Reply To: Are Bank Guarantees worth the paper they’re written on?

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The idea of the Bank Guarantee and why it was brought in was to cover purchasers’ monies until completion can take place. By that I mean it has been inspected by the Town Hall and deemed legally habitable by issuing an LFO. Legally, one is not obliged to complete without the LFO.

However, if you have a lousy lawyer, they allow illegal clauses to creep into the contracts. For example by saying completion is when the Architect issues the End of Works certificate and even though it goes against the law, if you sign it you are snookered.

Likewise with the Bank Guarantee. The idea was supposed to be that there should be no end date because it should cover you until the property is ready for the signing of completion at the notary. By putting an end date (which is not supposed to happen), and the development runs over time – you have to go cap in hand to the developer and try and obtain a renewed one. However, it is worth noting if the developer anticipates running overtime, he has to inform you in writing near the time and ask if you are in agreement to extend the completion date. If you are, THIS is the best time to demand a renewed Bank Guarantee – preferably without an end date!

All this is against the spirit of the BG law which was brought in purely to give purchasers protection, but unscrupulous developers simply get round this by adding all these extra ‘illegal’ clauses. This is why it is so important to have a first class lawyer on your side who would not agree to these illegal clauses.

With regards to whether its the bank’s or the developer’s money that is paid out, I thought it was very clear in Maria de Castro’s explanation and from what I’ve also read and learned along the way.
It says:
“They (the developers) need to open a special bank account for your amounts (different from the general one of the developer) and have it expressly written in the contract.
(In the contract) Specification of the Bank or financial institution and the account number where the buyer’s money is deposited”.

The way I understand it therefore is the purchaser’s monies are held in this special account, but based on this a/c – the developer then borrows money from the bank for the building works. If the BG is paid out on, it is from the purchaser’s money, but the bank loses their collateral – thus creating a ‘risk’ situation. The bank therefore will need to obtain securities/personal guarantees from the Directors of the dev. company – something I believe happened with our particular Bank/dev. company.
If the bank knows the Directors have got everything they own already put up as collateral (or refuse to), the bank is going to fight tooth and nail not to honour the Bank Guarantee.

In this scenario, the purchaser is left in no-mans land – with one option open being to put an embargo on company accounts as per Aifos recently, or assets such as unsold apartments of the dev. All in all, by tailor-making the contract and the Bank Guarantee, it is the developer’s way of giving the Bank Guarantee the two fingers.

Bernard – our Bank Guarantee (one page A4) had the illegal clause of an end date, one year after supposed completion!. The developer finally/reluctantly issued it nearly two years after we first signed the contract, and best of all……..they issued it knowing the building licence had been revoked. So instead of refunding our money, they kept quiet about the revoked building licence, and issued a Bank Guarantee.
Wasn’t our original lawyer special!!…..Not 🙁

Now what was the Bank doing issuing a Bank Guarantee for a dev. with a revoked building licence?????? We probably return to Katy’s original comment – they’re all in cahoots with each other.

I’ve written a lot of things above that is only in IMO and what I believe to be true. I am not a lawyer and always happy to stand and be corrected. So anyone new to the forum reading this should always get their lawyer’s advice. And I’ll use my old sign-off signature which is: