Buying on plan in Spain: the bank guarantee explained

The Breyne Law does not exist in Spain. If you buy a flat or villa on plan, you do have a right to a bank guarantee under Spanish law. In practice, however, we often find that bank guarantees are not provided as standard in purchase or building contracts. After all, for the construction promoter, this is not cheap. This article will therefore briefly explain how bank guarantees work in Spain when buying on plan.

Read more tips on buying on plan in Spain.

The video below is a summary of this blog created using artificial intelligence.

What is a bank guarantee?

A bank guarantee secures the buyer's payments to the construction promoter for failure and late completion. In case the construction promoter goes bankrupt, you are basically assured that you are going to get your payments back. The same applies if the works are delivered late (+- 6 to 12 months) or defective. Legally, this can be structured as a classic bank guarantee or insurance.

Note: There are different types of bank guarantees. There are both collective bank guarantees that apply to the entire project and bank guarantees that apply to an individual residential unit. The latter option offers the most guarantees for the buyer.

Note: it is recommended that the issuing authority is located on Spanish territory.

Which payments are covered?

All payments are covered. So not only intermediate payments, but also the first deposit of the reservation contract and VAT. Interest (+- 3%) on your prepayments is also protected.

There is a standard guarantee and a first demand guarantee. The standard version will require a court order to recover payments.

Note: All payments must be specified in the agreement before they are covered.

Who applies for the bank guarantee?

Under Spanish law, the construction promoter is obliged to provide the bank guarantee. Indeed, from a legal point of view, the bank guarantee is an essential part of the contract. Without a bank guarantee, the buyer can cancel the sale, returning all interim payments plus interest. However, we often find ourselves urging the construction promoter to request it.

However, it is true that a bank guarantee can only be issued in Spain after you have made the first down payment. In other words, when the first payment was made into the construction promoter's account. In practice, the bank guarantee is only issued within 40 days of the first payment being made into the promoter's special bank account. The funds in this bank account can only be used by the promoter to finance the works.

Note: the cost of a bank guarantee is always for the construction promoter.

How long is the bank guarantee valid?

In principle, your payments are protected until delivery of the works. Legally, delivery occurs when the architect attests that the structure was built in accordance with the building permit. In addition, the bank guarantee also expires when the property is transferred to the buyer.

Note: it is common to include an expiry period of +- 2 years. This is a controversial practice. Therefore, it is important to renew the bank guarantee on time.

Read more about the completion of a new building in Spain.

Bank guarantee in Spain: decision

Buying on plan carries risks. The construction promoter may not deliver as agreed or may even go bankrupt. With a bank guarantee, these risks are mitigated, but due diligence remains necessary. If you are considering buying a flat or villa in Spain on plan, Confianz can help you with the legal screening of the construction promoter and requesting a bank guarantee.

Here you will find all the steps of buying a new building in Spain.

Update: May 2023

Share this post?


Legal notice: Blog posts enjoy copyright protection and may not be reproduced without written permission from the author.

English (UK)