Buying off-plan: what to check before signing

Buying off-plan is paying today for a house that doesn't exist yet: you choose the floor, the orientation and the finishes, usually at a better price than the finished home. In exchange, you take on an obvious risk: months or years can pass between your signature and the handover, and many things can go wrong along the way. Here's what you have to check before signing anything.

What buying "off-plan" means

It means you're buying from a project: plans, a specification of finishes and an estimated handover date. There's no home to visit, so everything they promise lives on paper. That's why rule number one is simple: if it's not written down, it doesn't exist.

First: the licence and the developer

Before handing over a single euro, check two things:

• Building licence (licencia de obras). The developer must have (or be in a position to obtain) the municipal building licence. Without a licence there's no legal build, and without a build there's no handover. Ask for it in writing.
• Who the developer is. A company with a track record and delivered developments is not the same as a company created for a single project. Look at their history, whether they've delivered on time before and what their financial state is. A lawyer can help you with this check.

If any of this fails or they put obstacles in the way of showing it, stop. The "only two units left" rush is not an argument.

Your advance payments must be guaranteed

Here's the most important point of the whole article: the amounts you pay in advance before handover must be guaranteed by the developer (through a bank guarantee — aval bancario — or insurance). It's a legal obligation designed exactly for your case: if the build isn't finished or the home isn't delivered to you, you can recover what you paid in advance.

In practice, this means:

1. Don't hand over advance payments without being given the individualised guarantee in your name.
2. Keep every proof of payment: they're your evidence of what was paid.
3. Be suspicious if they ask for payments "under the table" or through informal channels: what isn't recorded isn't guaranteed.

The contract: what it must say, no exceptions

The document you sign (normally a private purchase contract) should include, at a minimum:

• Exact identification of the home: block, floor, letter, floor area, storage room and parking space if included.
• Total price and payment method: how much you pay now, how much during the build and how much at the escritura (the deed signing). The payment schedule should be tied to build milestones, not arbitrary dates.
• Handover date (or maximum term) and what happens if it's late: penalties, your right to cancel the contract and recover what was paid.
• The specification of finishes (memoria de calidades) attached: materials, brands or ranges, joinery, air conditioning. It's what will let you claim if they deliver inferior finishes.
• The guarantee of the advance payments, expressly identified.

Read it all. If there are clauses you don't understand, have a lawyer review it before signing: an off-plan contract is signed once and binds you for years.

Deadlines, delays and your right to walk away

Delays in builds are common, and not all of them give you the right to cancel the contract. That's why the contract should set a clear handover date and the consequences of non-compliance. Generally speaking, if the developer doesn't deliver within the agreed term (or the home never gets finished), you can cancel the contract and demand the return of what was paid in advance, with its guarantees.

Watch out for automatic extensions or clauses that leave the handover date "to be estimated": the vaguer the date, the harder it will be to claim later.

The costs: don't forget VAT

In new-build you don't pay ITP (the property transfer tax) as with second-hand: buying a new home is taxed with IVA (VAT) (plus the Actos Jurídicos Documentados — stamp duty — tax at the escritura). These are percentages set by law that vary according to the type of home, so ask your adviser for the exact calculation for your case and add it to the price from the start. Many buyers get the surprise at the notary's.

And if you're going to get a mortgage: banks do finance off-plan purchases, but they normally release funds in phases as the build progresses. Talk to your bank before signing the contract with the developer.

Quick checklist before signing

• [ ] Building licence verified.
• [ ] Developer with a checkable track record.
• [ ] Guarantee of the advance payments, in your name.
• [ ] Contract with the home identified, price, payment schedule, handover date and penalties.
• [ ] Specification of finishes attached.
• [ ] IVA and costs calculated with an adviser.
• [ ] A lawyer has reviewed the contract.

Buying off-plan can be a great purchase: you move into a new home, you choose it to your taste and you usually pay less. But it's a purchase of paper, not bricks, and the paper all has to be read.

Please note: this is general, educational information, not legal advice. Every development and every contract is different: for your specific case, consult a lawyer before signing.

Looking at new-build in Cullera or La Safor? At Llevant Patrimonial we accompany you in the prior review: the developer's paperwork, the contract and the numbers, before you sign. Opening soon.