First Occupancy Licence
LAWBIRD LEGAL SERVICES
Friday 27th June 2008
What is it?
Upon the granting of the Certificate of End of Construction (CEC), the developer may apply for a First Occupancy Licence (spelled LFO or FLO for short, AKA as “Cédula de Habitabilidad” in some parts of Spain). The LFO is a an Administrative licence which the Town Hall where the development is located issues and validates that the development fully complies with the original Building Licence (BL) granted by that same town hall as well as complying fully with all Planning laws. The inspection to grant this Licence is carried out by town hall chartered technicians that certify that the dwelling fully complies with health, access, security, planning and construction laws and is deemed fully fit for human habitation.
No one can hurry up the granting of the LFO, neither the developer nor us the lawyers; its granting depends solely on the Spanish town hall’s civil servants. The Town Hall will allow time for the developer to mend any planning irregularities or pending work.
How long does a LFO take to be granted?
This will depend on various factors. If the town hall technicians detect irregularities in the development or deviations from the original BL then the LFO will be delayed until the developer fixes these problems. In a smaller town you can reasonably expect the LFO to be issued within a few months of having submitted the CEC providing the development has no major irregularities. In large cities, such as Marbella, the granting may be pulled back even six months or more due to the work overload of the Town Hall.
Why is it needed?
The owner of the property needs it because the official utilities that offer supplies (water, electricity, gas, telecommunications) require under Spanish law 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 said Licence and may only require the application of having requested the LFO from the Town Hall.
Is every off-plan development issued a LFO?
Yes. A development is normally compromised by various phases as it’s built in various stages over time. For each of these phases a LFO may be granted by the town hall. So for example in a huge development of 300 units grouped in 4 phases there could be 4 LFO, one for each phase. This could well mean that even within the same finished development some properties may be legal (with a LFO granted) and others units are not habitable yet legally. You could only tell which are legal by means of hiring a lawyer who will advise you on the matter.
What risks are there if there is no LFO granted?
The lack of granting a LFO by the town hall after 2-3 years of having submitted the CEC normally underlies a serious problem. Said problem can arise from a myriad of causes such as planning problems (i.e. the development had only been granted a BL for two storey’s and four have been built or the property has been built in an area zoned as Green Belt), it could mean there might be a health hazard because there is a breach of the Health law (i.e. the sewage pipeline is incorrectly laid out).
One of the most recent cases occurred in the peaceful town of Catral in Valencia, Costa Blanca, developments have been finished and sold without the LFO granted. 1.200 houses are now deemed illegal. It turns out many of those dwellings were built within the perimeter of a National Park zoned as Green Belt land. The Government has announced that it will pull them down.
I have read that completion without a LFO is illegal.
This is a common misconception. Completion on a property, before a Spanish Notary Public without a LFO is legal in Spain and the property will be lodged under your name at the land registry. However, it is not legal to occupy/live in a property without the mandatory Administrative LFO. So basically you legally own a dwelling which is uninhabitable legally until the LFO is granted by the Town Hall. Many off-plan purchasers on having waited for years on end until the granting of their LFO or with no prospects of it ever being granted due to Planning illegalities have decided to litigate and obtain a full refund of their stage payments in fear of the developers going into receivership.
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 developers.
• You will not be able to benefit from the official utility supplies; only from the developers supplies (water and electricity) with all the associated problems this has, namely that you may be cut off at any time as it’s the developer who is paying for it and if they go into receivership you will be cut off. Besides this, the site supply electricity doesn’t have the same strength and power surges are fairly common if simultaneously turning on various electrical appliances such as a/c.
• 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 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 without a LFO.
CONCLUSION
It is generally recommendable to complete in off-plans only if a LFO is in place having being granted by the town hall. However there are
exceptions to this general rule.
If the development complies fully with all the required planning permissions, you lack a
Bank Guarantee, there’s no ruling affecting the BL due to planning issues and there is a high risk of the developer filing for bankruptcy in the near future, it would be advisable to complete. You would still have to wait until the LFO is granted to live in it but at least now there is no risk of you losing your funds if the developer becomes bankrupt.
Until completion the property belongs to the developer. So if you still have not completed and the developer becomes insolvent the property lodged under his name may be seized by the developers’ bank or any other creditor that places a charge on it at the land registry.
If you have no Bank Guarantee and afore happens it is then very likely you will forfeit your down payments. However, cases differ and require a case-by-case study by your appointed lawyer.