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My bank guarantee has expired, what are my rights?

Q: I signed a contract to purchase an apartment off-plan in Murcia and the developer is very far behind schedule. I have a bank guarantee which states that my deposit is secure, but the guarantee appears to have expired and the bank tells me that it is no longer enforceable. What are my rights? Is the bank correct or do I still have claim?

A: This issue has been covered in previous articles and continues to cause confusion. The obligation upon a developer to provide a bank guarantee in respect of stage payments is set out in the law 57/1968. I am of course aware that many developers failed to provide the guarantees, in breach of their obligations, and highlighting failings on the part of the lawyers/advisers involved in the transaction. This can mean that the adviser who handled the initial purchase contract may be reluctant to admit their errors in failing to secure the bank guarantee in respect of stage payments made in the past. We are considering a case where a bank guarantee does exist.

As said, the developer is obliged by law to guarantee all stage payments made by a purchaser together with legal interest to cover the scenario where a building project is never commenced, or fails to complete within the contractual timescale for any reason. The relevant law is as stated above, as amended by the LOE, Article 4 of which states that the obligatory guarantee will be automatically cancelled once the habitation certificate (cedula de habitabilidad) has been issued. I am certain that 99% of readers will know of cases where a habitation certificate has yet to be issued. The obligations set out in this law cannot be varied by the parties or renounced. This means that a clause in a contract or on a bank guarantee stating that, for example ‘the bank guarantee will expire on 1 July 2009’ is almost certainly unenforceable against an affected purchaser.

To summarise, a bank seeking to set a time limit on the validity of a bank guarantee is likely to be unsuccessful if challenged. Any term stating that the guarantee expires on a certain date will almost certainly be considered unfair, and a court would strike it out for this reason. There have been cases reported where a court has found in favour of the purchaser on this basis, a good authority being the case heard at Audiencia Provincial de Madrid (Sección 11ª) nº 1029/2007.

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One thought on “My bank guarantee has expired, what are my rights?

  • I am in a similar situation.
    I have a guarantee for 50% of my deposit, but the builder never sent the guarantee for the other 50%. Now a court has been appointed as administrator….who can we claim our deposit back from?
    any advice?

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