My wife and I are interested in purchasing a Villa (off plan) in the Costa Blanca. The land is owned by the developer who has given us 3 different options to choose from for the construction of our Villa. He has told us that instead of signing a purchase agreement for the house, it is better to first sign a purchase agreement for the plot and built the house afterwards so that we have the assurance that the land is ours before construction. Although this will mean paying a bit more on VAT we believe it is worth it. Are you in agreement with this, is this the best option?
Thank you for your Email.
Firstly we must clarify that in Spain there is a huge difference between your legal position or rights if decide to purchase a finished house, OR to purchase of a piece of land and then built on it.
In the first case if you purchase a finished, completed or (as in this case off plan) villa you are considered purchaser-consumer and the developer(vendor) legally becomes the promoter. BUT in the second case, if you buy and registered the plot in your name and built the house afterwards then you will be owners of a plot and promoters or self promoters for the construction works and the developer-seller becomes the builder or constructor. This is very important because the duties and responsibilities of apurchaser-consumer are quite different from those of promoters / self promoters.
As for your query, it is true that if you first sign a purchase Deed for the land and built afterwards you will have the “guarantee” of not loosing all your money if the promoter disappears. However and contrary to what you have been advised we believe that your investments can be better ensured as we understand that an off plan purchase is more convenient in your case. As always, we remind you that each case must be individually analyzed to be able to advise accordingly.
It is our understanding that IN GENERAL it is preferable to buy an off plan property rather than just to buy the land and built afterwards for the following reasons:
1.-TAX SAVINGS IN THE VAT: from a fiscal tax point of view our option is cheaper:
1.1.-If you purchase a complete package (land & house) off plan it is considered a new property purchase or a first transmission purchase and the taxes to be paid are 8% VAT(although from 20-08-2011 to 31-12-2011 it will only be 4%)
1.2.-If you first buy the land and built after you will pay 18% tax on the land purchase and 8% afterwards for the construction.
2.-RISKS AND RESPONSIBILITIES: The risks inherent to the development of the Villa are not considered in your option.
2.1.-If you purchase a complete package (land & house) off plan: you are considered the final consumer and therefore you will not be responsible for obtaining any building permits, first occupancy license, compliance with Town Hall regulations or any constructions problems that may arise during or after the construction. Your only responsibility is to pay the builder
2.2.-If you first buy the land and built after: as legal owner of the plot you will be considered PROMOTER for the construction works and therefore will be liable to third parties, Town Hall regulations, building permits and first occupancy license, etc. –
You will be equally responsible for any possible problems or construction defects that may appear in the house such as cracks, dampness etc. Should you decide to sell the house in the future, the purchaser could sue you for any building defects since you as PROMOTER / SELF PROMOTER are jointly and severally liable for any other agents involved in the construction (architects, builders, etc). This is clearly pointed out in article 17.3 of the LOE Building Law Order (Ley de Ordenación de la Edificación) that states:
“…..In any case the promoter will be jointly and severally liable as well as the other agents involved in the construction for any property damages due to building defects in front of the purchasers. “
3.1.- If you purchase the land & the off plan Villa at the same time :you are considered purchaser-consumer and are protected, among others, by the Law 57/1968 that forces the seller /promoter to have an insurance policy or bank guarantee for all the funds he receives from the purchaser as well as the interest accrued on the funds, until he is able to hand over the completed property with a first occupancy licence. Therefore if you receive adequate legal advice your monies will be guaranteed if the developer is not able to fulfil his obligations.
3.2.- If you first buy the land and built after: you will not have this guarantee since you are the promoter and thus any problems arising from the builder, architect or just from trying to obtain the relevant permits will not have this guarantee or insurance policy, although you could, in principle, sue the person responsible (being other than yourself).
Although there are other aspects to be taken into consideration such as the possibility to obtain funds from a bank for one option and the other, it is our understanding, for all the above given reasons that it is better, cheaper and above all more secured to buy off plan from the promoter (with all due guarantees) than purchasing first the land (plot) and built afterwards.
It is essential in any case to receive the appropriate expert legal advice in the negotiation and drafting of contracts to insure the adequate protection for your interest.
Should any reader find himself or herself in this situation or similar please do not hesitate to contact us and the appropriate advice will be provided.
The information provided in this article is not intended to be legal advice, but merely conveys general information related to legal issues.
This article is available in English and Spanish at our Web site: www.white-baos.com
Carlos Baos (Lawyer). Tel: 966 426 185. E-mail: firstname.lastname@example.org. White & Baos 2011 – All rights reserved