Investor Participation Agreement: 20 Questions for a Lawyer

Before signing a participation agreement in a property project in Spain, it helps an investor to put twenty questions to an abogado (lawyer): on the structure of the project, money and the split, control and reporting, exit and disputes, liability and tax. The answers must be in the text of the contract. This article is not legal advice and does not describe DNPI's terms: for each project they are set by the project contract.

How to use the list

Put the contract and the list side by side. Against each question, mark: the answer is in the text, the answer exists only verbally, there is no answer. The law proceeds from the principle that a contract binds the parties as law (art. 1091 Código Civil) and is interpreted literally if the words are clear (art. 1281). So relying on an oral promise that is not in the contract is risky. Terms that are usual in the market do not replace the text: read what is written in your copy.

Parties and structure

1. Who the parties are: which companies and individuals, who their ultimate owners are and who signs the contract. You need to know the counterparty, not the signboard.
2. What legal structure the project has (SL, comunidad de bienes, an agreement between participants) and in whose name the asset is registered. The answer defines your rights; see the articles on joint project structures and on ownership of the asset.
3. How the contract will be characterised: if the parties contribute money to a common venture for profit, it may fall under a sociedad civil (art. 1665 Código Civil). The characterisation changes tax and liability.
4. Whether the scheme falls under CNMV regulation and whether there are restrictions for a non-resident investor.

Money and the split

1. How much is contributed, when, and what happens if a contribution does not arrive or an additional one is needed. A procedure is needed, not "by agreement".
2. How distributable profit is determined and which costs are deducted before the split. See the article on costs before the split.
3. If the contract provides compensation of return: what base it is calculated on, before or after tax, what the limit is, from what source and within what period it is paid. For the DNPI model, compensation from the fee when the return over the whole project is below the contractual 10% is described in the article on the compensation; it is not an annual rate and not a guarantee of capital preservation.
4. How losses are shared. If the contract has only a share of profit, ask what the law says for your structure: for a sociedad civil, the rule in art. 1689 points to the same share in losses, and a pact releasing a participant from all profits or all losses is void (art. 1691).

Control and information

1. Which decisions need your consent, with thresholds in euros and response deadlines. Covered in the article on investor rights.
2. Who signs contracts with contractors, how offers are compared and how related parties are disclosed.
3. What reporting and how often: budget, actuals, work status, documents, access to primary papers. Check against what the digital cabinet promises.
4. How the operator's conflict of interest is disclosed, and whether competing projects and the use of project information are prohibited.

Term, exit and disputes

1. The project's term, what counts as completion and what happens on an extension.
2. How to exit early: the procedure, the formula for valuing the stake, payment periods. A map of the mechanisms is in the article on exiting a project.
3. What happens on the death, incapacity, bankruptcy or change of control of the operator or the investor.
4. Which law applies, which court or arbitration is chosen, in what language a dispute is conducted and whether out-of-court settlement is provided for.

Liability, tax, data

1. Who is liable to third parties and the project's creditors, whether the operator has a liability cap and what insurance is in place on the asset.
2. What taxes the investor pays given residency: withholding, a double tax treaty, who prepares the documents.
3. What documents will be requested to verify identity and the origin of funds, and how your personal data is processed and protected under Reglamento (UE) 2016/679 (the GDPR).
4. What remains after completion: closing, handover of documents, retention period, the procedure for amending the contract (in writing only, with your signature).

Red flags

• No definition of distributable profit or list of costs.
• A return is promised without a base, a limit or a payment period.
• The operator can change the terms unilaterally.
• There is no exit procedure, or it depends only on the operator's decision.
• Arrangements with the operator exist only in a messenger.
• The applicable law and the dispute procedure are not stated.

Who the list does not suit

It will not replace an abogado who reads the specific contract. Nor does it suit someone who wants to close the matter in one evening: the answers themselves can take weeks. If you receive some of the answers only verbally, record them in the contract or in a side agreement before you transfer any money. The assumptions of the return calculation are in the methodology.