My (off-plan) builder says I don’t need Bank Guarantees. Is this safe?

Raymundo Larraín Nesbitt, May, 30. 2018

Admonitory blog post on the importance of bank guarantees on buying off-plan property.

By Raymundo Larraín Nesbitt
Director of Larraín Nesbitt Lawyers
30^th of May 2018

In short, no.

So why is your developer telling you this fib? Because he’s likely pulling a fast one on you.

In Spain, if you become a self-developer (autopromotor) you don’t need to apply for bank guarantees because YOU are the developer.

I had already warned about this cunning ploy a decade ago in my 2008 article Bank Guarantees in Spain under the heading “Bank Guarantees on Self-Built Properties.” Now that we see once more a massive resurgence in offplan, this ‘trick’ is being used all over again.

Becoming a self-developer effectively neatly circumvents Spanish Consumer Law obligations developers have of issuing a buyer with bank guarantees at their own expense. Bank Guarantees which secure ALL your stage payments. In other words, the developer (builder) offers you this option to avoid huge costs and legal responsibilities. The moment you become a self-developer you are no longer protected by Spain’s Consumer Laws as you are automatically deemed a grizzled veteran. In plain English, you lose significant consumer entitlements - no bueno.

Smart cookies that offer you to become a self-developer will tell you that the land on which the house is to be built upon (which you own) is your best guarantee. Er, no thanks. Playing Russian roulette is probably a safer option.

If you are a layman on how the construction business works, let alone in Spain, this option is not for you. Self-building your own property in Spain is only an option to be followed by those dauntless who have deep pockets (can afford losses) and have the know-how. It is categorically not an option for your average Tom, Dick and Harry gambling with their life savings to save a fast buck. Be smart, don’t cut corners in Spain unless you are affluent and know exactly what you are doing.

Project Manager vs. Builder

Even shrewder cookies will offer you to take on a dual role; acting as both PM and builders. Needless to say, this is neither acceptable nor safe. It’s like putting a fox in charge of the hen house.

If you are mad resolute you want to become a self-developer, make sure you appoint a PM that is totally independent and unrelated to the builder. That way you will ensure he will do his job policing the builder’s work.

If you want to add a further layer of protection, place a lawyer and an architect on top on an overseeing role.

Ten-year warranty: did you know?

Did you know that as a self-developer one of your (many) responsibilities is to attain a ten-year warranty which is fairly expensive?

Did you know you can’t sell on your newly built house for the next ten years unless you have attained said 10-year warranty?

Did you know that to attain this warranty it follows a laborious procedure which requires independent inspections at every phase of the construction procedure?

In other words, it can't be tacked on at the end of works.

How can our law firm assist you?

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Legal services Larraín Nesbitt Lawyers can offer you

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Off-plan-related articles

Buying Off-Plan Property in Spain – 8th of June 2013
House Hunting in Spain – Interview with The New York Times. June 2015
Resurgent Spain: Málaga Sees Strong Sales – Interview with Mansion Global (The Wall Street Journal). December 2015
Buying Property in Spain from a developer (Off-Plan Property) – 8th March 2017
How to inspect an off-plan property overseas – Q&A with The Sunday Times. July 2017
Buying Property in Spain – 10 Reasons to Hire a Lawyer – 8th November 2016
Non-Resident Taxes in Spain – 8th December 2015
Non-Resident Income Tax – 8th December 2017

Please note the information provided in this blog post is of general interest only and is not to be construed or intended as substitute for professional legal advice. This article may be posted freely in websites or other social media so long as the author is duly credited. Plagiarizing, whether in whole or in part, this article without crediting the author may result in criminal prosecution. VOV.