Bank Guarantees - Before you buy

If you are buying a property off-plan or under construction, you should always insist on a bank guarantee (aval bancario) to cover your stage payments. Developers of off-plan properties are legally obliged under law 57/1968 to secure all deposits with either a bank guarantee or an insurance policy.  This law also states that all payments made by the purchaser must be paid into a special (escrow) bank account (cuenta especial), which is completely separate from the general account used by the developer.  The amounts deposited in these special accounts are only permitted to be used for building purposes.

According to this law, the bank guarantee only expires when the property is granted a habitation certificate and is received by the purchaser. If the developer does not start building the property or does not complete the property within the specified deadline, the purchaser has the right to rescind the contract and have the deposits returned (plus 6% annual interest) or to extend the deadline, allowing the developer to complete the property.

It is recommended that prospective purchasers of off-plan property or of property that remains under construction take the following precautions when transacting with Spanish developers:

• Do not make any payments to the developer without a bank guarantee.
• Ensure that the sales contract you sign with the developer states that the developer is obliged to return all the advanced amounts plus the 6% to the purchaser, if the construction is not started or is not completed within the deadline stated in the contract, or if the habitation certificate is not granted.
• Check the terms of the bank guarantee thoroughly before making any payments in respect of the property. The guarantee must include the details of the financial services provider guaranteeing the payments and the special escrow account that your payments will be paid into.
• Ensure that the financial institution issuing the guarantee is authorised to offer financial guarantees in Spain before making any payments.  We advise contacting a local lawyer/financial adviser to confirm this detail for you.
• The developer is legally obliged to pay the costs associated with setting up and maintaining the bank guarantee.  If the developer refuses to issue you with a bank guarantee at no extra cost, you can report the company to the regional consumer protection office.
• The developer is obliged to provide you with a copy of the bank guarantee.  Ensure you have a copy of this before making any payments.
• If you have any concerns regarding whether the bank guarantee has been set up and whether payments have been made by the developer into the escrow account, you should check with the bank, providing them with the relevant documentation.
• When making stage payments, you should keep copies of any receipts detailing the exact amount you have paid.
• Make sure that you know exactly when the guarantee can be executed.
• Keep copies of all documentation relevant to the purchase of the property and the obligations of the developer in case the property is not completed and you need to execute the bank guarantee.