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New regulation on bank guarantees for deposits paid on off-plan properties.

Submitted by on Tuesday, 24 November 2015 18:36



Act 57/1968 of 27 July, 1968 on the receipt of sums of money prior to the construction of off-plan properties consists of only six articles but has become a subject of widespread legal controversydue to its scope regarding the protection of purchasers of off-plan properties against a breach of the sales agreement by the developer. At least four judgements on this issue by the Plenum of the Supreme Court as well as countless decisions by Provincial Courts and First-Instance Courts throughout Spain were made in 2015 alone.

Act 20/2015 of 14 July on the management, supervision and solvency of insurers and reinsurers which will come into force on January 1st, 2016, has recently repealed Act 57/68 of July 27 on the receipt of advance payments made prior to the construction of off-plan properties, thereby establishing a new regulation.

This new regulation is contained in the First Additional Provision of the Act on Building Regulation, 1999 and its most relevant changes include the following:

 ·    The developer is obliged to protect the aforementioned sums when the building permit is obtained, but not before. Therefore, verifying the existence of such a permit for building work is essential before making a down payment on any of the dwellings.

 ·      However, it is important to highlight that this new regulation maintains the banks' obligation to demand, under their sole responsibility, the setting up of deposit insurance funds for purchasers when the account for the receipt of payments is opened.

 ·       The deposit insurance funds cover the sums paid by the purchasers including all applicable taxes, plus the legal interest rate.

 ·     The new regulation indicates the requirements to be met by the deposit insurance funds with regards to both insurance policies and bank guarantees:

 o    Each purchaser shall be granted an individual policy on which their specific dwelling shall be duly identified.

 o    The insured amount shall be the total amount paid in advanceon signing the sales contract, plus the legal interest accrued from the date the advance payment was made up until the deadline for the handover of the dwelling by the developer.

 o   The developer shall be the policyholder and shall undertake to pay the corresponding premium. The insured person shall be the purchaser indicated on the sales agreement and the failure to pay the premium by the policyholder shall not alter in any way the obligation to return paid amounts to the purchaser.

 o    Duration: The insurance contract shall not end before the dwelling's construction and delivery dates. In those cases where the expected date of delivery is extended, the insurance may be also extended.

 o    Claim: in those cases where the dwelling is not delivered on the date indicated in the sales agreement, it will first of all be necessary to claim said amounts from the developer and, only in the event that it is not possible to make such a claim or, if after giving the developer corresponding notice, the said amounts have not been refunded within 30 days, they shall be claimed from the insurer. The insurer shall indemnify the insured within 30 days following the date of the claim.

 o    Those sums for which payment by the insured cannot be proven shall not be indemnified. It is essential, therefore, to keep a copy of each and every bank transfer made to the developer from the construction start date until the day on which the sales agreement is registered on public record.

 ·       Expiry date of the bank guarantees: Following a period of two years from the moment the developer fails to comply with the guaranteed obligation and during which the purchaser fails to make a claim to rescind the sales agreement and request the refund the advanced payments, bank guarantees shall expire. This change is very important since, according to the decision by the Supreme Court on January 16th, 2015, the maximum period for submitting a claim under Act 57/68 is fifteen years. According to the new regulation, this claim period has been reduced to two years, meaning that purchasers need to keep a careful eye on deadlines in those cases where the developer fails to comply.

 ·      Contrary to what is set forth in Law 57/68, the new regulation does not expressly mention the possibility to put into effect the bank guarantee in the event that the insurer fails to pay it.

 ·      Guarantee discharge: the discharge of the bank guarantee shall take place, not only when the certificate of habitability, licence of first occupation, or similar document, and a proof of delivery of the dwelling to the purchaser are issued, but when, after fulfilling these conditions, the purchaser refuses to receive the dwelling. 


In conclusion, we could say that the merit of the new regulation is that it sheds some light on some unclear aspects of former Law 57/68; however, in some other aspects it restricts the rights of purchasers, who, from now on, will have to pay special attention to the following advices:

 o    Do not make advanced payments if the construction project has not been granted with a building permit.

 o    Keep a copy of each and every bank transfer made to the developer until the property is duly delivered.

 o    Keep a careful eye on deadlines to claim the refund of your money in case of a breach of the sales agreement, especially on the two years deadline period established for bank guarantees.


The IMONT Team