This personal account of a Spanish property investment gone wrong was sent in by email for publication.
Though a thoroughly unpleasant experience for the investor, he ended up making money, and doing vastly better than he would have with his money tied up in a blue-chip British banking stock like, say, RBS, or even in an index like the FTSE.
It goes to show that, in times like this, even a Spanish property investment gone wrong can turn out to be a good investment, relatively speaking.
It also shows the importance of using a good lawyer in Spain, and being well prepared when it comes to exercising a Spanish bank guarantee. Banks know that most people will give up, rather than fight to the end. If you want the bank to pay up, make sure you send the right signal from the start.
Just to tell you that I judge that I am one of your very few subscribers to have managed to exit a four year property investment in the Valencia area at a profit.
In what was indisputably my worst ever property investment, I bought into a development in Xeresa, near Denia (Valencia) in 2004, being built by a large developer (I expect you know them) specialising in golf resorts. My lawyers were Del Valle Associates in Marbella (so you see I chose pretty well all round). I bought two properties off-plan in 2004, on the basis of a contract which looked OK to me at the time but which I subsequently discovered was seriously flawed. I paid deposits of around 30%. The whole process got off to an extraordinarily slow start, but construction finally began in early 2005, though, according to my builder’s start of works certificate, not officially until November, seven months later. This was very difficult to deal with at the time.
I had by this time parted company with Del Valle and found a new lawyer through your website (Juan Bertomeu of Iuris Consulting). It was soon clear to both of us that if I wanted to get out (which I by then did) it could only be done by claiming on the bank guarantee for non-completion in the required time. Given the force majeure conditions in the contract, we established the earliest date in May 2008 by when the claim could be lodged. It was apparent from my site visits (when we were never allowed actually to enter my own properties!) that they would not be completed by the date we’d defined.
Despite this, I was advised in mid 2008 that the properties had been completed (and that this stage payment and that stage payment were now due). Our claim had not at that time been lodged because my/our view was that every duck had to be in the proverbial row, in terms of documentation, before we did so. We finally lodged the claims on both properties in early September.
These were rejected by the bank because the properties had been “completed”.
To cut a very long story short, we made 12 different submissions to the bank , all of which had to be notarised etc. The bank made an endless succession of what we believed to be wholly unreasonable and non-contractual demands. My view was that however unreasonable the demand we would meet it as quickly as we could, and so we did. One notarised submission we made in November, relating to the unfinished state of the apartments, ran to 25 pages.
Finally, miraculously, the first guarantee was finally paid into my Spanish bank one week before Christmas and the second one week later. I received four years interest on my capital deposit. Additionally, of course, I was repaid in Euros, which were around 30% more valuable on the day I got paid than they were when I’d made my deposit.
In broad terms, therefore, I have in sterling made around 10% per annum on my four year investment (net of legal fees of some 13,000 Euros and my personal costs of 3,000) which, so far as I can see, is tax-free. This is far better than any of the parallel UK investments I made over the same period.
The fact that this profit arose through entirely unintended means does not lessen the feat of genius it represents.
So you see, it can be done!
The lessons (for me at least) are as follows:
Firstly, read the bank guarantee very carefully, on the basis that you might well have to use it. Start with the assumption that they will be extremely reluctant to pay.
Secondly, remember that the developer will seek to give himself more room against his own commitments than he is entitled to, especially at the start of the contract when non-completion is the last thing the buyer is thinking about.
Thirdly, before signing or paying anything, visit the site with your lawyer. Within 5 minutes of my doing so, unfortunately by then well into the contract, my new lawyer, on seeing the proposed layout, told me – accurately as it turned out – why the project would end up years behind schedule due to difficulties in obtaining further permissions not yet sought or agreed.
Keep up the good work!