Is the Covid-19 crisis grounds for backing out of an off-plan property purchase without losing your deposit or stage payments? No, but it could justify seeking better payment terms negotiated in good faith with your developer.
The sudden appearance of the coronavirus has multiple repercussions, one of which, following the closure of borders and the uncertain outlook for international tourism, is the situation in which home buyers in Spain find themselves, especially British buyers.
Currently, the situation in which the buyers who have paid for a new construction (off-plan) find themselves is:
They have proceeded to sign a private contract and made payments as agreed with the builder who will be delivering the finished property in accordance with the contract. However, a new situation, totally unforeseen and absolutely force majeure, creates uncertainty in this acquisition.
In principle, as the old Latin principle “pacta sunt servanda” states that agreements are to be fulfilled, so the commitments made must be respected. But we also find another Latin clause, the “rebus sic stantibus” which can be translated as “things thus standing”. In Spanish law, this clause allows for the modification of contracts when unexpected circumstances occur, and without the fault or responsibility of any of the contracting parties, as is currently the case with the coronavirus.
This being the case, it is currently possible to use this clause to modify contracts on the basis of the following premises:
- The contract must be a long-term contract, i.e. longer than a year.
- Something unforeseeable and unavoidable must have happened.
- The parties cannot be deemed responsible for the change of circumstances
- And, in such circumstances it is allowed to MODIFY THE CONTRACT, NEVER TO EXTINGUISH, TERMINATE OR RESOLVE IT.
The Spanish Supreme Court, in a recent ruling (Ruling 156/2020, March 6) understands that the clause “rebus sic stantibus” cannot be applied in a contract of less than one year. Therefore, in the off-plan contracts, unless the contract contains terms preventing it, the parties can modify the stipulations (for example, to renegotiate the payment terms), but they cannot extinguish it nor terminate it because of the coronavirus.
Having said that, Spanish legislation, Law 20/2015 of 14 July, tried to protect the purchaser for those cases where the builder does not complete on time. This legislation regulates the guarantee of the amounts paid on account by buyers in the acquisition of off-plan properties. The legislation says that “in the event that construction does not begin or does not come to a successful conclusion within the agreed period” the amounts paid by the buyer should be refunded. However, the developer or the builder can also use the “rebus sic stantibus” clause to justify the delay in the delivery of the works and based on that try to renegotiate the terms.
We come to a position where the good faith and fairness in negotiating a reasonable exit is key, giving the extraordinary situation presented by the Covid19 crisis. Litigation in these circumstances should be the less advisable route to start with, and in any case, only when the negotiation has been exhausted. As both parties could invoke the “rebus sic stantibus” clause in defence of their interests in litigation, it is fundamental to try to negotiate or mediate an equitable solution. The most important thing to keep in mind is that both, the buyer´s intention to buy a home in Spain and the developer’s intention to sell should be considered equitably.
We at Del Canto Chambers are expert negotiators and mediators and are used to deal with these situations. We can offer, if both parties agree, a mediation using teleconference services. Please get in touch if you need expert help in re-negotiating an off-plan property purchase contract in Spain. T.: +44 207 043 0648 E.: email@example.com
By Antonio Aguilera, Head of litigation, spanish abogado Del Canto Chambers Spain.