To guarantee the return of advance payments to buyers of housing under construction, in case the construction is not started or does not end within the agreed deadline for the delivery of the home, the Building Planning Law (in its first additional provision, in the wording given by Law 20/2015, of July 14, which entered into force on January 1, 2016), imposes a series of obligations on the developer.
The obligations of the developers of newly built housing that receive anticipated amounts from the purchasers are the following:
- Guarantee the return of the advance amounts received by the buyer plus legal interests, through an insurance contract signed with insurance companies, or through a bank guarantee, in case the construction does not start or does not end within the agreed term for the delivery of the house.
- Deposit the amounts anticipated by the acquirers in a special bank account, completely separated from any other kind of funds belonging to the developer. This account can only be used for the payment of the building construction costs.
- Sign and deliver at the time of granting the purchase contract an individual insurance policy to each buyer, in which the property is identified and it includes the total amounts anticipated in the purchase contract, including applicable taxes, and the legal interest of the money anticipated until the expected date of delivery of the home by the developer.
- The contract must state the obligation to return the amounts received on account of the price in case of non-commencement or termination in the agreed deadlines of the work, as well as the guarantee or insurance contracted by the developer and the special bank account for payment of the advance amounts.
The above guarantees cannot be waived by the buyer.
Issues that arise in the application of guarantees and that have been resolved by the Courts:
- The obligation to insure is an essential obligation of the developer: Its breach allows the buyer to terminate the contract and request the return of the amounts delivered on account of the price. This is reflected, for example, by the Supreme Court Judgment of October 25, 2011.
- Another controversial issue is determining which amounts are included in the insurance: All delivered on account of the price, even if the insurance policy establishes a lower maximum amount. The Supreme Court in Judgment of May 28, 2019, declares that the bank or credit institution is responsible for all anticipated amounts, without quantitative limits, since the law does not establish limits and requires coverage of all amounts delivered and legal interests.
- Regarding the responsibility of the bank or insurance agency, the Supreme Court Judgment of June 20, 2017, also establishes that the advanced payments made by the buyer are guaranteed by the insurer or guarantor even if they are not entered into the special account but in a different one from the developer.
- When is the guarantee cancelled? When the certificate of occupancy or first occupancy license is issued by the competent City Council.
The breach of the obligations that we have just described is also an infraction in the matter of consumer protection law. Failure to comply with the obligation to constitute a guarantee will result in a sanction of up to 25% of the amounts whose return must be insured (or the corresponding one as provided in the regulations of the Autonomous Communities) and may also be imposed on developer important economic penalties.