News of investors getting burned on a speculative off-plan development on the Costa del Sol is a reminder how important it is to check your deposit and stage payments are guaranteed before you hand over any money to a developer. And what are your options if things go wrong?
Back in the boom years many investors were left with nothing to show for their off-plan payments when the bubble burst and hundreds of developers collapsed. Some were able to claw back their money from their developer’s bank after the Spanish Supreme Court ruled in December 2015 (case number:5263/2015) that banks and insurance companies acted as guarantors of these off-plan deposits, but that window closed on the 28th of December 2020 because of a term limit established by the Spanish government.
Even though the worst problems with developers going bankrupt and not honouring the contracts with investors have subsided, the problems experience by investors in La Boladilla Village Resort’ promoted by the developer By Nok in Estepona show that it is still crucial for buyers to do sufficient due diligence before handing over any money to a developer selling property off-plan. You want to be absolutely sure that your deposit and stage payments are guaranteed in accordance with Spanish law.
But what if things go pear-shaped? The good news is that this is not the end of the road for the investors, and there are still two options for a client to be able to make a claim against developers, or their banks and insurance companies.
1. Issue a criminal prosecution against the construction company directors. This route can be long and torturous, as there can be allegations of asset stripping or fraud which in turn, whether proven or not, may result in a pyrrhic victory for the clients if the developer turns out to be broke.
2. Claims can be made against the promoter of the project, its banks or insurance companies that insured or guaranteed the promotion. This was the case with Aifos, which was one of the biggest Spanish promoter bankruptcy which allowed us to recover for our clients their deposits claiming against the banks that guaranteed the client’s deposits.
To do this first you have to be able to show that the bank accepted these deposits in open accounts, opened by the promoter without the bank requiring the promoter to accept a guarantee or an insurance policy. This means carefully reviewing the money and paper trail, and clients need to bear in mind that claims can take years to go through the courts. But it can be done, and in the right circumstances, clients can get back their money with interest.
Best of all, do your due diligence with a good lawyer, and never hand over money to a developer that you might not get back if things don’t go according to plan. But if you do end up worried about getting your money back from a developer who might be in breach of contract, get in touch with us, and we’ll give you a professional opinion of where you stand.