The Licence of First Occupation (LFO) is important for purchasing a property in spain for two reasons:
- Its granting means the developer has built the dwelling complying fully with the original Town Hall’s Building Licence (BL) 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 as apt for human habitation.
- It is also required by the property’s owner to have access to the official utilities (water, electricity, gas and telecommunications). 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 cases of supply companies waiving this and connecting you without the said licence. In such cases the only requirement was showing the application of having requested the LFO from the Town Hall.
Banks normally require the LFO before they consider granting a mortgage loan against the property. The only exception would be the developer’s bank which has already underwritten the whole development and is able to offer a mortgage loan without it because they are eager to spread the developer’s default risk. Also, taking on the mortgage offered by the developer’s bank has many advantages as it reduces the legal set-up expenses borne by the prospective purchaser.
What are the Associated Problems of Completing on a Property without a LFO?
Although it is legal to complete in such a case, it has numerous legal and practical drawbacks which ought to be highlighted by your lawyer to aid you in making an informed decision. To name a few:
- 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.
- 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 implies that you are actually reducing the base 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 let a property legally without a LFO.
In Andalucia Realty, we do an exhaustive Due to Diligence, making sure every property complies with the law and has all the documentation required to carry on the sales process. Therefore our clients can be sure that buying a property in the Costa del Sol is a safe transaction with us.
By Raymundo Larraín Nesbitt Director of Larraín Nesbitt Lawyers 8th of April 2013