Buying off-plan in Spain: guarantees, deadlines and protection for your money

Buying off-plan takes something of a leap of faith. You sign a contract, you start paying, and the house does not exist yet: it is a project, a scale model, some nice-looking plans. You hand over a deposit, then stage payments for months, trusting that in a year or two you will be given the keys to something that today is a plot of land. It is a legitimate and very common operation on the Costa Blanca, but you need to understand clearly where the risk lies.

And the risk is clear: what happens to your money if the developer goes bust, if the works stall halfway through, or if the home is never delivered? The good news is that Spanish law does not leave you alone with that risk. It obliges the developer to guarantee every euro you advance. Let me explain how, without jargon.

What buying off-plan means and where the risk lies

Buying off-plan means buying a home that is still under construction, or that has not even started to be built. You pay the price in stages: an amount on signing and then further payments on account as the work progresses, until completion, when the house is finished and handed over to you.

The problem is one of time and trust. For months you keep putting in money, but you do not have the house. If in that interval the developer runs into trouble — insolvency, a build that grinds to a halt, a project that never gets off the ground — you are left in a delicate position: you have paid, you have no home, and you want your money back. That gap is exactly what the guarantee system we are about to look at is designed to cover.

The law that protects you TODAY (and it is not the one usually cited)

Here I need to clarify something important, because a lot of outdated information is still circulating. For almost fifty years, the flagship rule protecting off-plan buyers was the well-known Ley 57/1968. You will see it cited on countless websites, forums, and even in professionals' own documents. Well: that law has been repealed since 1 January 2016.

What applies TODAY is the First Additional Provision of Ley 38/1999 on Building Standards (the LOE), as worded by Ley 20/2015. The underlying idea is very similar to that of the old law — protecting your money — but the text applicable to any contract signed from 2016 onwards is this one, not the previous one.

Why does this matter to you? For two practical reasons. First: if someone shows you a guarantee or a contract that relies solely on Ley 57/1968 and your purchase is after 2016, there is something to check. Second: Ley 57/1968 still matters, but only for contracts predating 2016; for those, it remains the applicable rule. For everything else, the LOE governs.

The two obligations the law imposes on the developer

The system rests on two duties the developer must meet without exception whenever it collects amounts in advance. They are not optional: they are the backbone of your protection.

1. Guaranteeing or insuring your money

From the moment it obtains the building permit, the developer is obliged to guarantee the return of the amounts you hand over, in case construction does not begin or is not brought to completion within the agreed delivery period. And that guarantee can only take two forms: a surety insurance policy (seguro de caución, covered by an insurer) or a joint and several bank guarantee (aval solidario, covered by a bank). I explain the differences between the two further below.

The consequence for you is direct: when you sign the contract, you must receive the document evidencing that guarantee or insurance policy. It is your safety net. If they do not give it to you, that is already a first-order red flag.

2. Depositing your money in a special account

The second obligation is that your payments on account must go into a special account, separate from the developer's other funds, which can only be used to pay for the construction of the homes. It is not the company's current account: it is a ring-fenced account for that specific purpose.

And here comes a key detail: to open that account, the law requires the bank to demand, under its own responsibility, that the guarantee (the bond or the insurance) exists. In other words, the bank itself has a duty of oversight. Keep this in mind, because it will matter at the end, when we discuss whether the bank can also be liable.

What exactly the guarantee covers

Many people think the guarantee only covers the bare money they handed over. It is more than that. The guarantee extends to three things:

• The amounts you paid on account of the price.
• The taxes you paid on those amounts.
• The statutory legal interest on the money advanced.

On the interest, I want to be honest and precise, because this is where people get it wrong most often. The law does NOT set a fixed percentage: it refers to the 'interés legal del dinero' (statutory legal interest rate), which the State reviews every year. You will see a 6% figure quoted around, but that number came from the old, now-repealed law. Today, the legal interest rate in force at each point in time applies, and it is usually calculated from the date of each payment you made. So exactly how much you would recover depends on when you paid and the rate in force each year: it is not a fixed figure that can be promised to you in advance.

Bank guarantee or insurance: the differences, and the 2-year deadline

Both options serve the same purpose — returning your money — but they work somewhat differently.

The surety insurance policy (seguro de caución)

It is issued by an insurance company. The law requires an individual policy for each buyer, covering everything advanced plus taxes and statutory interest. You are the insured party; the developer pays the premium. A point strongly in your favour: the insurer cannot raise against you defences arising from its relationship with the developer; it cannot even hide behind the fact that the developer failed to pay the premium. If the insured event occurs, you make a claim and the insurer must compensate you within a short period set by law.

The bank guarantee (aval bancario)

It is issued by a bank and must be joint and several (solidario), meaning you can claim directly against the bank without first having to pursue the developer. It covers the total amount advanced plus statutory interest and remains in force for as long as the risk lasts.

There is a deadline here that you should keep firmly in mind: the law provides that the guarantee lapses if two years pass from the breach without you having made a claim. In plain terms: if the home is not delivered and you do nothing, you may lose the cover of the guarantee. This is not a minor detail. That is why, when there is a breach, you should not sit and 'wait and see' — you make a formal claim, and on time.

What happens if the works are delayed or the home is never delivered

Picture the worst-case scenario: the delivery date arrives and the house is not ready, or the works never even started. What can you do? The law gives you a choice, and the decision is yours:

1. Terminate the contract and recover everything you paid, plus taxes and statutory interest. This is the way out if you no longer trust the project or do not want to keep waiting.
2. Grant the developer an extension. If you believe the works will be finished and you are still interested in the home, you can give more time instead of walking away.

In other words, the breach does not automatically force anything on you: it puts you in a position to choose. And if you decide to get your money back, that is where the guarantee or insurance the developer was required to put in place comes into play. That is exactly the moment the guarantee exists for.

One nuance I see often: you do not need to reach total disaster for there to be a breach. The mere absence of the guarantee, or the impossibility of delivering the home in proper condition (for example, without the necessary habitability), can already amount to relevant grounds. But this depends heavily on each contract and each situation, so it is worth having someone review your specific case before taking any steps.

And if the developer never put up any guarantee at all? Is the bank liable?

This is the million-dollar question, and the one that causes the most anguish: 'I have paid, the developer never put in place any bond or insurance, and now it has disappeared. Do I lose it all?' Not necessarily. And this is where the bank's duty of oversight, mentioned earlier, comes back into play.

The Spanish Supreme Court, in its Judgment 492/2024 of 12 April, has confirmed a highly protective doctrine: a lending institution that accepts buyers' payments into a developer's account without having required the special account and the corresponding guarantee may be held liable to those buyers. Why? Because the bank had a legal duty of oversight that it failed to fulfil. It is not liable as if it were the seller, but for its own lack of diligence.

The Supreme Court goes even further: that duty of oversight can also extend to a bank that discounts bills of exchange (letras de cambio) linked to payment of your instalments. That said, this has important limits that I want you to understand so you do not build up false expectations: liability is confined to the funds the bank actually received or could have controlled, and to what it knew or could not reasonably have ignored. It is not a blanket guarantee that any payment, made in any way, is always covered.

That is why, when someone asks me 'will the bank give me my money back?', my honest answer is: it depends on how and where the payments were made, on what the bank knew, and on the circumstances of your case. There is real room for recovery, but it is not automatic. This is exactly the kind of situation where it is worth reviewing the paperwork carefully.

Before you sign anything

Buying off-plan can be an excellent decision — price, customisation, a brand-new home — but only if your money is properly protected from the very first euro. The difference between a worry-free purchase and a major headache usually lies in the paperwork you sign at the start, not the paperwork that arrives later.

If you are thinking of buying a home under construction on the Costa Blanca, or if you have already paid and something is not going as expected, write to me and we will look into it together. I would rather help you buy safely than help you make a claim once there is already a problem. First understand your case, then prevent, and only then act.