This country-specific Q&A provides an overview to construction law in Spain.
It will cover termination requirements and obligations, permits and licence, procurement, financing and security, and disputes as well as insight and opinion on challenges and opportunities.
This Q&A is part of the global guide to Construction. For a full list of jurisdictional Q&As visit http://www.inhouselawyer.co.uk/practice-areas/construction/
Is your jurisdiction a common law or civil law jurisdiction?
It is a civil law jurisdiction.
What are the key statutory/legislative obligations relevant to construction and engineering projects?
The key legislative and statutory obligations relevant to construction and engineering projects are set in Law 38/1999, passed on the 5th of November, for the regulation of Construction (Ley de Ordenación de la Edificación) and in the Technical Code of Construction approved by Royal Decree 314/2006, of 17th of March (Código Técnico de la Edificación). They are the following:
- Fulfillment of the basic requirements of constructions:
- Relating to functionality meaning that the building has to be adequate to the projected functions, has to be accessible for the disabled and for post services and has to have access to telecommunication, audiovisual and information services;
- Relating to safety, both structural and in case of fire and also security in the regular use of the building in the sense that such use does not imply a risk of accident for people;
- Relating to livability, warranting the hygiene, health and environment and also meaning that the building protects its users against noises and provides energy saving and thermal proofing.
- The existence of a project defining the technical requirements to be fulfilled by the constructions.
- Obtaining of licenses and administrative authorizations.
- Obligation of receiving the construction. It is the act by means of which the constructor delivers the finalized construction to the promoter who accepts it. It can be accepted with or without reserves.
- Specific obligations of all the agents participating in the project: promoter, project planner, constructor, construction director and executive construction manager.
- Promoter: It is the person who decides, drives, plans and finances the construction. He is obliged to be the owner of the soil on which the building will be constructed or at least he has to be entitled to build it. He has to provide with all the documents necessary to draft the project, obtain the licenses and subscribe all the relevant liability insurances.
- Project planner: He is the one drafting the project according to the applicable regulations. He has to be an architect or an engineer depending on the construction.
- Constructor: The one executing the construction process according to the project, the applicable regulations and the instructions given by the construction director and the executive construction manager. He is obliged to designate the construction chief (jefe de obra). He is also the one signing the certificate of the beginning of the construction and the certificate of reception. He is also obliged to subscribe the relevant insurance policies.
- Construction director and executive construction manager: They are the ones directing the development of the construction in all its aspects. They need to be architects or engineers depending on the construction.
- Obligation of subscribing the relevant liability insurances in order to cover the damages suffered by the building. There are compulsory insurances to be subscribed:
- a 1-year warranty to cover any material damages caused by a poor execution to be subscribed by the constructor;
- a 3-year warranty to cover the material damages caused by defects affecting livability to be subscribed by the promoter;
- a 10-year warranty to cover the material damages caused by defects affecting structural safety to be subscribed by the promoter.
- Fulfillment of the basic requirements of constructions:
Are there any specific requirements that parties should be aware of in relation to: (a) Health and safety; (b) Environmental; (c) Planning; (d) Employment; and (e) Anti-corruption and bribery.
Health, safety and environment;
Regarding health, safety and environment, the Law for the Regulation of Construction and the Technical Code of Construction establish that the buildings have to reach the adequate health standards and water and air tightness so that health, hygiene and environment are dully preserved. Also, an adequate management of waste and a water evacuation system have to be warrantied.
Also, in every construction, the relevant requirements of Law 31/1995, passed on the 8th of November, for the Prevention of Labor Risks and those stated in the relevant municipal collective bargaining agreement have to be fulfilled.
The parties have to be aware and fulfill all the requirements set in the corresponding Town Urban Plan (Plan General de Ordenación Urbana) which is the one defining the authorized uses of the projected building, the buildability percentage and the urban characteristics to be respected such as the front of the building, courtyard, windows, roof, the maximum height of the building, etc.
Yes, if there is hired hand, both the Workers Regulation, approved by Royal Legislative Decree 2/2015, of 23rd of October (Ley del Estatuto de los Trabajadores), the Law for the Prevention of Labor Risks mentioned above and the relevant construction municipal collective bargaining agreement have to be fully respected.
Anti-corruption and bribery;
The promoters are obliged to accomplish the Law of anti-money laundering number 10/2010, passed on the 28th of April (Ley de prevención del blanqueo de capitals y de la financiación del terrorismo).
One of the most important requirements of this law is the need of applying the so-called “due diligence”, implying the need to perfectly identify the real title holder in any operation, the nature and goals of its economic activity and track the development of such activities.
What permits/licences and other documents do parties need before starting work, during work and after completion? Are there any penalties for non-compliance?
The relevant construction license has to be granted by the corresponding Town Council in order to start the construction. The documentation to be submitted is complex and huge.
Among this documentation, we can outline the following:
a) application forms by means of which the license is requested;
b) the tax liquidation applications;
c) the statement of the relevant technicians certifying that the construction fulfils all the urban planning legislative and statutory requirements;
d) the statement of the promoter saying that he has hanged the relevant notice announcing the license has been requested and the characteristics of the construction;
e) 3 copies of the technical project of constructions endorsed by the corresponding Professional Association;
f) basic study of safety and health.
Without a license, when it is compulsory to have it, it is not allowed to begin the construction. And if it begins, it can be demolished after a penalize proceeding.
Once finished, the opening or first occupation license needs to be granted, also by the relevant Town Council. Without it, there is no access to water or electricity.
Is tort law or a law of extra contractual obligations recognised in your jurisdiction?
Both possibilities exist in our jurisdiction.
Who are the typical parties to a construction and engineering project?
The typical parties to a construction and engineering project are the Promoter, Project planner, the Constructor and the Construction director and the executive construction manager. We refer to the answer of question number 2 above.
What are the most popular methods of procurement?
The most popular methods of procurement are two:
- By means of private contracts; or
- By public competition (when the promoter is Public Administration).
What are the most popular standard forms of contract? Do parties commonly amend these standard forms?
This question does not adapt to Spanish Law. We do not have standard forms of contract. Each contract is newly drafted for each relevant case between the parties according to their will. In a subsidiary way, the law regulating the specific type of contract and the Civil Code will apply. The number and types of contracts in Spanish Law is “apertus” and there are atypical or mixed contracts.
Are there any restrictions or legislative regimes affecting procurement?
In private contracts, the general principles of obligations and contracts set in the Civil Code or in the law regulating the specific type of contract have to be respected.
Regarding public contracts, the relevant regulation is Law 9/2017, of 8th of November, of Public Sector Contracts. This regulation establishes many restrictions to public construction contracts such as, for example, the need to follow a very complex public tender and to guarantee the principles of equality, transparency and free competition.
Do parties typically engage consultants? What forms are used?
Yes they do. Primarily by means of private contracts.
Is subcontracting permitted?
Yes, it is permitted and regulated in Law for the regulation of Construction and in the Technical Code of Construction.
How are projects typically financed?
Either with private wealth or with Bank financing.
What kind of security is available for employers, e.g. performance bonds, advance payment bonds, parent company guarantees? How long are these typically held for?
Is there any specific legislation relating to payment in the industry?
Yes, the one relating to anti-money laundering, mentioned above and also Law 3/2004, of 29th of December, by means of with the measures against delay in payment are established (Ley por la que se establecen medidas de lucha contra la morosidad en las operaciones comerciales).
Are pay-when-paid clauses (i.e clauses permitting payment to be made by a contractor only when it has been paid by the employer) permitted? Are they commonly used?
Yes, they are permitted but they imply relevant tax consequences that need to be taken into account.
Do your contracts contain retention provisions and, if so, how do they operate?
Yes, they can contain retention provisions. During the first year following the construction, the constructor is obliged to subscribe an insurance policy covering the material damaged derived from a poor execution. But according to the Law for the Regulation of Construction, he has the possibility to replace this liability insurance by allowing the promoter to retain a 5% of the cost of the construction.
Do contracts commonly contain delay liquidated damages provisions and are these upheld by the courts?
Yes, if they are agreed in the contract.
Are the parties able to exclude or limit liability?
The parties cannot completely exclude liability. They can limit it but the Courts may not accept such limitation in case of trial.
Are there any restrictions on termination? Can parties terminate for convenience? Force majeure?
The parties can agree to terminate the contract for the justified causes established in such contract and subsidiary, according to the Civil Code or the relevant applicable regulation.
The parties can terminate for convenience but such decision cannot be unilateral.
The contract can also be terminated by force majeure but in case of controversy regarding weather there is or not force majeure, the Courts will the ones deciding it.
What rights are commonly granted to third parties (e.g. funders, purchasers, renters) and, if so, how is this achieved?
In Spanish Law, contracts do not produce any effects on third parties, meaning that third parties do not have any rights granted by contracts. It is the principle of contractual relativity. There is only an extra contractual liability working in case of damages to third parties.
Do contracts typically contain strict provisions governing notices of claims for additional time and money which act as conditions precedent to bringing claims? Does your jurisdiction recognise such notices as conditions precedent?
No, it does not recognize them.
What insurances are the parties required to hold? And how long for?
There are three compulsory insurance policies that need to be subscribed:
- During the first year following the reception of the construction, the constructor is obliged to subscribe an insurance policy covering the material damages derived from a poor execution. He is allowed to replace it by letting the promoter retain the 5% of the cost of the execution of the construction.
- During the three years following the reception of the construction, the promoter needs to maintain an insurance policy covering the material damages derived from defects in the construction affecting livability. The minimum warrantied amount will be of 30% of the cost of execution of the construction.
- During the ten years following the reception of the construction, the promoter needs to maintain an insurance policy covering the material damages derived from defects in the foundations, beams, forges, load bearing walls or other elements affecting directly mechanic resistance and the stability of the building. The minimum warrantied amount will be of 100% of the cost of execution of the construction.
How are construction and engineering disputes typically resolved in your jurisdiction (e.g. arbitration, litigation, adjudication)? What alternatives are available?
The three mentioned: arbitration, litigation and adjudication.
There is no other alternative.
How supportive are the local courts of arbitration (domestic and international)? How long does it typically take to enforce an award?
It depends pretty much on the volume of arbitrations a company has per year.
Even though it is an executive title, it can take quite a long time to enforce it if the party who has to accomplish it does not do it voluntarily, as you are then obliged to go to Court.
Are there any limitation periods for commencing disputes in your jurisdiction?
Yes, there are limitation periods, the prescription periods which are: 1 year for extracontractual liability and 5 years for personal actions.
How common are multi-party disputes? How is liability apportioned between multiple defendants? Does your jurisdiction recognise net contribution clauses (which limit the liability of a defaulting party to a “fair and reasonable” proportion of the innocent party’s losses), and are these commonly used?
They are relatively common. Liability is mutual (solidaria) unless it is expressly agreed as joint (mancomunada).
The limitation of liability to a fair and reasonable proportion is not included in the contracts. This type of clauses is not recognized in our jurisdiction.
What are the biggest challenges and opportunities facing the construction sector in your jurisdiction?
The big urban developments that are upcoming particularly in the city of Madrid (Operación Chamartín, the operation AENA is leading in the area of the airport of Madrid-Barajas, Los Carriles in the North of Madrid, etc.).
What types of project are currently attracting the most investment in your jurisdiction (e.g. infrastructure, power, commercial property, offshore)?
Comercial properties, hotels and housing for touristic goals. Also, infrastructure projects.
How do you envisage technology affecting the construction and engineering industry in your jurisdiction over the next five years?
This sector depends very much on the decisions taken by Public Administration as it is quite deeply regulated on several levels (state, autonomic and municipal). It also depends on human workforce as cities and constructions are still designed, projected and built by men. Therefore, we do not think technology will be making a huge difference in the industry is the five next years.