Property- Some contract / legal info that may be useful

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This topic contains 7 replies, has 6 voices, and was last updated by  Anonymous 12 years, 8 months ago.

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  • #52456


    It has been bugging me for a while.

    Under an earlier posting – Lost our case -Los Lagos – or reading Spanish Properety Forum articles around that time, there was a mention of the Supreme Court and protection for the purchaser.

    I think it may have been ” sofiadecastro ” a registered active member but whoever it was I cannot trace by searching all articles. Sorry I am not able to correctly hi-light the post.

    I was hoping to be able to find out more on the subject.


    I came accross this posting which should be read by anyone involved with Spanish property purchase..thanks to ” sofia ” Fri Nov 04, 2005 3:32 pm Post subject: Information on buying property from a developer.

    ( cut and pasted quote )

    quote]Buying property in Spain from a developer is somewhat easier and safer that buying from a private seller. Developers are restricted by several laws to what, when and how the offer of their product is put across to the prospective purchaser. Likewise, and given the fat deposits these entities sometimes demand from the purchaser prior to completion, the government under Franco΄s ruling enacted a law whereby all downpayments made before the property was completed have to be secured either by bank guarantees or insurance policies. This assurance that the buyer will retrieve his invested capital from the developer should the project stall or fail is not available for resales unless it is specificly provided for. The subject of how these laws apply to the offer made by the developer, the contents of the contract and the remedies of the purchaser is an interesting one, and therefore merits a deeper analysis.

    Following a normal schedule of events, a purchaser, after taking the decision of what and where to buy, is normally requested to put down a small deposit ranging from 2.000 to 5.000 Sterling Pounds. Automatically, several protection of consumers acts are applicable to what you have signed and will very much determine the legal position of the parties, regardless of whether you have waived the mandatory protection granted by the law. According to the Supreme Court in Spain, a reservation deposit document, deposit slip, offer and deposit receipt, have to be construed as either being a true purchase-sale agreement or a promise to buy or sell.

    Normally, a promise to either buy or sell both parties agree that upon the realisation of certain future events any of the parties will be entitled to compell the other to sign a proper purchase sale contract. Basically, it sets out the lines of the future purchase-sale contract which the parties do not want to commit themselves to. This might be the case where the developer has not obtained the building license or is pending authorisation by regional authorities. Likewise, the buyer might be in the process of raising funding or realising a credit due inminently. Once these events occur, the parties are in are bound to enter into a contractual agreement, i.e. purchase-sale contract. Vendor and buyer can compel the other party to sign a proper purchase-sale contract.

    It can also be the case that the developer words the promise to buy/sell document to his interest, by for example making the validity of the contract subject to either the granting of a building licence or a certain time limit, whichever happens first, in which case the deposit is refunded without penalty. The Supreme Court draws a very fine line between these two contracts, regarding a promise to buy or sell as a true purchase-sale agreement where the price and the object of the transaction are clearly set out. The difference is important, since a potential buyer might want to buy that property he chose and arrange accordingly his affairs regardless of any future events or vicissitudes.

    Every contract is different, as well as the true intentions of the parties, but fortunately developers stand on a very difficult position since Consumers laws are very restrictive regarding contractual terms on promises to buy or sell, and indeed any contract used by developers. In fact, the undersigned is sure that at least 80% of all contracts signed between developers and private purchasers are viced will clauses that are automatically null and void and others which are so confusing that can only benefit the purchaser. The same high court also defines the true nature of these contract regardless of the title given to that contract, since more often than not project developers have poor legal advice and name these contracts with a varied number of erroneous titles.

    In summary, a promise to buy and sell, reservation deposit contract, reservation fee, pre-contract, etc. is to be construed as being a true purchase-sale agreement, totally enforceable in a Court of law where such document describes the property and its price, and according to the latest jurisprudence, even where the document, although not including price and property, enables these two elements to be fixed in a future document. The remedies of a purchaser in case of default by the developer are a suit to compel the latter to grant public deed of purchase sale before a notary public and or claim damages.

    Protection granted by the consumers laws in respect of purchase of property from a developer

    We can divide the requirements to be met by a standard purchase/sale contract in the following:

    · General requirements as per the Consumer΄s protection Act 1984. (Ley 26/1984 de 19 de Julio General para la defensa de los Consumidores y Usuarios), and General requirements as per the General Contractual Conditions Act 1998. (Ley 7/1998, de 13 de Abril, sobre Condiciones Generales de la Contrataciσn).
    · Specific requirements as per Royal Decree 515/1989, of 21 April.
    · Miscellaneous requirements as per other laws.

    1. General requirements

    The Consumers Protection Act 1984, extended by General Contractual Conditions Act 1998, is an ample piece of legislation enacted following a mandate of the Spanish Constitution to guarantee and protect the rights of consumers.

    To ease the reading of the Act, we highlight the most important protections granted. Any clauses, conditions and stipulation will have to meet the following requirements:
    · Clarity, simplicity and concretion, allowing these to be directly understood, without reference to legal texts that are not provided simultaneously or before signing the contract.
    · Good faith and fair balance between the clauses, which excludes:
    o Clauses which enable one of the parties to rescind unilaterally the contract, except those recognized to the purchaser in the sales made by post, door to door or by sample.
    o Abusive clauses, understanding these as being unproportionally harmful for the consumer ,or placing the consumer in the contract in a position of imbalance with regards to the rights and obligations of the parties, to the detriment of the consumer.
    o Abusive conditions of financing.
    o Total waiver of responsibility with regards to the consumer, specially those refering to the aim and utility of the product.
    o Inversion of the burden of proof to the detriment of the consumer.
    o Refusal by the provider of products and services to render typical services of the product or service.
    o Imposition of waiver of rights and defences of the consumer under this Act.
    o In the first sale of properties, those clauses which impose on the consumer the obligation to bear the legal costs which by their nature should be borne by the provider of products and services. (Declaration of New Works, Horizontal Division and costs of existing mortgage loans, such as opening and cancellation costs.)

    For the purposes of this Act, conditions, clauses and stipulation object of the protection are deemed to be such where they are drafted unilaterally by a company or group of companies and are imposed on the consumer, who cannot avoid being subject to them. (This clause is later extended to include also specific clauses privately negotiated by the parties and inserted in the contract)
    Also, the Act stipulates that any uncertainty or doubt in any of the conditions, clauses and stipulations will be interpreted to the detriment of the drafter of them.

    Finally, any condition, clause and stipulation which contradicts the above requirements is considered to be null and void and will be deemed as never inserted in the contract. In case the supression of any condition, clause or stipulation renders the contract imbalanced overall to the detriment of the consumer, the contract will be null and void.

    These two Acts provide an umbrella protection, but there is still a Royal Decree which is specific to buying real estate.

    2. Specific requirements

    There a number of specific requirements which are of mandatory insertion in the purchase-sale contract of a developer:
    1. Name, domicile and where applicable, registration details of the developer company in the Mercantile Registry.
    2. Plan of location of the property and plan of the unit itself, together with a detailed description of the electricity,water, gas and heating/air-condtioning systems, and fire prevention devices installed in the unit.
    3. Extensions of the property, and reference to the building where the unit is located, the common areas and accessory services.
    4. Reference to the materials used in the construction of the unit, including heat and sound proof systems, and materials of the building where the unit is located, common areas and accessory services.
    5. Instructions of the use and maintanance of the general installations which require special knowledge handling and also instructions relating to action to be taken in case of emergency.
    6. Details of registration of the building in the Land registry or mention to the non registration of it, where applicable.
    7. Price of the property and accessory services and form of payment.

    Another set of requirements includes:
    · Copy of the authorisation and building licenses necessary for commencing the works, certification from the relevant authorities regarding town-planning, with special reference to permit to the division and compensation operations of the plot where the property is being built.
    · Statutes and by-laws of the Community of proprietors, where applicable, and information regarding community services and supplies. Where the Community is operating, an up-to-date statement of accounts.
    · Information regarding taxes levied on the property paid or to be paid.

    Special importance is given here to clauses where the developer imposes on the consumer costs which by their nature should be borne by the vendor/developer, for example Declaration of New Works, Horizontal Division and costs of existing mortgage loan, such as opening and cancellation costs.

    If you are assuming the mortgage existing on the property, the contract should mention that if you change your mind and decide not to subrogate the mortgage, thus paying in full on completion, the costs of cancellation will be entirely borne by the vendor/developer. Also, and although the existing legislation does not envisage these costs, check that the Notary Public costs which arise when you complete are to be paid according to the provisions of the Spanish Civil Code (80% of costs borne by vendor) and that the PLUSVALIA Tax is also paid by the vendor, since according to the law it is their cost.

    This clause is very rarely contended by purchasers given they are in their majority unaware of this protection granted by consumer laws.

    3. Miscellaneous requirements/Guarantee of monies paid prior to completion

    Although in the last place, the safety of any and all payment made to the developer prior to completion is perhaps the most important issue to bear in mind when purchasing a property from a developer.

    Developing is perhaps one of the most exposed activities to risk. Most of the developers take monies from purchasers to finance the stages of construction of their properties. However, a particular developer might have sold most of the units of one of their projects and none of another. They lack of advanced payments from purchasers and yet cannot stall the construction of the unsold development. Eventually, monies of purchasers destined to finance the first development are re-routed to the second development, since creditors for the second development are impatient. In the worst case-scenario, sales drop overall (if they have ever taken off on the second development), monies stop flowing and creditors begin to take legal action. Priviliged creditors (workers from the construction company) will queu up for salaries. The bank who gave the loan to the developer to buy the land forcloses on the mortgage for payment default and the hard earned monies of the purchaser who paid thinking they were used for building their holiday home vanish. This is not unrealistic at all. It has happenned and it could well happen again.

    To address this risk Franco΄s government implemented, quite rightly, the 57/1968 Act to guarantee advanced payments paid over to building developers. These guarantees may be in the form of bank guarantees or insurance policies, which the developers should have ready on or before the moment of handing over monies.

    A standard contract should include the following:
    · The obligation of the developer to refund any all payments paid in advance, plus 6% annual interest, in case the developer does not commence the works of the proposede property on schedule as per the contract signed with the consumer, does not complete the construction of the proposed property on time, or the licence allowing occupation of the property is not granted.
    · Reference to the type of guarantee and indication of the guarantor (bank or insurance company).
    · Reference to the bank where advanced payments are to be paid in, and account number.
    · On signing of the contract (coincident with payment of funds), the developer will be obliged to hand over the relevant guarantee documentation: insurance policy or bank guarantee.

    Should the events which allow the refund of the monies occur, the consumer has a double choice: demand refund fo the monies added with an annual 6% interest increase, or grant the developer an extension to fullfill their commitments as per the contract. Documentary evidence of any of the ocurrence of any of the events abovementioned together with the original guarantee documentation enables the consumer to execute the guarantee or insurance policy.

    Most developers use the form of bank guarantees which they hand over against receipt of funds. However, some developers are incurring in the unlawful practice of charging the consumer with the costs of the guarantee. This is against the law and should be highlighted when approaching a developer. Denounciation of such practices will encourage other consumers to follow suit and eventually swift action will be taken by the relevant authorities.

    Finally, where the advanced payments are demanded upon realisation of the required events, refusal to refund the consumer amounts to criminal missapropriation (Supreme Court). Apart from these provisions, general provision contained in the Spanish Civil Code are likewise applicable to the transaction insofar as they do not contradict the more favourable provisions contained in the consumer legislation.

    This article IF LAWS ARE CORRECT / CURRENT AND NOT RECINDED seems to cover most of the many problems that purchasers have experienced, myself included.

    I find my personal eperiences score quite high in this article and should have been protected by the various legislations,

    WHY therefore do we have to argue our case when our rights are laid down in law.

    WHY do lawyers encourage purchasers to complete on contracts that should be cancelled and compensation paid by developers.?

    WHY does not the law PREVENT a contract being CREATED until all requirments of the law are put in place.?

    WHY do not purchasers CREATE A STINK !! or maybe that should be HOW ?

    WHY – WHY – WHY ?

    There are so many unanswered questions..but there shouldn’t be !

    No doubt Spanish laws are there to protect us, it is just getting the knowledge- having them applied correctly- employing a GOOD Spanish lawyer.

    I do not think I would be in the situation, going to Apeal Court, had I read the above article or even been aware of this forum.

    Sorry I am unable to take any private messages on this one. Thanks

  • #67421


    I agree, I cannot see why when one has a bank guarantee it should be necessary to go to court when the developer does not fulfill the should work like an insurance policy..take along to the relevant bank and cash it in. They should have been written on toilet paper!

  • #67423


    Another example.

    A purchaser of Green Hills submitted(via his lawyer) his BG to the Bank within the date specified. It was”rubber stamped” by a Notary to say that the developers were in breach of contract. This was in the middle of September. All straight forward? Of course not. To this day, the bank has not even had the courtesy to acknowledge the BG let alone pay out!!! 😈 This guy will now have to go to the further expense of a court case.

  • #67425


    Dear David:

    That law was passed by the Andalusian Parliament on November 2005 and it is in force since February 2006. Anyhow, the COurt Decissions ( which are source of Law as steblishe din our 1889 Civil Code) had already gathered those or similar requirements under several principles, among them : COntractual good faith.

    A good, persistent independent lawyer is required, in my opinion is just that.

    Good weekend!

  • #67426


    The problem is some of these Bank Guarantees are not issued based on deposits in a special account from monies paid by purchasers..
    That is only what is supposed to happen.

    What at least one developer does/did was to use this money as cash flow, delay asking the bank to issue a BG for as long as possible (like nearly two years….), then when a purchaser puts the pressure on to have one, the Developer gets the Bank to issue a BG based on ‘personal guarantees’ of the Directors.
    This is why there is ‘encouragement’ from the Directors on the bank not to honour the BG, or at least delay as long as possible, because as and when the bank does finally pay up, so the Directors have to as well.

    Meanwhile, purchasers who have a clear cut case of ‘breach of contract’ and are clutching a so-called perfectly legal BG have to go through the whole legal process including court cases, wasting more of their time (life), in order to claim their money back.
    For this, the banks and their Bank Guarantees are a sham.

    Our bank even issued us a BG knowing (they must have) that the building licence for our development had been suspended at the time they issued it.
    For me, some banks are as crooked as some developers.

    As for the Italian blokey who originally got our building licence…
    blimey, wot a lot!!

  • #67438


    David, i think you have won the prize for the longest post…………ever

    Chilly 8)

  • #67441


    I came accross this posting which should be read by anyone involved with Spanish property purchase..thanks to ” sofia “ Fri Nov 04, 2005 3:32 pm Post subject: Information on buying property from a developer.

    Oh dear Chilly – am afraid I’m guilty of that one. I used to post under Sofia in the old days while my court case was going on.
    ‘Sofia’ = Queen of Spain!

  • #67442


    Hi Charlie—-

    Well- well- well- now it all fits together..

    The award goes to Sofia – Queen of Spain – or is it Charlie- or is it ???

    Whatever.. it made a good informative read that seems to be more relevant now for Los Lagos, at least, than at the original posting date.

    Thanks for the original, glad I put in your ” credits “

    Maybe the ” Supreme Court ” info I was following up was from yourself in a pm which all got lost when I was accidently deleted by Mark..Pm’s went as well so couldn’t search those.


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