The purchase of a House to be built, or under construction, offers the Purchaser the advantage of being able to make partial payments, although in advanced to the delivery of the real estate.
These Advanced Payments, however, have the disadvantage that, due to incidences of construction, the intended purpose may be frustrated, with the consequent risk that Advanced Payments may be lost.
Therefore, in order to protect the purchaser of a new House, in case the vendor does not fulfil his obligations, the Spanish law establishes certain guarantees for the payment and the refund of the amounts anticipated.
These guarantees are formalised before making the first payment on account, and its entry into force is linked to the moment in which the payment is made. The amount of the guarantee coincides with the amount of the advanced or stipend payments.
1. Guarantee of advanced payments.
A. Refund Insurance
B. Bank guarantee
C. Special Developer’s Account for prepayments.
D. Responsibility of the Bank
3. Extinction by mutual dissent of the parties
4. Failure to comply with the obligation
5. Cancellation of the guarantees
1. Guaranty for the advanced payments
The developer of the construction of a house must guarantee, from the obtaining of the building license, the refund of the amounts (plus the legal interest) received in advanced for its construction.
The protection of the Purchaser is basically covered with the requirement to the developer of two fundamental obligations:
1.- To guarantee the refund of the received amounts (plus legal interest and applicable taxes), from the moment of obtaining the building license, in the event that the construction does not start or does not reach a good end Within the agreed term for delivery.
The guarantee of repayment may be made through a surety insurance contract with an Insurance Company, or through a joint guarantee issued by duly authorised credit institutions. In practice, it is much more frequent that the refund of the anticipated payments is guaranteed by a bank guarantee.
2.- To receive the payments anticipated by the Purchaser through a special account opened in a Bank. For the opening of this type of bank account, the Bank must request the fulfilment of the guarantee by means of a bond insurance contract or by means of a joint guarantee.
The Purchaser can simultaneously address the vendor and his insurer to request both jointly the refund of the advanced payments and, also, to the guarantor or the insurer. without having to sue the developer for breach.
a. Refund insurance contract
In order for a surety insurance contract to serve as a guarantee for Advanced Payments in the construction and sale of a House, it must meet the following requirements:
1.- An individual insurance policy must be signed by each Purchaser, identifying the property for which the payments are delivered in advanced.
2.-The sum of money insured must include the anticipated payments provided in the contract of sale, including applicable taxes, plus the legal interest of the money from the prepayment until the expected date of delivery of the home by the developer.
3.- The developer must be the policyholder, who is responsible for the payment of the premium for the entire period of insurance until the public deed of the contract of sale.
4.-The insured position corresponds to the Purchaser or Purchasers that appear in the contract of sale.
5.- The insurer can not oppose to the insured any exceptions that may correspond to the policyholder. The non-payment of the premium by the developer is not, in any case, an enforceable exception.
6.-The duration of the contract cannot be less than the duration of the commitment for the construction and delivery of the dwelling (in the case of an extension for the delivery of the dwelling, the developer may extend the insurance contract by paying the Corresponding premium, and must inform the insured party of said extension).
7.- The Insurance Company can verify during the term of the insurance the documents and data of the developer that relate to the obligations contracted against the insured.
8.- The insured party can claim directly to the insurer, if the construction does not start or does not conclude within the agreed term, as long as he has made a formal request to the developer for the repayment of the anticipated funds; Likewise, where it is not possible to claim the developer beforehand. The insurer must indemnify the insured within thirty days from the time he files the claim.
9.- The payments that are not proved as provided by the insured party are not compensable, even if included in the insured amount of the insurance contract.
10.- The insurer can claim to the developer the indemnified payments to the insured, subrogating in his rights.
11.- The developer cannot sell the house without having previously compensated the Insurance Company for the indemnified payments (if the Insurance Company has had to compensate the insured as a result of the insurance contract).
b. Bank guarantee
The developer may, alternatively, guarantee the repayment of the Advanced Payments by means of a guarantee issued by a Bank. For an endorsement to serve as a guarantee for advanced payments in the construction and sale of a House, it must meet the following requirements:
A) It must be issued and maintained by the Bank, for the total amount of Advanced Payments in the sales contract, including taxes, increased by the legal interest of the money from the effective delivery of the advanced to the expected date of delivery of the House by the developer.
B) In the event that the construction does not start or is not completed within the agreed term, the beneficiary may require the guarantor to pay these amounts of money, provided that he has formally requested the developer for the repayment of the Advanced Payments (Plus interest), and the developer has not refunded it within thirty days. Likewise, the beneficiary can directly claim the guarantor when the previous claim to the developer is not possible.
C) The expiration of the guarantee occurs after a period of two years, from the breach by the developer of the guaranteed obligation without having been requested by the Purchaser for the rescission of the contract and the repayment of the Advanced Payments.
c. Reception of Advanced Payments in special and separate bank account
In addition to guaranteeing the refund of prepayments, the House developer can only receive the payments anticipated by the Purchaser through a special account opened in a Bank.
For the opening of these special accounts, the Bank is obliged to demand, under its responsibility if it does not, the constitution of the guarantee by means of surety insurance or bank guarantee.
These accounts must also be separate from any other bank account of the developer.
The developer can only dispose of them for the obligations derived from the construction of the house: only the money of the promotion can be entered, and can only be spent for its construction. It is not legally possible to give them another purpose or include other income.
d. The responsibility of the Bank.
If the Bank accepts payments from the Purchaser to a different developer’s bank account, instead of to the special account and without requiring the corresponding guarantee, it is liable to the Purchaser for the total of the Advanced Payments in that bank account.
So that, upon the insolvency of the developer, the Purchaser has the right to claim from the Bank the refund of the Advanced Payments. The condition for the exercise of this legal action is the production of a damage, which is the economic damage suffered by the Purchaser. This action finds its cause in the lack of diligence of the Bank, in breaching the legal obligation to require the developer to establish the guarantees for the opening of accounts or deposits.
This is an active collaboration of the Bank, a legal imposition that means responsibility and special duty of vigilance on the developer: that the payments can only be made in the special account that the developer must have for each promotion, with the guarantee that must request.
2. Contractual information
In the contracts for the acquisition of a House in which advanced payments to the developer are agreed, it should be expressly stated:
A) That the developer undertakes to repay to the Purchaser the Advanced Payments, plus legal interest, in the event that the construction is not started or is not completed within the terms agreed in the contract, or that, upon completion of the construction, the first occupancy license is not granted.
B) A reference to the insurance contract or bank guarantee, with the indication of the Insurance Company or the guarantor bank.
C) Designation of the Bank and the bank account through which the Purchaser is to deliver the payments that he had committed to anticipate by contract.
In advertising for the promotion of a House with advanced payments prior to the beginning of the works, or during the construction period, it is mandatory to state that the developer will adjust his performance and contract to the fulfillment of the requirements established in the LOE, indicating the Insurance Company or guarantor bank, as well as the Bank in which is opened the special account to which the advanced payments are to be transferred.
3. Extinction by mutual dissent of the parties
The extinction by the mutual dissent of the contracts of sale of a House extinguishes also the guarantee of the anticipated payments.
The guarantee of advanced payments cannot be maintained if the contract of sale is extinguished by mutual dissent before the date established for the delivery of the house, since the guarantor’s obligation is extinguished at the same time as the debtor’s, and therefore disappears the insured risk, which is the breach by the policyholder of his legal or contractual obligations.
4. Failure to comply with the obligation to guarantee Advanced Payments
Guaranteeing Advanced Payments constitutes a legal obligation of an essential nature imposed on the developer of the House under construction.
Failure to do so, as well as the failure to open the special account for prepayments, will result in a penalty of up to 25% of payments whose repayment is to be insured (or which corresponds according to the rules of the Region).
Failure to comply with these obligations constitutes a consumer offence, applying the provisions of the general and regional sanctioning system on the protection of consumers and users.
In addition, the developer is charged with any infractions and sanctions that may correspond upon the specific legislation on building management.
In the execution phase of the project, the guarantee or insurance operates as bilateral obligations, so that the future Purchaser may oppose an exception to the delivery of the advanced payment, if the guarantee or insurance is not granted; or proceed to the termination of the contract if, made the advanced payment, the developer refuses to grant the guarantee.
Once the construction of the house is completed, if the obligation of the guarantee has not been demanded previously by the Purchaser, its constitution no longer makes sense, because, with the delivery of the house, everything is redirected to the field of compliance or breach of contract.
The law allows exercising a personal legal action against the administrator of the promoting society. The direct responsibility of the administrator stems from the imperative nature of the rule that has been breached and from the importance of protected legal interests.
This implies that it is up to the administrators to ensure compliance with this legal requirement and that their non-compliance is directly attributable to them.
5. Cancellation of the guarantees
Once the City Council issues the habitability certificate or first occupancy license of the house, and the developer delivers the construction to the Purchaser, the guarantees granted by the Insurance Company or guarantor are cancelled. As long as this condition is not met, the warranty remains in force.
If the delivery of the house does not take place within the agreed period, the Purchaser can claim from the insurer or guarantor the payment of the indemnity, provided that he has reliably requested the refund of the Advanced Payments and he has not refunded it in 30 days.
As an exception, cancellation of the guarantees without delivery of the finished house is also occurring in the event that the developer complies with the above conditions, i.e. if the work finishes in time and the House has the necessary documentation, but the Purchaser refuses to receive a House.
In the event that the contract of sale is extinguished by the mutual dissent of the parties, the guarantee of the anticipated payments is also extinguished.