EXPLAINED: BANK GUARANTEES, BGs, IN SPAIN. All You Need to Know. 

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When acquiring a plan property in Spain, it is typical to advance a 30-40% deposit in payments and the remainder is funded at completion in the presence of the attorney.

Considering the prepayment also known as the down payments, they are planned as routine step instalments made to your contractor/developer.

Notwithstanding, off-the-plan holds internal jeopardies, as you may be offering a payment on a property that is yet under construction or whose construction is perhaps to begin. The risk at this level is that it is either the construction is not completed on time/not completed at all or the constructor eventually records bankruptcy. This will put the buyer’s deposit at high risk. 

Because of such cases, Law 20/2015 and others were established conceiving ‘bank guarantees’ also known as insurance policies which secures all interim instalments.  

Bank guarantees (BGs)are obligatory and must be provided free of charge to all clients of new-build property. BGs procedures are quite complex but have been considerably digested in this article for easy understanding. 

 What are BGs

BGs in Spain are a legitimate medium invented to guard the prepayments of off-plan purchasers in case their property is not given on time or their developer’s files for liquidation. BGs can be seen as protective webs for new-build customers in desperate situations, for example, a global virus burst leading to financial misconduct.

Significance of BGs

BGs preserves all your step payments should you developer file for bankruptcy. Also, your deposits are qualified for a complete refund in addition to a legal interest should your construction is not completed in time or at all. 

Amount covered by BGs

The primary holding prepayment (reservation advanced to the property company or developer, usually up to €6,000), automatically hits the property off the market. Besides, you are further authorised to a legitimate interest on the sum secured.

When are BGs Valid

The BGs becomes valid only from the moment a developer obtains a building permit from the municipality where the construction resides. All payments executed before the above is not secured. 

BGs Validity 

Preferably, BGs should be valid till a developer achieves a Licence of First Occupation, LFO. From the time a developer achieves this, the purchaser is legitimately coerced to develop on the property at an attorney.

Nonetheless, novel changes in the law indicate that they now expire 24 months from the moment the developer infringes contract without the purchaser using his claims to cancel the contract and demand a refund. The point of note here is that BGs now hold an expiration date.

BGs Nullification

BGs become null and void if any of the conditions below are met;  

  • The moment a developer achieves an LFO from a municipality hall’s planning committee.
  • From the time the developer declares the new-build property accessible to a client (as in actually delivering it over to the client) and informs him/her, or his/her agent by registered delivery.
  • In the case where a buyer withdraws from completing before a Notary Public when lawfully coerced to. 

Who pays for the BGS?

  • Legally, the developer is obliged to pay for them.

Conclusion

To conclude, it is fully advised that you should not pay any amount for an off-plan property until a developer achieves a building license. If you do so, your funds will be unsecured and at jeopardy. Also, buyers or their legal agents must safeguard the hard copies of BGs at all times since they shall need to be returned upon completion. 

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