5. Make Sure the Dwelling Attained a Licence of First Occupation (LFO)
A
Licence of First Occupation is issued by the Town Hall where the property is located and is granted once the building works have been duly completed (Certificate of End of Works or Certificado Final de Obras in Spanish). It allows off-plan purchasers to dwell in a property legally.
The LFO is important mainly for two reasons:
◦It provides a check on the Planning Legality. Its granting means the developer has built the dwelling in compliance with the original Town Hall’s Building Licence as well as complying with all Planning laws. The inspection to grant this Licence is carried out by Town Hall’s chartered technicians who certify that the dwelling complies fully with Health, Access, Security, Planning and Construction Laws and is deemed apt for human habitation.
◦It is required by utility companies to have access to official supplies (water, electricity and gas). Spanish law requires the granting of the LFO to hook up the dwelling to the supply grid. Although in some parts of Spain there have been reported cases of supply companies waiving this and connecting you without the said licence. In such exceptional cases the only requirement was showing the application of having requested the LFO from the Town Hall.
It is in general recommendable to complete only once a Licence of First Occupation has been attained; however completing without a LFO is legal in Spain and the property will be registered under your name at the Land Register.
The following are just some of the drawbacks you may face if you happen to close on an off plan property lacking a LFO:
◦Primarily, you will not be able to take out a mortgage on the property or remortgage it - if needed be- by any bank other than the developer’s.
◦You will not be able to benefit from the official utility supplies; only from the developer’s supplies (water and electricity) with all the associated problems this has, namely that you may be cut off at any time as it is the developer who is paying for it and if they go into receivership you will be shut off. Besides, the site supply electricity doesn’t have the same strength and power surges are fairly common on simultaneously turning on various electrical appliances such as air conditioning. Until the LFO is attained, the developer has to pay, by law, for the utility supplies.
◦Any future prospective purchaser, or their lawyer, will haggle with you and only pay a lower purchase price if you lack a LFO in a newly built resale. In a resale, the purchasers in turn will undergo the same problems to secure finance by means of a mortgage loan. A lack of a LFO tacitly implies that you are actually reducing the pool of potential purchasers for your resale.
◦If there are Planning issues, the Town Hall can set a charge against the property and you as the new owner of an off-plan –and not the developer- may be held liable to pay the fine for the planning illegality.
◦Needless to say, you cannot rent a dwelling without a LFO.
There may be nonetheless exceptional circumstances in which it may be advisable to complete without one. Specifically if there’s no bank guarantee securing your down payments and the developer is in risk of going into Administration, provided that there’s no ruling or legal procedure affecting the Building Licence due to planning issues (as explained above in point three).
It is very important to realise that until completionthe property still belongs to the developer. So if you still have not closed and the developer becomes insolvent in the interim, the property lodged under his name may be seized by the developers’ lender or any other creditor that places a charge on it at the land registry. If you have no bank guarantee and the above happens, it is very likely you will forfeit your down payments. However, cases differ and require a case-by-case study by your appointed solicitor.
The issuance of the LFO by a Town Hall is the major milestone in the off-plan procedure. In fact, from a legal point of view, it marks the turning point whereby the property is now deemed to have been delivered legally to the purchaser. Once the LFO has been attained and the developer has sent you a registered letter compelling you to complete within a deadline before a Notary public,
you should no longer withdraw from the PPC and litigate (specifically read point three in the link supplied) for a refund as you are bound to lose at court. This is known as
forced completion.
Developers can actually pursue you abroad against your home country’s assets once they’ve obtained a favourable judgement from a Spanish court. Do not think for one moment you can walk away breaching an off plan contract and that there will be no legal consequences arising from it. Some developers will be happy just withholding the stage payments as compensation and yet others will sue you on top demanding fulfilment i.e. that you close on the property.
Indulging in
reckless litigation can leave you
seriously out-of-pocket.
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