Law 20/2015: Important new bank-guarantee legislation explained for offplan buyers

Example Spanish bank guarantee for off-plan property

Example Spanish bank guarantee for off-plan property

Regular legal-contributor Raymundo Larraín Nesbitt explains the recent changes to bank guarantee legislation (Law 20/2015) that will affect people buying off-plan or under-construction property in Spain.

By Raymundo Larraín Nesbitt

Lawyer – Abogado
21st of September 2015


Spain’s controversial law on bank guarantees, law 57/68, always the object of heated debates, will be abolished in 2016. This pivotal law in the off-plan buying procedure has been the focus of many of my articles:

Bank Guarantees in Spain
Supreme Court Rulings on Bank Guarantees

Before anyone panics this pre-constitutional law has been replaced by a more modern law that is surprisingly almost identical with only a few tweaks that I care to highlight below.

The ironic in me cannot help but notice the convenience of its timing. As I highlighted in my above article, the Supreme Court rulings on bank guarantees were of late highly beneficial to consumers; to the point of awarding buyers astonishing automatic contractual resolutions. I believe a spanner may have been thrown in the works to curb the Supreme Court’s pro-consumer bias.

Only time will tell the tale.

Law 20/2015, of the Insurance Sector

Law 20/2015 amends, amongst other laws, Spain’s Building Act (Law 38/1999, Ley de la Ordenación y de la Edificación) which itself amended law 57/68.

In its third derogatory disposition it expressly abolishes law 57/1968. This new law will come into force as from the first of January 2016.


The ‘new’ law closely resembles its forty-seven-year-old predecessor. The main slew of changes are as follows:

• Law 57/1968 relating to off-plan bank guarantees is abolished and superseded by Law 20/2015.
• The new law comes into force on the first of January 2016. All off-plan contracts signed before will still be governed by law 57/68.
• Bank guarantees (or insurance policies) securing off-plan deposits are now only valid as from the time a developer has attained a Building Licence. This is a key point I had defended in all my articles advising new-build buyers to withhold payment until a developer had secured a valid Building Licence from a town hall’s planning department.

E.g. Buying Off-Plan Property in Spain

As can be gleaned from the above it stands to logic that a conveyance lawyer must advise his client not to pay any deposit before a Building Licence is issued to a developer. Any interim payment you make prior to its granting will be unsecured and you will be left financially exposed with a risk of losing your deposits. I stress, your deposits are NOT covered by a bank guarantee or insurance policy prior to attaining a Building Licence under this new legislation.

• The amounts secured will now include the client’s staged deposits, plus legal interest, plus all associated purchase taxes i.e. VAT
• The legal interest will be as from the time the stage deposits are handed over as to the scheduled delivery date of the property outlined in the Private Purchase Contract (PPC).
• The stage deposits will be deposited in a specific bank account that is ring-fenced for the sole purposes of financing a development. Much like an escrow account.
Tailored bank guarantees. They will now be individualized for every buyer. Collective bank guarantees will cease to exist not being acceptable going forward; a contentious point I had defended in my bank guarantee articles, highlighting just how problematic collective bank guarantees were in practice to execute. The details of the property being bought will be specified on the bank guarantees as well as the buyer’s personal details.
• It is the developer’s onus to take out this insurance policy or bank guarantee and obviously at his own cost. The beneficiary is the off-plan buyer always. A buyer will not pay a penny for it. This has now become a muted point having sparked much controversy with the old legislation.
• A bank guarantee will still hold valid even if a developer fails to continue servicing the insurance premiums. The lender or insurance company will be legally compelled to refund in full the guaranteed amounts.
Bank guarantee: validity. A bank guarantee is valid as from the time a developer attains a Building Licence from the town hall’s planning department up to completion before a Notary Public.
• If a buyer gives an extension to a developer, in writing, because completion is running behind schedule then the bank guarantee must be likewise extended to match the new scheduled delivery date of the new-build property.
Direct recourse. If the development is stalled or else the development is not finished on time by the contractual (read binding) scheduled delivery date a buyer can send by recorded delivery to a developer a letter requesting full repayment of all stage payments, plus legal interest plus associated buying taxes. The developer has a deadline of thirty days to pay back said amounts. After this deadline a buyer (his lawyer) can claim these amounts (direct recourse) from the insurance company or lender itself who guaranteed the stage payments. In other words an off-plan buyer can skip the developer altogether and go straight for a lender which – presumably – will be in a healthy financial position to repay it. The lender or insurance company has a deadline of thirty days to repay said amounts in full as from the time it is legally notified by the conveyance lawyer.
Bank guarantees: expiry date. They will now expire two years as from the time a developer is in breach of contract without the buyer exercising his rights to terminate the contract and apply for a refund. This is a major novelty as bank guarantees before had no expiry date.
Contractual reference. All off-plan contracts will now make express reference to bank guarantees specifically mentioning which lender or insurance company is being held responsible for the safeguarding of a buyer’s stage deposits supplying contractual details for identification purposes. The escrow account will now be detailed in the Private Purchase Contract itself.
Bank guarantees: handing over. Upon signing an off-plan contract a developer will hand over the bank guarantees. This is also a major novelty as before buyers were expected to pay and would then be handed a bank guarantee, one at a time, which could take one or two months as from each stage payment. Not an ideal situation to be in as the developer could file for bankruptcy in the interim. This risk has now been eliminated as ALL stage payments will be guaranteed ab initio. No longer will a buyer have to wait patiently to be given a bank guarantee at a time for each and every stage payment they make.
Bank guarantee: refund limitation. Related to the above, despite being the full stage payments (plus legal interest, plus taxes) guaranteed in block a buyer can expect to be refunded only what he actually paid. Which is why it is very important that buyers on making use of foreign currency brokers safe keep copies of all overseas transfers.
Bank guarantee execution. If the development is not finished on time a buyer, at his own choice, can either request a full refund or else give the developer an extension – in writing –.
Bank guarantee cancellation. Same as before, bank guarantees only become null and void when two conditions are met:

1. As from the time a developer attains a Licence of First Occupation from the town hall’s planning department.

2. The developer makes the new-build property available to a buyer (as in physically handing it over to him).

A new third condition has been added:

3. If a buyer refuses to complete before a Notary Public when legally compelled to do so.

Bank guarantees: publicity. Developers are now forced in their sales publicity to make explicit reference to being compliant with this new law 20/2015 even mentioning the name of the lender or insurance company as well as the bank account details of the escrow account where all staged deposits will be paid into.
Bank guarantees: non-compliance. Developers are subject on non-compliance with up to 25% of the total amounts that should have insured or else the amount set by the Autonomous Community where the new-build is located.

Frequently Asked Questions

As this change will presumably elicit multiple queries I’ll do my best to address them in the below questions & answers section.

1. I have already signed an off-plan contract. How does this new legislation affect me?

It does not. This new law comes into force as from the first of January 2016. All off-plan contracts signed before said date are still ruled by law 57/68.

2. I plan to buy off-plan in 2016. Will my contract be ruled by the new law?

Yes. Every off-plan contract signed after the 01/01/2016 will be governed by law 20/2015.

3. I am litigating at present to recover my stage deposits. How does this new legislation affect me?

It does not. The law court will examine your case under the merit of the old law which is still in force.

4. If in 2016 I sign an off-plan contract and I’m handed a bank guarantee securing all my deposits but the Building Licence is delayed until 2018 am I still covered?

No. Under the new legislation you are only covered as from the moment a developer attains a Building Licence (BL).

Say, for example, you hand over the monies in 2016 and the BL is issued to the developer in April 2018. Should the developer file for bankruptcy any time before April 2018, even if you have a valid bank guarantee covering all your money, you would lose it all and have no recourse. The bank guarantee, even if legitimate, only becomes ‘active’ as from the time the BL is issued.

Bottom line, bank guarantees only secure your money going forward as from the time a Building Licence is issued by a town hall; not a moment before.


This new law addresses many of the criticisms that were leveled against its forty seven year old predecessor.

Law 57/68 needed a makeover. It had become outdated in many aspects. This new law leaves the door ajar to be detailed further in future regulation.

It is of paramount importance to restore confidence in overseas buyers by creating a clear steadfast legal frame in which to operate. The rules of the game must be known to all to level the playing field.

Trust, like reputation, is hard to earn, but easy to lose.

Related articles

How to Buy Property in Spain – Advice by the Foreign & Commonwealth Office
Buying Distressed Property in Spain – 8th August 2011
Off-Plan Construction Guarantees – 8th November 2011
Rent-to-Buy in Spain: The Smart Choice – 8th April 2012
Buying Resale Property in Spain – 21st February 2013
Licence of First Occupation – 8th April 2013
Bank Guarantees in Spain – 8th April 2013
Buying Off-Plan Property in Spain – 8th of June 2013
Investor Guide to Spain’s Golden Visa Law – 8th November 2013
Bank Repossessions in Spain – 21st February 2014
Buying and Owning Spanish Property through Companies: Pros and Cons (Dispelling Spanish Inheritance Tax Myths) – 7th March 2014
How to Buy Commercial Property in Spain – 4th July 2014
How to Buy Rural Property in Spain – 8th August 2014
How to Buy Property in Spain Safely – 10th October 2014
Taxes on Selling Spanish Property – 8th December 2014
Supreme Court Rulings on Bank Guarantees – 8th April 2015
La Complementaria or ‘Bargain Hunter Tax’ – 8th May 2015
House Hunting in SpainThe New York Times. June 2015
Taxes on Buying Spanish Property – 8th July 2015

Resurgent Spain: Málaga Sees Strong SalesMansion Global (The Wall Street Journal). December 2015

Please note the information provided in this article is of general interest only and is not to be construed or intended as substitute for professional legal advice. This article may be posted freely in websites or other social media so long as the author is duly credited. Plagiarizing, whether in whole or in part, this article without crediting the author may result in criminal prosecution. VOV.

2015 © Raymundo Larraín Nesbitt. All rights reserved.



4 thoughts on “Law 20/2015: Important new bank-guarantee legislation explained for offplan buyers”

  1. Ann & Paul coton

    Can you tell us if it is legal for a bank to force you to stay with their house & personal insurance, they have said if we cancel with them & have insurance with another company they will increase our mortgage interest rate. We are pensioners with a limited budget, therefore just looking to save on our outgoings, as the banks insurance is so much more expensive than quotes we have been given by other companies. Can you help, please.

    Regards Ann & Paul Coton

    1. Profile photo of Raymundo Larraín NesbittRaymundo Larraín Nesbitt Post Author

      Hi Ann and Paul,

      This is not really the appropriate place for this query as it bears no relation whatsoever to the article’s subject.

      Regarding your query, yes it is now legal if at the time of taking the mortgage you were informed. This used to be an abusive abusive clause (ex DFA Art. 10.23 of law LCGC):

      Art. 10. 23.- La imposición al consumidor de bienes y servicios complementarios o accesorios no solicitados.

      Loosely translated as: (it is abusive and therefore null and void) “the imposition on consumers of unsolicited goods and services.”

      Nowadays lenders make sure to inform clients prior to signing a deed before a Notary Public. They will ensure clients sign a waiver to this effect so they can no longer (legally) argue what you are claiming upon. However older (mortgage) contracts may be declared null and void when it refers specifically to these clauses tacking on unsolicited ancillary goods and services (i.e. to tack on a life cover in a mortgage loan) as lenders at the time collectively failed to disclose to clients the (hidden) terms and conditions (read bank charges).

      Please read my article on abusive mortgage clauses; concretely point six which addresses your query:

      6. Lenders’ bank charges for unsolicited services which are tacked on to a mortgage loan.

      This occurs when on signing a mortgage loan a lender throws in a bunch of unsolicited services such as life covers, home insurance, pension plans or non-requested credit cards. This is null and void as per Additional Disposition number 10.23 of LCGC.

      Having said this, the reason why an offered mortgage loan may be so competitive in the first place is only because a lender has tagged these unsolicited services which help them to offset the financial shortfall of the loan itself. On removing them, the lender will be forced to immediately raise the applicable interest rate as this interest rate was, in practice, not feasible (without incurring in a financial loss). It was merely a ‘bait’ to entice you to hire the whole range of financial services available – unbeknownst to you – (this is really where they will make a profit, not from the mortgage loan itself).


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