Bank Guarantees in Spain

When you buy a property off plan in Spain (i.e. in construction and not yet built) it is likely that you will be required by the developer to pay an initial deposit followed by various stage payments and then the balance at the time of signing the title deed. In some cases you could be expected to pay anything up to 80% of the value of the property before you sign the title deed ( Escritura ) for the property.

By proceeding in this way you are effectively helping to fund the construction.

There is nothing wrong or illegal in dealing with the purchase of an off-plan property in this way — after all how many developers can afford to fund the whole construction themselves?

Of course there is an inherent risk associated with paying what can be a large amount of money before the property is finished. But what happens if the developer goes bust before you complete? What happens if somebody registers a charge on the property?

Or, what happens if the developer simply stops building and closes his company

Solution 1 - take title to the property

One option to protect your stage payments is to take title to the property (i.e. the actual land) first and then the developer - under a separate Contract - builds the property on that land.

By doing this you will own the land from the beginning and will therefore also own everything that is built on the land.

If the developer goes bust during the course of construction then at least you still have some protection and an asset and won’t lose the money that you have paid to date.

Whilst this option may, on the face of it , seem attractive there are still several issues that arise from this;

  1. You have to find the money for the purchase of the land at the beginning of the construction. This can be a reasonable amount of money to find at the beginning of the purchase and may be difficult if you are financing the purchase via a mortgage.
  2. You may still be committed to pay stage payments despite the lack of construction and may therefore be committed to pay over the odds for the amount of construction that is on your land.
  3. You would have to enter into two separate contracts—one for the purchase of the land and one for the construction of the property. As such you would be considered to be the actual developer of the property and the construction would be considered to be a self build (auto construcción).

The significant downside of this is that there is then no requirement for the builder to provide you with the 10 year building guarantee (Seguro Decenal).

The Seguro Decenal is similar to the NHBC Guarantee that comes with a new property in Spain and guarantees the structure of the property.

If the builder is not going to provide a structural guarantee then you can obtain one as a private builder

Solution 2 - timing of stage payments

In most off plan purchase contracts in Spain the stage payments are structured so that they are due on certain dates. This is done so that the buyer can easily budget for the purchase and knows exactly when the stage payments are due. The downside is that you are committed to pay these stage payments whether any construction has taken place or not.

A way to avoid this is to time the stage payments according to the actual construction of the property. A deposit may be paid at the beginning with a further payment when the foundations are laid, a further amount when the main structure is finished, another payment when the roof is on etc. That way if there is no construction there is no payment, meaning that your exposure is limited.

This does not avoid all potential problems such as the developer going bust but can help. However, many developers don’t want to proceed in this way, particularly when you are buying an apartment or a property that is part of a larger complex.

Bank guarantees

In Spain since 1968 there has been a legal requirement for developers to provide a bank guarantee to safeguard any stage payments that are made throughout the course of construction of a property. This is a very neat solution to the danger of making stage payments before the property is finished and before you take title to the property.

Law 57/68 was introduced in Spain as a result of abuses and scandals in relation to off-plan developments and stage payments being at risk, the Law stated stage payments must be paid to a separate bank account.

The law also says that a bank guarantee must be issued at no cost to the buyer and effectively means that if the developer disappears, goes out of business or doesn’t build the property in time the bank guarantee should refund the buyer the amount paid plus interest.

Unfortunately despite the fact that there has been a requirement to issue bank guarantees since 1968 many developers in Spain have not provided such bank guarantees as it costs them money. Even more unfortunately some of those developers have now ceased to exist to the detriment of the buyer.

What is covered?

Think of the Spanish Bank Guarantee like an insurance policy.

The law sets out the minimum requirements but each one is individual to that developer.

In every case the Bank Guarantee should provide the ability to recover your money plus interest if the property is not completed on time. In some cases the guarantee will provide enough money to complete the construction if the buyer chooses to take up that option.

The bank guarantee must not have an expiry date and therefore must be in place until the property is finished. This is defined by the issuance of the Certificate of First Occupation / Habitation Certificate, which is the document that states that the property is legally finished and fit for habitation.

Spanish Supreme Court judgement

There have been recent Supreme Court decisions in Spain passed in relation to Bank Guarantees.

These Supreme Court rulings are providing potential financial redress for individuals who have previously invested in off-plan projects in Spain which, for various reasons, have never been constructed. The rulings allow individuals in certain circumstances (not all) to make a claim against a Spanish bank to recover the deposits they - the individuals - had paid to their Spanish developer for their property.

The important judgment, which was issued in late 2015, ruled on the question of the lack of bank guarantees and stated that;

  1. It is compulsory for there to be a Bank Guarantee when a developer is selling off plan properties to the public.
  2. If the developer fails to fulfil his obligations under the contract then the purchaser is entitled to recover the money paid, whether the bank guarantee was issued or not.
  3. If the developer cannot return the money then the bank involved has the obligation to return the money even if there is no bank guarantee issues. Both the developer and the bank are jointly liable for the return of the money —meaning that you don’t have to sue the developer first and then if they do not pay then sue the bank.
  4. If a Bank Guarantee has an expiry date then this expiry date does not apply and it will come to an end only when the Occupation License has been issued by the Town Hall.
  5. Developers must set up a separate account for payments made during construction

The limitation period for making a claim in such cases is 15 years.

The amount that you can claim for is the full amount that you have paid to the developer up to that point— i.e. the initial deposit and also any subsequent stage payments. And potentially all lost interest.

How and what can you claim?

If the developer has not complied with the conditions under the contract then you can make a claim against them and potentially the bank.

All we would require would be copies of the Contract of Sale between you and the Developer, the proofs of payment (s) made by you in relation to the Contracts of Sale and a copy of any Bank Guarantee – if it was issued.

We will then evaluate your claim at no costs to determine the merits of any Action.

With a long and proven track record of recovering monies via the Spanish court(s) Judicare can help you make a claim against the developer and / or the bank for the recovery of your money if the developer has not complied with their obligations under the contract.

We operate on a No Win No Fee basis on these specific types of claims in Spain.

The new law

At the beginning of 2016 a new Bank Guarantee Law was introduced in Spain which includes some important changes to the 1968 Law. A summary of the new law is as follows;

  • The obligation to provide Bank Guarantees starts from the moment that planning permission is issued. This feels like a backwards step in consumer protection and makes it even more important to make sure that Planning Permission has actually been granted before agreeing to buy an off-plan property.
  • The amount covered by the Bank Guarantee is not only the amounts paid in advance but also any taxes paid in advance and also interest on the amount paid.
  • The old law allowed “bulk” guarantees that covered any purchaser of that complex. The new law requires individual guarantees for individual buyers.
  • The developer is obliged to pay for the Bank Guarantee.
  • The failure to pay for the Bank Guarantee premium is not an excuse not to issue it.
  • The Bank Guarantee cannot have a duration of less than the time contracted to build the property and deliver it to the purchaser.
  • If an extension for delivery of the property is given then the Bank Guarantee duration is also extended.
  • If a developer does not complete on time then the buyer can ask for the money to be returned within 30 days
  • The buyer has a period of 2 years to make a claim against the Bank Guarantee
  • The Bank Guarantee comes to an end automatically upon issue of the Habitation Certificate or First Occupation License.
  • If a developer does not provide a Bank Guarantee then there is a sanction of 25% of the amounts that are to be covered and the obligation to provide a Bank Guarantee
  • Promotional material and marketing campaigns from developers must state that they (the developers) comply with their legal obligations in relation to Bank Guarantees
  • Purchase contracts for new properties should;
    • State in the contract that if construction is not started or finished within the specified time period then they (the developer) will return the money paid in advance plus interest.
    • Must make reference to the bank guarantee, and that they (the developer) have to cover the return of the money and also to set out the details of the entity that is providing that guarantee.
    • Provide a copy of the bank guarantee at the time of signature of the contract.
  • Any Bank Guarantees that are already in force on 1st January 2016 must be converted to the new legislation by 1st July 2016

Why use Judicare

​Spanish lawyers

We have an experienced Spanish legal team comprising Spanish lawyers and English lawyers who have studied Spanish law.

We are Solicitors

We are a UK based firm of Solicitors regulated by the Solicitors Regulation Authority and who specialise in international legal issues.

We understand both sets of laws

Because we understand both sets of laws we understand the difficulties that come when two sets of laws meet.. This is particularly important when it comes to issues involving ownership, taxation and inheritance.

We are members of AIPP

The Association of International Property Professionals was set up to improve standards of professionalism in a largely unregulated overseas property market.


Our Spanish team has many years of experience dealing with a whole range of legal issues with Spain.

We speak your language

You need a lawyer who can speak your own language. More importantly you need somebody who can explain and discuss often complicated issues in terms that you understand.

Proven track record

We have a long and proven track record of recovering clients monies via the Spanish court(s).