Are property buyers protected without bank guarantees ?

Ley 57/68


The massive fraud in Spain according to Ley 57/68 is well-known by everyone.  The legislators drafted the Act to avoid fraud, but after all and due to a void development of the Act, fraud has not been avoided.

The matter was simple. The Ley 57/68 establishes that it is mandatory to guarantee all the deposits paid on account by buyers whose properties are under construction. In other words, this means that any property buyer, who pays a deposit in advance for building his or her property, has to have the deposits guaranteed because in the event that the property is not built, the deposits will be returned.

Property buyers can face significant risks if they do not have bank guarantees, as these guarantees provide financial protection in case the developer fails to deliver the property.


Here are some legal tips to help property buyers protect themselves:

  1. Conduct Thorough Due Diligence

  • Research the Developer: Investigate the developer’s track record, reputation, and financial stability. Look for reviews and past project completions.
  • Verify Legal Clearances: Ensure the property has all necessary legal clearances and approvals from local authorities, such as land title, zoning, and building permits.
  1. Review the Contract Carefully

  • Detailed Agreements: Ensure the contract details all aspects of the purchase, including the payment schedule, project specifications, delivery timelines, and penalties for delays.
  • Force Majeure Clauses: Understand the force majeure clauses and how they might affect the project’s completion.
  1. Insist on Bank Guarantees

  • Bank Guarantee: While it is mandatory by law not always is provided, a bank guarantee ensures that the buyer’s money is protected if the developer defaults. This is particularly important in off-plan purchases.
  • Escrow Account: Funds can be held in an escrow account, which releases payments to the developer in stages based on construction milestones. This reduces the risk of misappropriation of funds.
  1. Legal Advice

  • Hire a specialized in Real Estate: Engage a qualified real estate lawyer to review all documents and provide legal advice throughout the transaction process.
  • Verify Title Deeds: Ensure the property has a clear title and there are no encumbrances or disputes related to the property.
  1. Payment Schedule

  • Linked to Construction Milestones: Structure payments to be linked to specific construction milestones rather than time-based schedules to ensure that the developer completes stages of construction before receiving payments.
  1. Insurance

  • Construction Insurance: Ensure that the developer has insurance covering construction-related risks.
  1. Monitoring Construction

  • Regular Updates: Request regular updates on construction progress and conduct site visits to ensure the project is on track.
  • Third-Party Audits: Consider engaging a third-party auditor to oversee the construction quality and progress.
  1. Understanding Cancellation Terms
  • Clear Refund Policies: Ensure the contract specifies clear terms for cancellations and refunds, including the timeline and percentage of refund.
  1. Keep Detailed Records

  • Documentation: Maintain detailed records of all communications, agreements, payments, and receipts related to the property purchase. This documentation can be crucial in resolving disputes.

By taking these steps, property buyers can better protect themselves and mitigate risks associated with real estate purchases without bank guarantees.


 Please go to our post about bank guarantees for more information