Investing in a Spanish Development Project: Why a Building Licence Is Not Enough

Before committing capital

Before committing capital, the legal review should connect the property, the project company, the funding documents and the exit. These five areas help identify where a commercially attractive proposal still needs a clearer legal structure.

1. Verify the land and the remaining obligations

Start with the exact registered property, its owner and the rights affecting it. An up-to-date nota simple provides information about registered ownership, rights and limitations, but is an informative extract rather than a registry certificate. Where formal evidence is required, consider the appropriate certification.[1]

Then reconcile the registry information with the acquisition documents and the technical and planning review. Confirm whether the project company already owns the site, holds an option, or is still relying on a purchase agreement. These positions create different funding risks.

Acquiring land does not, by itself, remove the owner's planning duties. Article 27 of Spain's national Land and Urban Rehabilitation Act addresses the successor owner's position and certain obligations affecting transferred land.[2] Review outstanding urbanisation requirements, infrastructure commitments and the conditions attached to the relevant approvals. Regional law and municipal records must be checked for the particular site.

2. Identify the company and the decisions you can influence

The developer's trading name, the landowner and the company receiving investment may be different entities. Draw a simple ownership and contract map. Identify who owns each company, who represents it and which approvals the transaction requires.

For Spanish capital companies, authority to represent the company depends on the management structure. Acquisition or disposal of essential assets also falls within the shareholders' meeting's competence under Article 160(f) of the Companies Act.[3] These rules deserve attention before signing acquisition or investment documents.

If you are taking equity, negotiate information rights and appropriate approval rights over the budget, additional debt, related-party contracts and disposal of the project. Align the shareholders' agreement, articles and corporate approvals. Article 29 provides that agreements kept private between shareholders are not enforceable against the company.[3] Contractual promises should therefore not be treated as automatically effective corporate controls.

3. Define exactly what your money buys

A proposal may use the word 'investment' for equity, a loan, a profit-linked arrangement or an advance under a property purchase. The documents should identify the instrument and its consequences without relying on the presentation's terminology.

State who owes each payment, how any return is calculated, when it becomes payable and what conditions apply. Separate a projected return from a contractual payment obligation, and assess whether the obligor can realistically meet it.

If a voluntary mortgage is proposed, Article 145 of the Mortgage Act requires both a public deed and registration in the Property Registry for its valid establishment.[4] A reference to 'property backing' in a term sheet is not a substitute for completing those steps. The proposed security also needs a separate assessment of scope, ranking and enforceability.

4. Make release of funds match verified progress

The funding timetable should reflect the project's actual dependencies. Consider whether initial payment should depend on completion of the land acquisition, delivery of specified approvals, committed senior finance or execution of the construction contract.

For later drawdowns, agree what evidence is required, who checks it and how disputed progress is handled. Technical certification and legal conditions serve different purposes; both may matter.

Address budget overruns before they occur. Who must contribute additional capital? Can an investor decline further funding? What dilution or default consequences might follow? Set reporting dates, spending permissions and a process for approving changes. These are negotiated protections, not an identical statutory checklist for every Spanish development.

5. Test the exit under a less favourable scenario

Read the exit provisions against a delayed project, slower sales and a refinancing that does not materialise. Identify whether repayment depends on unit sales, a company sale, new borrowing or another source of cash.

Define how proceeds are allocated between project costs, lenders and investors. Check that the proposed payment order is consistent with the financing and security documents, and obtain advice on any insolvency implications.

For an equity investment, address transfer restrictions, valuation, deadlock and sale procedures. For a loan, examine maturity, extensions, payment defaults and available remedies. A put option or buyback promise also requires scrutiny of who must pay and their ability to do so. No clause should be presented as eliminating development risk.

Turn legal findings into investment decisions

The useful outcome of legal due diligence is a decision: proceed, renegotiate, require further evidence or stop. Each material finding should lead to a condition, a change in price or structure, a negotiated protection, or an expressly accepted risk.

For developers and financing parties, this work also helps align expectations before capital is released. A licence can move a project forward; a coherent legal structure explains how the parties will manage it together.

Discuss your project

Considering an investment, development or financing transaction in Spain? Contact Vladimir Martsev at vmartsev.abogado.es@gmail.com to discuss the legal structure, due diligence and transaction documentation.