Reply To: Arana de Mijas, Promociones Arana Sur, Costa del Sol



Hello Pippiedan,

We have around 10 clients at Arana de Mijas and all of them have now decided to not complete, for obvious reasons. This puts us in a position where we have had to make a legal appraisal of the situation, which I am copying below. I hope it is useful!

Current Situation with Arana de Mijas

In respect to the situation with contracts which have been signed with Promociones Arana Sur S.L. for units at the development Arana de Mijas developers we have decided to prepare a FAQ list to answer most, if not all, the queries which may arise in respect of how to proceed from here in view of the situation.

How serious is the developer´s contractual default? There is a standard used by Courts to determine whether a default is considered to be serious enough to merit the cancellation of a transaction and this standard refers to a default that will impede the economical objective or becomes a hindrance to the legitimate expectations of the buyers. In practice it is difficult to establish a specific delay period but, after say 6 months, most judges will consider that a default has existed.

What happens with the bank guarantees/insurance policies? Banks and insurers can refuse an claim on these documents. These reason are varied but generally speaking they consider that they if the delay is not substantial they are not bound by law to pay on these documents. Conversely to what many property buyers believe, these documents are not first call guarantees which can be acted on when the transaction is no longer interesting but a form of guaranteeing an investment in the event that a default has occurred that, as said above, is of such a nature that it frustrates the expectations of the buyers. We have tried to enforce the insurance policies we have on your behalf, underwritten by Asefa, but they have rejected the claim.

What are my options? The options are really 2, as a third one, which is not doing anything, is not recommendable. Option 1 relates to completing the transaction, with the new conditions the developer is offering (10% discount). Not much more has to be said about this one. Option 2 relates to going to Court to cancel the property transaction, against both the developer and the insurance company, jointly. Option three means that the developer will enforce completion.

What are the costs of a Court case? A court case of this nature can cost anything between 6 and 10 thousand Euros, depending on the sum claimed (which always includes interests). The fees cover barrister, procurator and legal fees, and VAT.

How long does the Court case take to be resolved? The average time for a Court ruling, in the first instance, is of 12 months.

What are the implications of a Court case? A Court case will interrupt any other action taken on the transaction. If the case is won the insurance company and the developer, jointly, will be obligated to refund the deposit plus interest. If the case is lost you will be in the same situation as when starting the case and open to a claim from the developer to complete. It is possible that whatever the result costs will be awarded on the losing parties and therefore this has to be factored in.

How will the developer defend its position? They will argue that the delay is not substantial and that buyers want to pull out because the investment is not as good as it was initially made out to be (due to changing market conditions) and may even say, in respect of UK claimants, that the exchange rate makes it a very profitable move to repatriate funds to Sterling based bank accounts.

What would we do if we were in your situation? Many of our clients ask us this question. It is difficult to give a sweeping answer but unless there is a desire to complete one has to be proactive and make decisions in pursuit of, ultimately, obtaining the funds back, and this decision necessarily involves litigation against the developer. We do not encourage private purchase contract holders to litigate unless a)there is a significant chance of success and b) clients have been informed of the implications, but if these 2 conditions are met then we are happy to take on the matters. Another element of the Court case, or rather a consequence of it, is that if we can delay an outcome for say 12-15 months it may be possible that the market changes, the developer gets buying offers from buyers and consequently opts for an out-of-court settlement as all the while they are not allowed to sell the units.

Is it best for all claimants to join in one Court action? Definitely yes. A judge will be more inclined to listen to the grievances of 10 claimants than to 1 and there will be a tendency to give more credibility to such claim. Individual claims will also be heard and ruled on but the same claim will be stronger in the eyes of the ruler if a few claimants are together.