Guaranteeing buyers’ advance payments on homes under construction

The law requires guarantees for money received before handover

Spanish law requires a developer selling homes before construction is complete to guarantee amounts paid by buyers into the account before handover. The security takes the form of either a bank guarantee (aval bancario) or a specific surety insurance policy (seguro de caución), allowing buyers to recover sums already paid if construction is not completed or the property is not delivered. This is why the obligation is established by law rather than left to the developer’s discretion or an agreement between the parties.

Buyer protection, developer obligation

The mechanism is designed to protect the party paying in advance, but directly concerns the party collecting those funds as well. Arranging a guarantee is not an optional choice for a developer: it is a mandatory administrative step built into selling during construction. The absence of a properly arranged guarantee does not relieve the developer of responsibility towards buyers. That responsibility remains regardless of what subsequently happens to the project. From the developer’s perspective, the decision to pre-sell cannot be separated from deciding how and when advance-payment guarantees will be arranged.

What it means for project costs

Arranging this guarantee involves mandatory costs and administrative time that need to be allowed for from the outset if the strategy includes pre-selling units during construction. It is not a one-off formality before signing the first buyer’s contract. It is a condition that should be agreed and secured before advance payments are collected. Trying to save time by arranging a guarantee retrospectively, after the first buyer payments arrive, creates a legal gap between collecting money and formally securing it. That gap falls on the developer, not the buyer.

If the project does not plan pre-sales

Where the strategy is to sell only after completion and handover, this issue does not arise: the buyer pays for a completed, delivered home, so there are no advance payments to guarantee. Choosing between pre-sales and sales on completion is, among other things, a choice between earlier capital inflows with additional administrative obligations and later inflows without them. Neither is correct by default. The trade-off should be calculated for the particular project rather than chosen out of habit.

Incorporating the guarantee into project economics

If a project under a development strategy plans to collect advances during construction, the timing and cost of arranging the guarantee should be included from the start of planning, alongside the other items discussed in our article on the full project budget. This is a case in which buyer protection is simultaneously a direct requirement for the developer’s transaction structure and budget.