How to check the developer and secure the deal in Spain

Buying property in the primary market in Spain offers a higher degree of protection than in a number of other countries. However, mistakes when choosing a developer are still possible and can be very costly. In this article, we will look at the typical "pain" points that concern future buyers, and give a step-by-step plan for checking the developer before buying a home at the construction stage or finished properties. Let's figure out what documents to pay attention to and how to avoid debts, construction defects, and problems with the registration of the transaction.

Why it is important to check the developer

The main pain of the buyer is not to be left without money and without housing. In Spain, developers (promotores) have more obligations under the law than in a number of CIS countries, however, risks may persist. Here are the key concerns of future owners:

• The developer delays the delivery of the object or completely "freezes" the construction.
• The project lacks the necessary documents for construction or occupancy.
• Too low a price of the object, which hides additional costs.
• Technical and legal defects, leading to thousands of expenses for repairs.
• The presence of encumbrances, debts or litigation related to the developer or the land.

To avoid getting into such situations, it is important to pre-collect all the necessary information about the history of the company and the specific project.

Step 1. Study the developer's reputation

How many years the company has been on the market

A reliable developer (promotor) is, as a rule, a firm that has been working in the construction industry for a long time and has commissioned a number of objects. Pay attention to the following points:

• Official presence of the developer in the Commercial Register of Spain (Registro Mercantil).
• Reviews about the developer: are there any complaints about delays or the quality of buildings.
• Implemented projects: how many objects have already been built and handed over to the owners.

The more successfully completed projects, the higher the probability that the construction will be completed.

Checking financial transparency

The presence of a sufficiently large authorized capital and accountable financing speaks in favor of the company. Remember that banks in Spain, before issuing project financing, conduct a check of the developer. However, it is not worth relying only on this - it is better to thoroughly study the information yourself or with the help of a specialist.

Step 2. Study the documents for the new building

When buying housing in Spain at the construction stage, be sure to check for the following permits and certificates:

• Licencia de obras (building permit). Without it, the developer had no right to start work.
• Certificado de final de obra (CFO) - a certificate of completion of construction work, signed by a technical architect.
• Cédula de habitabilidad (certificate of habitability). This is an official document confirming the compliance of the object with the established quality and safety standards.
• Licencia de primera ocupación (LPO) - a permit for initial occupancy.
• Garantía obligatoria - 10-year insurance covering possible hidden structural defects.

It is important to remember about LOE (Ley de Ordenación de la Edificación) - the Law on the Organization of Construction, according to which the developer is obliged to provide insurance guarantees. It will not be superfluous to request from the developer and check in the relevant registers the legality of the construction documents and the land on which the object is being built.

Step 3. Check the condition of the land

In Spain there are different categories of land:

• Urbanizado - land is allowed for development.
• Fully urbanizado - the plot is already fully built up, usually with utilities connected.
• Rural - agricultural land where the construction of residential buildings is not permitted.

Make sure that the land on which the object is being built belongs to the category that allows legal construction. And also that the plot is registered to the developer.

Step 4. Study the terms of the contract

Purchase and sale agreement (Contrato de compraventa)

This document regulates the relationship between the buyer and the developer. It should clearly state:

• The price of the property, the payment schedule and the final date of delivery of the object.
• Penalties for delays and the possibility of termination if the period is significantly exceeded.
• Conditions for making advance payments. If necessary, require a bank guarantee or insurance surety for the amounts paid towards construction.
• Conditions of compensation if the object is not completed within the specified period.

Language of the document and legal expertise

Do not sign the contract until it has been translated into a language you understand and a lawyer has analyzed all the points. This is standard practice in Spain to avoid confusion in interpretations.

Step 5. Evaluate the costs after the delivery of the object

Utility costs

Spain is a country with a developed system of utilities, but the buyer should find out in advance the prices for electricity, water, gas and other services. It is useful to request from the developer or seller the last paid bill, which indicates the amount of debt (if any) and average consumption.

Property tax (IBI)

IBI (Impuesto sobre Bienes Inmuebles) is an annual property tax. Its size depends on the cadastral value of the object and the municipality. Check if the IBI has been paid for the previous period, and keep in mind that in the future you will be paying this tax.

Costs for the maintenance of common areas (Comunidad)

If the complex has a swimming pool, elevator, parking and other common facilities, then each dwelling participates in co-financing their maintenance. Sometimes this amount can be substantial, so clarify its size in advance.

Step 6. Clarify the issue of the tourist license

If you plan to rent out the property for short-term rentals, be sure to check for the tasa turística (tourist tax), or rather, the tourist license. Without this license, legal short-term rentals are impossible, and the fines in case of "illegal" rentals are very high. If the current owner already has a permit, it may automatically transfer to you.

Step 7. Make sure there are no debts and encumbrances

The main document when buying a finished object is the Nota simple. This is an extract from the property register, which reflects the rights to housing, as well as information about mortgages, arrests or other restrictions. When purchasing an apartment from a developer, request an up-to-date Nota simple in case the developer has taken out a loan secured by the land or building. If there are debts (for example, in the form of unpaid taxes), you should get them paid off before the contract is executed.

Step 8. Be mindful of the price and "hidden" costs

Too low a price can be a lure. Sometimes this means that the object or plot needs substantial financial injections (finishing, connection to utilities, elimination of construction defects). Conduct a feasibility study or invite a specialist who will realistically assess the cost of future repairs.

Step 9. Consider the "installment payment" scheme and mortgage

Many developers allow payments to be made in stages - up to the moment the object is delivered. However, if you plan to take out a mortgage, the optimal time to apply for it is 2-3 months before the actual readiness of the housing. This will avoid risks associated with changes in financial situation (falling incomes or tightening of lending conditions).

Step 10. Insure your transaction

To reduce potential risks, demand bank guarantees from the developer for the advanced amounts. Check the insurance conditions in case of construction stoppage or detection of defects that may appear after some time. In Spain, there is a practice of mandatory insurance coverage, but the buyer should clarify all the details before signing the contract.

Conclusion

Real estate in Spain, with proper verification, can be a profitable investment and a reliable investment. The main advice: do not rush, analyze the reputation of the developer, make sure that all documents and rights to the land are available, carefully read the contract and do not hesitate to ask questions. If you do not have sufficient experience or knowledge, it is recommended to contact qualified lawyers and professional real estate agents. A careful approach when buying will protect you from unforeseen expenses, long legal proceedings and will help you start life in a new building with joy, not problems.