10 Reasons Why Your Case Against a Spanish Developer May be Thrown Out of Court
Raymundo Larraín Nesbitt - Lawbird Legal Services
30th of September 2008
Due to different reasons, we have seen a rise in off-plan property buyers who wish to pull out from the purchase and obtain a refund of their deposits. Although some developers do offer refunds when there’s a clear breach of contract, many others are holding on to the deposits and will not issue a refund willingly. In other cases, buyers are just trying to find a way to pull out due to personal financial circumstances, although no clear breach of contract can be established. When no agreement can be met between the parties, purchasers resort to litigation and hope for a favourable ruling which will result in a refund of their deposits. For this purpose, they will get in touch with a lawyer with experience in litigation.
A lawyer will always try to previously reach a satisfactory settlement with the other party, employing litigation only as a last resort. However, having reached the point in which it is apparent that the only path is to litigate, one should consider a number of cases in which it is not advisable to proceed on certain grounds, as the outcome will most likely be against the purchaser.
We have compiled a set of points in which a judge may rule against the plaintiff. This list, by no means, is to be taken as absolute, in any particular order or as a closed list.
- Suing close to the scheduled delivery date of an off-plan property. If you sue too close to the scheduled delivery date of the property, your case may be dismissed. Some people mistakenly think that they can sue a developer as soon as he fails to comply with the obligation of delivering the property within a certain deadline as outlaid in their Private Purchase Contract (henceforth PPC). A reasonable timeline for litigation, as a general rule, would be 6 months after the deadline set in the PPC to deliver the property but cases differ depending upon different circumstances. There may be automatic extensions in the PPC granting a developer a grace period of for example 3 months. These must be expressly accepted by the purchaser. If you do accept them then the delivery date is pulled back accordingly, so they must be taken on board on calculating the amended delivery date.
- Suing when a Force Majeure has taken place. This second point is related to the above. If you happen to sue a developer who can allege a cause of Force Majeure such as hard rain, general strikes, adverse or extreme meteorological conditions etc. If the developer can successfully prove in court that a Force Majeure took place during the construction period then he will be allowed legally to offset the lost days on calculating the delivery date which will be pulled forward.
- Suing when a License of First Occupancy has already been granted. A Licence of First Occupancy (in short LFO - also known as Habitation Licence) is a licence which is issued by the Town Hall where the property is located, and which verifies that the property or development fully complies with the original Building Licence granted by the said Town Hall, as well as complying fully with all Planning laws. Upon the granting of a LFO by the Town hall, the dwelling is regarded as legal and fully fit for human dwelling. It is considered as already too late to pull out and litigate once the LFO has been granted, as under law the developer is regarded as having complied fully with his main obligation of handing over the property. Additionally, if a judge considers that the Town Hall has validly granted the development the Habitation Licence by means of Administrative Silence, then it is not wise to sue. The Administrative Silence Rule (ASR) is a special administrative procedure which enables licenses to be obtained after a certain period of time, if no response has been obtained from the Town Hall. If a LFO is obtained through the ASR it is just as valid as an ordinary one obtained expressly through the Town Hall under Spanish Administrative Law. It is pointless to challenge an ASR licence as it is perfectly legal in our legal system, providing it wasn’t obtained breaching any laws.
- Suing for breach of contract when you are likewise at fault. If you sue a developer for breach of contract when you in turn have not been complying with the fundamental obligation of paying your regular instalments or stage payments as set forth in the PPC, you have a poor case. The judge will consider that you cannot allege the developer being in a breach of contract when you have previously breached the PPC yourself. In fact you are the one at fault as your main obligation as a purchaser is to always pay in time according to the contracts’ clauses.
- Suing on non essential grounds. You may very well get an unfavourable ruling if the reason why you file a law suit is not deemed as essential by the judge (i.e. you sue the developer because on doing the snagging you realise that the promised commanding view over the sea is not so and all you have from your terrace is a view to your neighbour’s brick wall, or else the swimming pool and sport facilities have not been built as promised). This law suit will most likely fail if you are trying to pull out and claim back on your full stage payments only because of this. Only if the PPC included a specific clause by which the elements were regarded as essential to you, would you be allowed to pull out and claim for a full refund successfully without being penalised. A different matter altogether would be if you sue post completion seeking compensation on the undelivered element. The question would be really if it’s worthwhile to pursue litigation in such a case. Perhaps it would be wiser to negotiate and agree on a suitable compensation such as a price reduction upon completion.
- Suing on grounds of a lack of Bank Guarantee. If you feel tempted to sue a developer because he has not provided you with the mandatory Bank Guarantees on buying an off-plan property, you will most likely lose. One cannot cancel a contract and demand full payment of your stage payments on such grounds.
- Suing without being regarded as a Consumer. It is important to take notice than when you buy a significant amount of off-plan properties (e.g.. three) that you may no longer be regarded by the judge as a consumer but rather as a shrewd professional businessman or businesswoman. This is important because it will mean you will no longer be under the protection of Spain’s’ favourable Consumer laws. Consumer law may be an effective tool at times to mount pressure on the developer.
- Suing on excessive compensation grounds. On suing in Spain one must bear in mind that the legal system is very different from that of Case Law which exists in English-speaking countries. One of the major differences regards claiming on compensation. Unlike the United Kingdom or the US in which the judge may award you a huge compensation, this is unlikely in Spain. Therefore a lawyer must be cautious on suing, as being over ambitious can actually be counterproductive. This may imply that for example if the lawyer over requests compensation the judge can actually sentence that the plaintiff has to share in the legal expenses of the court procedure despite having won the hearing. Whereas if the plaintiff had in fact been less ambitious it would have not backfired on him and the judge may have sentenced that it is the defendant who actually has to pay for all the plaintiff’s legal expenses (lawyer and procurador). The Spanish judge has a wide margin of subjective to construe when it comes to establishing capital appreciation or depreciation of a dwelling or claiming on moral damages or damages in a broad sense.
- Suing lacking the necessary documents to prove your petition. It is necessary that the plaintiff gathers a sufficient amount of documents prior to litigating. The documents which the plaintiff should have available are namely a copy of the original Private Purchase Contract and all original invoices of the stage payments or bank statements including the initial reservation fee. The invoices of bank statements proving the transfer of funds are of paramount importance as in fact the whole law suit will hinge on them.
- Suing using the wrong legal procedure. This occurs when you sue a developer following a Criminal procedure when you should have rather followed a Civil one which would have proved as the suitable option. In this case you will have wasted considerable time and money following a wrong venue.
It is not advisable in general to sue a developer which has no assets under his name; a law suit in such a case would be a complete waste of both time & money. In short, it would be putting good money after bad. That is why on suing, your litigation lawyer will endeavour to find developer’s assets and request from the judge, if needed be, to place a provisional charge. This will effectively avoid the developer selling-off these assets as they have a legal hold placed on them. This encumbrance placed by your lawyer will ensure your financial interests depending on the ruling’s outcome.
Litigation should never be taken light-heartedly and it is necessary that a lawyer expert in litigation analyses your legal situation to determine if litigation is really worthwhile or not for you. A professional lawyer will always layout clearly your legal options and let you decide which of the options suits you better.
Lawbird Legal Services is a law firm with a broad experience in Litigation, and is specialized in representing clients affected by real estate and planning problems. For more information please visit Lawbird Property Litigation .