Contracting a builder and paying in stages (contrato de obra)

Terms used

• Contrato de obra — The contrato de obra is the works contract between you and the builder.
• Presupuesto — The presupuesto is the builder's itemised written budget for the work.
• IVA — IVA is Spain's value-added tax, charged on the builder's invoice.
• Licencia de obra — The licencia de obra is the town hall permit for works.
• Declaración responsable — The declaración responsable is a sworn notice to the town hall that lets some works start without a full licence.
• Cláusula penal — The cláusula penal is a contract clause setting a penalty for late completion.
• Aval — The aval is a bank or insurer guarantee you can claim on if the builder does not repair defects.
• Acabados — Acabados are finishing work such as paint, tiling and surfaces.

Key rules

• Liability periods: The builder answers for 10 years for structural damage, 3 years for habitability defects and 1 year for finishing defects.
• IVA rate: Ordinary repairs carry 21% IVA, while qualifying home renovations can have 10%.
• Payments: Tie payments to certified progress and keep a final instalment until handover.
• Retention: Keeping back part of the price or taking an aval is a contract choice, not a legal requirement.

Use a written contract for any larger job

No law requires a specific form for a private renovation contract. For anything beyond a small repair, though, sign a written contrato de obra. Once you accept the budget, the price is binding in practice, so make sure it is complete before you sign.

The contract should cover:

• Both parties in full, with tax IDs, and the address of the work.
• An itemised presupuesto describing the work, the materials and their quality.
• The price, with IVA stated.
• Start and end dates.
• Who obtains the licence or permit (licencia de obra or declaración responsable).
• The builder's civil liability insurance.
• How changes and extras are agreed, waste disposal, warranty terms and how disputes are handled.

The clauses checklist below gives the full list, and the documents block shows what to collect.

Choose the IVA rate before you sign

Ordinary repairs carry 21% IVA. Renovation works on a dwelling can qualify for 10%. The 10% rate generally needs all of these:

• The building is mainly a home.
• You are a private individual or a community of owners, not using it for business.
• The home was over 2 years old when the work started.
• The work is not mainly new construction or an extension.
• Materials the builder supplies are no more than 40% of the taxable base. Above that, 21% applies to the excess.

You confirm this in a signed declaration to the builder, and you ask for an itemised invoice showing labour and materials separately. Temporary extra reductions for energy-efficiency works have existed, so check the current rules with the tax agency (Agencia Tributaria).

Pay in stages tied to progress

No legal standard exists for payment stages, so negotiate them. A common pattern is:

• A modest deposit on signing, often a tenth to a fifth of the price.
• Stage payments against certified progress (certificaciones de obra), for example after demolition, first fix of plumbing and electrics, tiling, carpentry and finishing. Where there is a site manager, they check these.
• A final instalment held back until handover.

Paying most of the price before the work is done is not normal. Be wary of anything that looks like that.

Penalty for delay

A delay penalty (cláusula penal) is valid. Set a daily or weekly amount, an overall cap, and exceptions for force majeure and for delays you cause or changes you order. You can deduct it from payments. A court can reduce a penalty that is excessive.

Secure repairs after handover

Retention is agreed in the contract, not required by law. Owners commonly keep back 5% to 10% of the price until handover or for a guarantee period of about 6 to 12 months. Or the builder can give you a bank guarantee (aval) for that amount. State the percentage, the release date, the conditions for release and how defects are reported and repaired.

How long the builder is liable

Builders are liable for 10 years for structural damage, 3 years for habitability defects and 1 year for finishing defects, counted from handover.

• Structural damage covers foundations, beams, slabs and load-bearing walls that affect stability.
• Habitability defects include damp, insulation, fittings and energy saving.
• Finishing defects are the acabados.

Bring a claim within 2 years of the damage appearing. Report defects in writing. These periods apply to major works. Minor works fall under general contract rules.

Do you need 10-year insurance?

The 10-year structural insurance is required for new residential buildings. Most small renovations do not need it. It may matter only for a total reform or one that affects the structure, depending on how the work is classified, so ask your architect or town hall. Ask for proof of the builder's civil liability insurance in any case.

Choosing between options

How do you secure the builder's repairs after handover?

• Hold back part of the price: Fits most private works: you keep about 5% to 10% until handover or for 6 to 12 months, and the contract states the release date and conditions.

• Ask for a bank guarantee (aval): Fits larger jobs or a builder who will not accept a hold-back: a bank or insurer guarantees that amount and you can call on it if the builder does not repair defects.

If you want to pay the full price on time, ask for an aval. Otherwise hold back part of the price. Either way, write the percentage, release date and how defects are reported into the contract.

Timeline and deadlines

• Hold back part of the price, about 5% to 10%, or take a bank guarantee (aval): from handover until the release date written in the contract

• Report defects in writing and have the builder repair them: during the guarantee period of about 6 to 12 months after handover

• Finishing defects (acabados) are covered: for 1 year from handover

• Habitability defects such as damp, insulation and fittings are covered: for 3 years from handover

• Structural damage that affects stability is covered: for 10 years from handover

Documents you need

• Written works contract (contrato de obra) signed by you and the builder, with scope, price, schedule, payment stages and penalties for delay.

• Itemised budget (presupuesto) from the builder, with prices and the IVA rate, attached to the contract.

• Your signed declaration to the builder confirming the conditions for the reduced 10% IVA, if your works qualify.

• Proof of the builder's civil liability insurance.

• Licence or permit (licencia de obra or declaración responsable), obtained by whoever the contract names.

• Bank guarantee (aval) from a bank or insurer, issued to you for the retained amount, if you choose it instead of holding back part of the price.

• Itemised invoice showing labour and materials separately.

Clauses a works contract should contain

• Attach an itemised written budget (presupuesto) that describes the scope of work, materials and their quality.

• Write the price with IVA stated, and check whether 10% or 21% applies to your works.

• Set a start date and an end date for the work.

• Tie payments to certified progress, such as demolition, first fix of plumbing and electrics, tiling, carpentry and finishing, with a modest deposit on signing.

• Agree how changes and extras are priced and approved in writing, and who removes the waste.

• Ask for the builder's public liability insurance (seguro de responsabilidad civil) certificate, proof the premium is paid and the sum insured, plus Social Security and tax compliance certificates.

• Include how disputes will be resolved.

Payment traps when hiring builders

• Large upfront deposit: A builder who asks for a big share of the price before work starts, or for payments not tied to progress, leaves you exposed if the work stalls. Pay a modest deposit against a signed, itemised budget, then pay by stage as work is certified.

• Cash only and no invoice (sin factura): Without an invoice you have no proof of the contract, price or work, so warranty, insurance and consumer complaints are weak. You also cannot claim the work for tax deductions or when you sell. The builder commits tax fraud, and you may face sanctions in some cases. Insist on a written contract and an invoice with IVA, and pay by transfer or card.

• Cash above the limit: Cash payments to a tradesperson are limited to 1,000 euros per operation (2,500 euros if you are a non-resident without Spanish tax domicile), and splitting the payment does not avoid it. Fines can be 25% of the amount, and both parties are liable. Pay larger amounts by transfer, card or cheque so there is a record.

• Unregistered or undeclared workers: If a worker not registered with Social Security is hurt on your site, they may claim against you, especially if you controlled the work. There is no insurance cover, and a Labour Inspectorate (Inspección de Trabajo) visit can halt the work. Ask for the builder's Social Security and tax compliance certificates and insurance certificate before work starts.

• Vague quote and missing paperwork: No written quote, a vague description with no itemised budget, no proof of business registration or insurance, or no plan for the licence are all warning signs. Walk away from a builder who will not put these in writing.

Frequently asked questions

Does the 10% IVA apply to my renovation?

Yes, the 10% IVA can apply if the home is your private dwelling and is over 2 years old when the works start. The works must not be mainly new construction or an extension, and materials supplied by the builder must stay under 40% of the taxable base, or 21% applies to the excess. Give the builder a signed declaration confirming these conditions and ask for an itemised invoice that separates labour from materials.

Can I be charged a penalty if the work finishes late?

Yes, you can charge the builder a penalty for late completion if the contract says so. Usually it is a daily or weekly amount with an overall cap, and it excludes delays caused by you or by changes you ordered.

How much should I hold back until the work is finished?

Owners commonly hold back about 5% to 10% of the price. They keep it until handover or for a guarantee period of about 6 to 12 months to cover repairs. Alternatively, ask the builder for a bank guarantee (aval) for that amount, and write the release conditions into the contract.

Do I need the 10-year structural insurance for a reform?

No, most small renovations do not need the 10-year structural damage insurance (seguro decenal). It is required for new residential buildings, and for reforms only where the work is a new-build type intervention. If your works change the structure or are very large, ask your architect whether it applies.

How long do I have to claim a defect after it appears?

You must bring the claim within 2 years of the damage appearing. The liability periods themselves run from handover. Minor works without a project fall under general Civil Code liability instead.