New build promotion Spain

Table of Contents

Why hire a lawyer when buying a new build promotion in Spain?

Also when it comes to buying a new build promotion from a developer in Spain a lawyer is responsible for the work that in other countries is done by the notary or real estate agent. He checks the legality of the property, potential debts from the developer (like existing mortgages or unpaid taxes), technical licenses, bank guarantees, insurances, etc. When our legal investigation is finished, the lawyer then negotiates the conditions of the Private Purchase Contract in favor of the client.

Also, he takes care of payments, provides tax advice, handles your mortgage application and, after completion of the purchase, your lawyer will be in charge of all the necessary after-sales works. If you´re buying a new build property hiring a specialist lawyer is extra important. This because this purchasing a promotion requires extra work and checking on top of the normal legal investigation.

The buying process of off-plan or turn-key properties

Some buyers find a turn-key property when the construction already is finished and only needs the last official documentation for the final inscription in the Land Registry. However, if you buy a off-plan house or apartment that still only exists in the artist´s impressions, it can also easily take up to 1 or 2 years until the actual purchase. According to the wishes of our clients, C&D Solicitors takes care of the whole process of turn-key and off-plan properties including after-sales in a full-service way. We can do so through a Power of Attorney signed at the notary.

The total process from the reservation contract until the final balance meeting, when the final after-sales works of the lawyer have finished, mostly looks like this:

Reservation contract of the developer

Especially when there are other interested buyers it´s important signing a reservation contract as soon as possible to take the property off the market during the next weeks. This grants the lawyer time to conduct the first part of the legal investigation and negotiate the terms of the private purchase contract with the developer. With the reservation contract the buyer pays a reservation fee to the real estate agent or developer of around 5.000 Euros. This reservation fee is part of the total purchase price.

Legal investigation and private purchase contract

After the signing of the reservation contract the lawyer starts the important legal investigation. The lawyer checks all documentation of the developer/promotor like the Land Registry records and the Cadastre, bank guarantee, licenses and insurances. Likewise, in certain cases he needs to contact the Town Hall about the status of the neighborhood area that can influence the legal or financial status of the property.

If the legal investigation and the negotiations are positive, then the lawyer draws up or checks the Private Purchase Contract. After signing the 10% down payment will be paid by the client. This agreement document determines all conditions, rights and obligations for the rest of the process for both parties including the final purchase. As there is a lot of money involved over a longer period this contract is extremely important.

Purchase Deeds of the new house or apartment

Before the final Purchase Deeds of the new build house or apartment can be signed at the notary the lawyer checks if the developer/promoter complies with all conditions of the Private Purchase Contract. This means that a lot of official documents need to be provided for and checked such as:

End of Building Certificate
First Occupation License (Licencia de Primera Ocupacion / LPO)
´Boletins (technical certificates) for electricity and water
Acceptance certificate of the buyer (including last to-do-list for finish the works)
Mortgage cancellation deeds
Insurance guarantee of the developer
Providing keys and technical documentation/instructions

Usually, any Spanish Mortgage Cancellation Deeds of the vendor (developer) or new Mortgage Deeds of the clients are signed before the notary just before the purchase. This will all be arranged by your lawyer through the Power of Attorney. Also, he guarantees that you buy the property without any surprises or unpaid debts. Once both parties put their signatures then the bank cheque with the final payment will be exchanged for the keys.

After-sales and service contracts of a new build promotion

As soon as the buyer receives the keys the law firm will directly start the after-sales works. These consist of tax payments, submitting the Title Deeds to the Land Registry and Cadastre and setting up the contracts for electricity and water. For these service contracts -and also the IBI property tax and ´basura´ (environmental tax)- the lawyer will open a bank account in the buyer´s name and set up the future direct debits. However, it´s important to know that electricity and water contracts usually take several weeks to activate. Logically this means that until then the dwelling won´t have any guarantee for electricity or water supply.

The new house owner in most cases will also be part of a newly constructed Community of Owners (Comunidad de Propietarios). This ´comunidad´ takes care of communal areas like entrances, gardens, parking areas and swimming pools.

Would you like to rent out your property in the future? C&D Solicitors can apply for your RTA rental license and inform you about all conditions and tax obligations.

Final balance meeting of the purchase in Spain

When all the after-sales works are finished there will be a final balance meeting with the lawyer (or with the bank in case of a mortgage). In this meeting all original paperwork of the purchased property will be handed over. This includes the stamped Title Deeds, Nota Simple, Cadastre registration, proof of tax payments, official bills, service contracts, etc. Besides this, any surplus of the estimated third-party costs will be refunded. Even though the client already might be enjoying the house for some time, the project for the lawyer only ends now. Depending on the personal situation at this point we often recommend the clients to sign a Spanish will at the notary.

Difference between a normal purchase and a new build promotion

Despite the longer waiting time until you can enjoy your new home, many buyers prefer new build promotions over existing buildings. The fact that all will be new, to nowadays standards and you might even get to choose your own kitchen is very appealing. However, it´s good to realize that there is a legal, fiscal and practical difference when buying off-plan, turn-key, new-build promotions compared to normal purchases.

10% VAT and 1,2% AJD tax instead of ITP transfer tax

Most real estate agents and developers/promotors will inform you that you´ll pay 10% VAT over the purchase price instead of the normal 7% ITP transfer tax in Andalusia. (For a separate garage parking this percentage is 21%.) What they don´t always mention, is that on top of the VAT you also pay 1,2% AJD tax (Actos Juridicos Documentados) over the price in the Title Deeds. This is the Spanish equivalent of Stamp Duty. The lawyer takes care of all tax payments after completion.

Bank guarantees over the paid amounts

By law the developer is obliged to freeze all you paid amounts in a special bank account until completion. This bank guarantee (aval) in the individual name of the buyer makes sure that the buyer gets his money back in case the developer can´t complete the construction. This, for example, could be due to an extreme delay or bankruptcy. It´s essential that the lawyer checks if the developer complies with this legal obligation to guarantee a safe purchase.

Payment plan for partial payments

Where in ´normal purchases´ there a no more than 3 partial payments for the house (reservation fee, 10% down payment and rest of the purchase price) developers often work with a strict payment plan. This means that for example every month or every certified building phase a partial payment needs to be done. This partial payment the buyer transfers to the bank guarantee account. Although it may vary from developer to developer usually around 30% is paid before completion of the purchase at the notary. To avoid fines due to potential delays the lawyer can take care of these payments on the buyer´s behalf.

First Occupation License and ´boletin´ certificates

During the building process the lawyer needs to check the issue of various technical certificates, but the most important ones are those before completion of the purchase. When the building of the promotion is officially is finished the architect certifies this through the End of Building Certificate (Certificado de Final de Obra).

This certificate then will be sent to the urban department of the Town Hall to apply for the First Occupation License which is a legal requirement for new buildings. (In Andalusia nowadays the First Occupation License in 2020 strictly speaking is replaced by a ´responsibility declaration´. However, most professionals still refer to it as the First Occupation License, or ´Licencia de Primera Ocupacion´. Legally they have the same status).

Also, the ´boletin´ certificates for water and electricity are very important. Without them and the important CUPS-number (electricity address) the buyer can´t apply for new services contracts.

Uncertainty over regular or monthly costs for a new build promotion

If you´re on a tight budget, you need to realize that the regular or monthly costs of the house or apartment can´t be known completely from the beginning of your commitment to buy the property. The fiscal value and IBI in Spain still need to be defined by the Cadastre. For apartments this is based on the horizontal division. Also, the Community of Owners (Comunidad de Propietarios) needs to founded first before it can set its yearly budget. However, an experienced lawyer or real estate agent should be able to give you general estimations for these costs.

A longer buying process and special conditions

It is wise to have an independent lawyer defend your interests in the negotiations and check all conditions that the developer wants you to sign. Especially if you´re buying early in the building process it´s wise to check if the developer/promotor will wait for a certain percentage of dwellings to be sold before starting the construction. Even though the price of your dream home can be extremely attractive at that early moment, a lot can change during maybe a couple of years.

The costs of a lawyer when buying new build promotion

Developers have the job to sell promotions/developments and they usually do so very well. They, especially the large ones, often are much more dominant in the process than vendors of existing buildings. This usually puts a lot of pressure on the clients. Therefore it´s wise to contract an independent Spanish lawyer to check all documentation so you´ll exactly know your legal and financial position. Your lawyer will always intend to defend your interests so it´s better to be safe than sorry. Likewise, he can avoid many problems that might cost you in the end much more than his initial legal fees.

Interesting developments in Andalusia and the Costa del Sol

Because of its long season, extended coastline and well-developed infrastructure Andalusia tourism keeps growing already for decades. This makes the area very interesting for buying a holiday home, permanent residence and also a rental investment for all kinds of budgets. Especially for the famous Costa del Sol (Malaga province) this proofs to be true, but also the Costa Tropical (Granada province), Almeria and Cadiz are creating more and more new developments on their coasts. This due to the continuous interest of both national and foreign buyers.

Interested in buying a new build promotion on the Costa del Sol? Maybe you´ll find your future dream home in one of these attractive developments:

Malaga centre: new skyscrapers Málaga Towers, Málaga East: Mirador de Colinas del Limonar or Villas Pinares de San Antón.
Costa del Sol West in towns like Benalmadena, Mijas y Fuengirola construct many affordable new apartments and chalets. Further South-West in Marbella, Estepona and Banahavis many luxurious projects are presented like Mirabella Hills, Le Blanc, Sanctuary Villas II or Higueron West.
Costa del Sol East: towns as Rincon de la Victoria, Torre del Mar, Torrox and Nerja offer popular investments as Adelba Homes, Mediterráneo, Burriana 21, Duna Beach, Isea Calaceite.