicable – but as previously written its application in practice is restrictive.

In the above example my previous advice on either holding out for completion (not always legally possible) or else practice a retention before a Notary at completion until the flaws are mended comes in very handy.

Time to Claim

We mustn’t confuse the above protection guarantee timelines with the timeline to exercise our rights to have the problems fixed either out-of-court or litigating. Art 18 of the LOE rules it will be 2 years as from the time the flaws or problems become apparent.

For example, a property attains a CEC in January 2000 and the LFO is attained in May of that year. I complete in June and in November of 2000, after heavy rainfall, large batches of humidity appear in the master bedroom. I will have two years to claim as from November onwards. To do this I need to claim within the three years of protection which started off in January 2000 and end in January 2003. So I could for example wait almost three years, for whatever reason that interests me, until December 2002 to claim. On claiming within the three year protection period the developer has two years to mend it (setting it back till December 2004); that’s almost five years.

I would however advise on the damages or construction flaws being reported immediately. The importance of claiming on time is explained clearly in the below example:

Example relating to a 10-year Building Guarantee. Mr and Mrs Morrowind buy a new build in 2000 and it becomes apparent in October 2002 the main beam in the living room is collapsing. They believe they are protected until 2010 and can claim within this decade. In 2006 they claim for this structural damage thinking they are still on time. Unfortunately the 2 year deadline to exercise their right has elapsed (concretely in October 2004). Which just stresses the importance of distinguishing clearly in Spain’s Building Act between the guarantee protection timeline set out in art 17 (in this case 10 years as it’s a structural fault) and the timeline to exercise said right set out in Art 18 (only 2 years) as from the time the flaw was apparent (October 2002).

Creating and Upholding Legal Evidence

It is important that with a view to a potential court case all communication addressed to the developer is done by means of recorded delivery letters (burofax) with acknowledgement of both content and receipt (“acuse de recibo con certificación de contenido”). Emails will not suffice. I would advise all formal communication are done only through your appointed lawyer.

Moreover, you should have a Notary visit the property and witness the damage by means of an “Acta Notarial” (a qualified witness report) which can then be used to your advantage in a court case as irrefutable evidence of the damage and the date on which it was witnessed by this high standing civil servant.

Conclusion

Despite the – justified – rampant gloom and doom, Spain will continue to attract foreigners within the next decades to enjoy our affordable lifestyle under the sun. Scores will settle down buying houses, either as resales or new builds.

Which is why it is important a culture of awareness on Consumer Rights is created so foreigners at large, and in particular fellow expatriates, know what their rights are and how to exercise them. I leave the latter for another article.

Larraín Nesbitt Lawyers, small on fees, big on service.

Larraín Nesbitt Lawyers is a law firm specialized in inheritance, conveyancing, taxation and litigation. We will be very pleased to discuss your matter with you. You can contact us by e-mail at info@larrainnesbitt.com, by telephone on (+34) 952 19 22 88 or by completing our contact form.

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