The Licence of First Occupation Explained

Raymundo Larraín Nesbitt - Lawbird Legal Services
29th of January 2009

In short, a Licence of First Occupation is a licence issued by the Town Hall which is granted once the building works have been completed, and allows purchasers to dwell in a property. If a long time has passed since the building works ended and the developer has failed to obtain this licence, it may be a sign of serious underlying legal problems. Although it is not illegal to complete at the notary without a Licence of First Occupation, not having one will prevent you from having access to water and electricity supplies for the property. It will also mean that no bank will be willing to grant you a mortgage, other than the developers’. It is always recommendable to complete with a valid Licence of First Occupation in place; however, there are special circumstances in which it may be advisable to complete without one, specifically if there’s no bank guarantee securing your down payments and the developer is in risk of going into administration, provided that there’s no ruling affecting the building licence due to planning issues.

Over the last years we have read in the press horror stories on those completing on off-plan properties which had not attained the necessary Licence of First Occupation and all the woes they are now facing as a result of it. But what really is a Licence of First Occupation and what importance does it have for a purchaser? In this article, structured as a Frequently Asked Questions list, we strive to deliver some insight onto this matter in a very simplified manner.

What is a Licence of First Occupation?

The Licence of First Occupation (also known as Habitation Licence or Certificate of Habitation, in Spanish Licencia de Primera Ocupación orCédula de Habitabilidad) is an Administrative licence granted by the Town Hall at the town/city in which the property is located, and enables the owner to dwell in it legally. The developer is responsible for applying for this licence once the Certificate of End of Construction has been issued. Each newly built dwelling will have an individual License of First Occupation (LFO) granted albeit in large developments the LFO are normally grouped for economies of scale. Resale properties will already have a LFO granted. In this article we will be referring mostly to off-plan properties.

What Does a Licence of First Occupation Document Look Like?

A Licence of First Occupancy document is basically a document consisting of one or more pages issued by the Town Hall and addressed to the developer who applied for the licence which states that the Licence of First Occupation has been granted for the property or group of properties in the application.

It normally has the following elements:

Logo of the Town Hall issuing the licence
Stamp with the date in which the document is issued and an accessions register number.
File Number
Plot of land planning reference
Developer’s name
Number and type of properties which are being granted licence
Date on which the licence was granted
Name and signature of the Town Hall secretary who grants the Licence and Town Hall’s Stamp

Figure 1: Anatomy of a Licence of First Occupation

Why is a First Occupancy Licence Needed?

The LFO is important 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.

How Long Does a LFO Take to be Granted?

This will depend on various factors. If the Town Hall’s technicians detect irregularities in the development or deviations from the original building licence then the Habitation Licence 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 the developer having submitted the Certificate of End of Construction providing the development has no major irregularities. In large cities the granting may be pulled back even eight months or more due to the work overload of the Town Hall.

No one can speed up the granting of the First Occupation Licence, neither the developer nor us the solicitors; 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 irregularity or pending communal work.

Is Every Off-plan Development Issued an Habitation Licence?

Yes. As previously written, each dwelling has its own individual LFO granted, although in large developments they are normally grouped for simplicities sake. A detached villa will have its own individual LFO whereas large developments consisting of various phases will have grouped LFOs issued. Each of these phases normally has its own LFO. So for example in a huge development of 300 units grouped in 4 phases there could be four different building licences and you would have one all-inclusive LFO granted for each individual phase grouping 75 dwellings at a time. This could well mean that even within the same finished development some properties may be legal (with a LFO granted) yet others are not legally deemed as habitable yet. You could only tell which are which by means of thorough legal analysis. Another matter being if the local authorities actually pursue those who live in, or let properties which lack the mandatory LFO, but I’ll reserve that for another occasion.

What are the Risks of not Having a LFO Granted?

If the LFO has not been granted one year or more after the Certificate of End of Construction was submitted it usually means there is a serious underlying problem. The said problem can arise from a myriad of causes such as planning problems (e.g. the development had only been granted a building licence for two storeys and four have been built, the property has been built in an area zoned as green belt, or an archaeological site of interest has been uncovered), or could mean there might be a health hazard because there is a breach of Health laws (e.g. the sewage pipeline is incorrectly laid out).

One of the most recent cases has taken place in the peaceful town of Catral in Valencia, Costa Blanca, where several developments have been finished and the purchasers have completed on the properties without a LFO been granted. More than 1,000 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 down some of them.

Is it True that Completing 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 their developers going into receivership.

What is the Difference Between an Ordinary LFO and one Granted by Administrative Silence?

Both LFOs are equally valid. Under Law 30/92 if a Town Hall does not reply to a licence petition within a given period of time it is automatically considered granted by positive silence. This is called Administrative Silence Rule and is a special administrative procedure which enables licences to be obtained after a certain period of time (currently 3 months), if no response has been obtained from the Town Hall. If a LFO is obtained through Administrative Silence it is just as valid as an ordinary one obtained expressly through the Town Hall under Spanish Administrative Law. It is pointless to challenge a licence obtained by Administrative Silence as it is perfectly legal in our system, provided it wasn’t obtained breaching any laws.

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.

Should I Complete Without a Licence of First Occupation?

It is in general recommendable to complete in off-plans only if a LFO has been 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 building licence due to planning issues and there is a high risk of the developer going into administration in the near future, it would be advisable to complete. You would still have to wait until the LFO is granted before you can live in the property, but at least now there is no risk of you losing your funds if the developer becomes bankrupt.

It is very important to realise that until completion the property still belongs to the developer. So if you still have not closed and the developer becomes insolvent in the interim, the property lodged under its 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 the above happens, it is very likely you will forfeit your down payments. However, cases differ and require a case-by-case study by your appointed solicitor.

In any case, our recommendation, as always, is that you hire a lawyer with enough experience in Spanish property law to ensure your interests are fully protected.

Lawbird Legal Services is a law firm with a broad experience in Litigation, and is specialized in representing clients affected by real estate and planning problems. More information about Lawbird.

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The article The Licence of First Occupation Explained was originally published on belegal.com.