Exclusive Q&A on Real Estate by Juan Gomez Acebo
Posted: 8th January 2016 10:06
Have there been any recent regulatory changes or interesting developments?
The main regulation in Spain is the Building Law of 5 November 1999 (Ley de Ordenación de la Edificación or LOE). The LOE sets out the legal framework for the construction process in Spain. However, the parties are free to negotiate and agree most terms and conditions. On small real estate construction projects, construction companies usually impose their standard agreements (reasonably simple document with limited number of general provisions) incorporating the specific terms of the relevant project (such as price, payment terms, quality and materials, deviations, etc). On large construction projects, the market is much more sophisticated and most of the leading construction companies are ready to use standard international contracts (such as the colour books contracts).
Are there any compliance issues or potential pitfalls that firms need to be cautious about?
One of the main characteristics of the LOE is that it includes a definition and regulation of the main agents involved in the construction process, such as the developer, builder, architect, project manager, quantity surveyor, etc. in addition, the LOE regulates the responsibility incurred by each of the agents. In particular, the LOE attributes joint and several responsibility to the developer for all damages caused to the owner or third parties, in the absence of a specific allocation of responsibility to an individual agent.
How has the increased awareness of environmental impacts of construction impacted the industry?
The environmental concerns were a key driver on the enactment of the LOE. Protecting, in particular, the final user was one of the main reasons for allocating responsibility on all the building agents. In addition, the criminal law was also amended extending the number of criminal offences to environmental related activities. As the statutory definition of “developer” is rather wide, and the statutory responsibility of developers (including environmental matters) contained in the LOE is very strict on developers (see answer to question 2. above), International real estate investors and lenders are becoming very cautious on transaction involving development activity.
To what extent does corporate responsibility vs. legality affect how you make environmental and human decisions?
Corporate responsibility has an increasing influence in numerous corporate and personal decisions. Companies need to be perceived by their employees, suppliers and creditors as environmentally friendly and fully compliant with corporate responsibility standards. Not only company directors and managers are interiorising these requirements, but a number of large companies are starting to require evidence of compliance with such requirements from all their suppliers. Obviously, compliance with these requirements is much more developed in listed companies, subject to detail regulatory supervision. However, smaller companies are increasingly implementing these standards, although there is still a long way to go.
Has the increase in more transient contractors affected the way workforces for projects are planned?
Long lasting economic downturns usually have a significant impact on the number of developers and builders in the relevant jurisdiction. One of the main problems generated in the early months/years of the downturn, is the suspension of construction works in numerous buildings and/or the financial ability to repair construction defects detected in completed buildings. The reduction of new building projects, combined with liquidity constraints in existing ones, drags many developers/builders to insolvency, needing to file for bankruptcy proceedings. However, the main victims are the property owners (particularly, consumers) whom may have been anticipating payments to the relevant developer/builder and, following the insolvency of the latter, are left with an unfinished building and no recourse to bring in a new constructor to complete the building. In order to mitigate this and other risks, the Spanish LOE has imposed on developers the obligation to (i) deliver bank guarantees to consumers, securing the reimbursement of all amounts anticipated during the building process, until the relevant flat /building is handed over; and (ii) a statutory insurance program insuring the structure and façade during 10 years, general installations and equipment during 3 years, and small defects including the snagging list during 1 year.
As developing nations become more and more effective, organised and centralised, what is the likely impact on construction and its regulation?
The legal, environmental and social regulations and recommendations, existing in developed nations, will have an increasing impact in developing nations. Terms such as “Green Construction” or “Resilient Buildings”involve finding the balance between traditional construction and the sustainable environment. Similarly, the climate change recommendations are encouraging the construction of energy efficient buildings. On the basis that international investors are becoming more environmentally conscious, together with the fact that they are starting to realise that implementing these requirements does not necessarily mean a reduction in profits (tenants in resilient buildings may be ready to pay higher rents, if the overall costs for them are equivalent, due to a reduction on energy and other service charges), there is a clear trend for the construction of resilient buildings in developed nations and these will certainly impact on developing nations.
Juan has been an of-counsel attorney for BDO since 2014. Before that he was the managing partner of the Real Estate Law Department of Freshfields in Spain.
Juan Gómez Acebo is an expert in corporate real estate law, including project financing, construction and planning. He specialises in real estate transactions (including financing) and both local and international development projects, and he coordinates the urban development team. He advises Spanish and foreign investors, international lenders, distribution chains, hotel owners, property developers and major corporations with real estate assets in Spain and abroad.
He is also thoroughly experienced at corporate restructuring in the real estate sector, mergers and acquisitions and joint ventures. He speaks Spanish and English. He has lectured frequently at conferences and seminars and has contributed to different specialised journals. Juan holds a degree in law from the Autonomous University of Madrid.
Juan can be contaced on T: 91 436 41 95