Guarantees when buying a home
When you buy a house from a property developer, any sums paid in advance must be either covered by an insurance policy taken out by the property developer, naming the buyer as the beneficiary, or guaranteed by a bank.
This specific guarantee obligation is laid down by the first additional provision of Law 38/1999 of 5 November 1999 on Building Regulations, amended by Law 20/2015 of 14 July on the organisation, supervision and solvency of insurance and reinsurance undertakings (in Spanish):
Main aspects of the current legislation, in force since 1 January 2016:
- The obligation to provide a guarantee arises when building permission is granted.
- The guarantee must be issued and kept in force to cover all amounts paid in advance, including taxes, plus the legal interest rate from the date the amounts are paid until the agreed hand-over date for the housing.
- If construction does not start or it is not completed on time, the property developer must repay all the amounts paid, and if it fails to do so within 30 days, reimbursement can be claimed from the guarantor.
- If two years elapse from the time the property developer fails to comply with the underlying obligation without the contract being terminated and the amounts being claimed, the guarantee will expire.
- The guarantee will be cancelled either when the certificate of occupancy, residential occupancy permit (“licencia de primera ocupación” in Spanish), or equivalent document is issued and evidence is given that the property has been handed over to the buyer, or if the buyer refuses to take possession of the property, although the above conditions have been met.
Failure to comply with these obligations constitutes an infringement of consumer protection legislation, and is therefore a matter for the courts.
- The Spanish Supreme Court, in its judgment 322/2015 on 23 September 2015, which was delivered in a case in which the respondent banks had signed collective counter guarantee policies with a property developer without providing individual guarantees to the guarantee beneficiaries (the buyers), declared that the absence of individual guarantees did not affect the guarantor’s obligation to reimburse the buyers.
- In judgment 733/2015 of 21 December 2015, the Court went further in its interpretation of banks’ liability, understanding that, if the banks receive advance payments from buyers against the cost of housing under construction, even if they have not expressly committed themselves as guarantors, they are required to comply with a special duty of oversight over the property developer, to ensure that these amounts are deposited in the appropriate accounts and, if they fail to do so, they are liable to the buyer.
Find out more about guarantees covering advance payments for a property in our 2020 Complaints Report (in Spanish) (109 KB)
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