Buying a new building in Spain: what if planning permission fails?

In Spain, you may find yourself signing up to a new-build project without planning permission. How can you safely buy new construction in Spain without planning permission?

Upon purchase, planning permission ('licencia de obra') are already in application, for example, but the promoter or builder does not yet have a view on the effective date of grant. However, you may already be asked to sign a private sale agreement. The risk then is that you are legally committing yourself, and possibly making payments, with no guarantee of taking delivery of the property. This article therefore provides more information on how to protect yourself from the promoter or builder.

Why a building permit?

A building permit is an official authorisation from the local government and which confirms that the construction plans comply with all city rules and regulations. This permit is essential to ensure that the construction is legal. If a property was built without a building permit, you risk the local authorities declaring the construction illegal. This could lead to legal proceedings, fines and even the demolition or unsaleability of the property.

Read more about the buying process when buying on plan or a new build in Spain.

Can projects be sold in Spain without planning permission?

Of course. You can already tender for projects without planning permission. However, there are several risks involved here.

  1. Without planning permission, you have no guarantee that the house will be finished and completion dates are uncertain. In addition, the risk of delays is real.
  2. The chances are very high that without planning permission, no bank guarantee will be active for the project. This means that your payments to the promoter are not protected against, for example, bankruptcy or failure.
  3. Typically, a lender will require a building permit before approving your loan. So you will have to advance interim payments yourself.

A situation sketch. You subscribe to a buy-on-plan during December 2022 for a €200,000 flat including VAT. The completion date is scheduled for 31 March 2024 at the latest. The building permit is not yet in place, but is expected around April 2023. After the building permit is granted, the works will effectively start. You will sign the purchase contract during January 2023 and make a payment of 20% of the purchase price to the promoter, i.e. €40,000.

We are now November 2023 and planning permission has still not been obtained. So you will have to expect a significant delay and this while other opportunities are coming your way. Since you have already made a payment without the cover of a bank guarantee, you will not be able to cancel the purchase just like that. If you then want to cancel the purchase because you do not want to wait any longer for the building permit to be granted, you will lose 40,000 euros.

Read more about what you can do in case of late delivery.

So how can you safely buy a new building without planning permission?

First of all, you should provide the option in the purchase contract to cancel the purchase, without compensation and with recovery of any sums already paid, if:

  • delivery is not achieved within a specified time limit and/or;
  • the planning permission is not granted within a certain period of time.

This will allow you to cancel the purchase if there is no certainty about the progress of the project within a period to be agreed. After all, without such a provision, you are stuck.

In addition, you do pending grant of planning permission and bank guarantee:

  • no direct payments to the promoter;
  • or if you are willing to make payments though, deposit in an escrow (third-party) account.

The idea is that the promoter or builder cannot access your funds until he has a building permit and a bank guarantee.

Here are some alternatives if the promoter or builder does not yet have a bank guarantee.

This way, you can safely buy new construction in Spain without planning permission and have sufficient guarantees and flexibility in case a significant delay occurs.

Do you have questions about buying a property on plan? Confianz will guide you through the entire purchase process so that you can buy safely. Feel free to take contact on.

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