Off-plan purchases and buyer guarantees

Advance payments for homes under construction are among the largest financial exposures a private buyer takes. Spanish law, principally Additional Provision One of the Building Act (Ley 38/1999 de Ordenación de la Edificación), requires specific protections for these payments in residential developments.

The required safeguards

• Amounts paid on account should be deposited in a special account, separate from the developer's other funds.
• Payments should be covered by a bank guarantee or insurance policy in favour of the buyer.
• The guarantee is intended to cover amounts paid plus statutory interest if construction does not start or the home is not delivered on time.

Check, do not assume

Buyers should request and keep the guarantee certificate for every payment and confirm that payments go into the designated account. Spanish courts have considered the position of banks that received buyer payments without guarantees, but outcomes depend on the facts and recovery can take time.

Contract terms to review

• Delivery date and any grace period.
• Specifications and permitted changes.
• Termination rights and their conditions.
• Payment schedule and its link to construction milestones.

If a project stalls

Remedies depend on the contract, the guarantee wording and the cause of delay. Terminating prematurely or stopping payments without advice can weaken a buyer's position.

Hypothetical scenario: the example below is invented for illustration. It does not describe any real property, project, company or person. A buyer has made three stage payments but holds a guarantee certificate for only the first. Before the next payment, the buyer requests certificates for all prior amounts and makes further payment conditional on receiving them.