Antonio Flores’ Blog

CajaSur, through it’s affiliate Prienesur, has decided not to grant the prize to the winner of the Arenal Golf apartment lottery. The winners, a British couple currently living in Antequera, have decided to hire lawyers to sue the company for refusing to honour the lottery draw result.

The draw was envisaged between Andalucian Dream Homes (ADH) and Prienesur among property purchasers and was signed in the presence of a Marbella notary public. Months after the draw, the winners tried to force ADH and Prienesur to deliver the apartment but was told that talks to agree on the procedure were under way and consequently had to wait.

Three years later, talks seem to still be underway as nothing has moved forward. ADH owners have affirmed, on many occasions, that they will pay Prienesur 50% of the value of the apartment as soon as the developer transfers ownership to the legitimate winners. Prienesur, on the contrary, remain suspiciously silent.

After being instructed by the buyers to enforce the lottery draw result, we decided to telephone Mr. Dugo, manager in charge of developments, to seek his opinion. His answer was plain but shocking: “this matter is not among my priorities at this time but will look into it”.

From a legal viewpoint it is clear that both companies are liable to deliver the prize but only Prienesur actually owns it and so a legal suit will have to be directed against them, without prejudicing their right of recourse against ADH (who in spite of being under administration, apparently still wish to comply with their part of the deal).

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Mr. Jorge Montull Urquijo, working from his Marbella Court Two desk,  has just produced a surprising ruling in favour of developer Brismar Cuatro SL, responsible for Las Palmeras de Calahonda development, which seemed guilty on at least two “counts”, only to discover that thus was not the case:

1. Delay in delivery of the apartment: According to Mr. Montull, and contrary to what was considered enough, a 6 month delay in the delivery of the apartment cannot be considered a serious and grave breach of contract. He supports his opinion on abundant case law from the Supreme Court and determines that “a 6 month delay does not impede the economic objective of the contract and is therefore not a contractual default but a mere delay”.
2. Absence of a bank guarantee: In the same manner as above, but less surprising, the judge considers that not giving a bank guarantee is no reason to cancel a contract. He contends that the plaintiffs did not prove the developer put them at risk by not giving them a bank guarantee. Additionally, he argues that the plaintiffs did not make a formal request for the guarantee and concludes that “providing a bank guarantee is not an essential but an accessory obligation and dependant on the principal one, this being the delivery of the property” (he then goes on to support his conclusion with Supreme Court case law).

The above will no doubt make many wonder where do the laws stand in Spain in respect of the consumer and more importantly will give an insight as to how some judges think. It also serves as a reality reminder to some colleagues writing in forums who always seem to find legal loopholes in contracts to convince desperate investors to drag them into Court, of course after a credit card swipe to put them in funds (and thank you very much Mr. Client!).

Always remember that judges are not machines to whom you can apply a formula to obtain a result: after all, law is anything but an exact science in the hands of (imperfect) human beings.

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I was surprised to receive last week three letters from one firm in Fuengirola requesting that we passed the files of three clients who had purchased at Altos de Alcaucin. After talking to another client I found out that this particular firm was encouraging them to sue the developer in Court to obtain a refund of 80% of the deposit paid so far due to a extremely twisted interpretation given to a clause inserted in the contract.

Unfortunately for many purchasers, the development was finished on time and in accordance to planning permission granted, receiving therefore the first occupation license equally in a timely fashion. Yet some buyers have chosen to attempt to cancel the contract on the basis of a particular interpretation given to clause 5th, which stipulates that the default in the payment of any installment will be cause of contractual cancelation, pursuant to article 1504 of the civil code, the developer having to return 80% of the deposit and keeping the balance as compensation.

According to the interpretation of the firm a buyer would be entitled to cancel the contract at any time by simply not paying an installment (or completion balance) and would then request that 80% was returned to him. We understand quite the opposite: that the right to cancel is a prerogative of the seller/developer should they chose to, in application of article 1504 of the Civil Code, which would in turn trigger the obligation to return 80% of the deposit.

Having advised our clients that we consider that there is little or no chance of persuading a judge that the clause can be interpreted inversely, in particular when the building has been finished correctly and on time, thus kindly declining a request to represent them in Court (and in agreement with many other colleagues), some have decided that we are seemingly acting suspiciously and have managed to find a lawyer who will agree and endorse the interpretation they wish to hear.

And here comes the danger as Spanish courts, notorious for upholding the validity of contracts, will almost certainly rule in favour of the developer and will award costs against the losing party (the buyers) who will be back to square one, but carrying a legal bill of around €15k plus interest for late completion.

We have never been against contract cancellation, quite the contrary: we have successfully represented clients against many property developers who we considered had trespassed the line of breach of contract, having previously warned our clients of the implications. I’m afraid however that the legal representation offered to our former clients lacks the understanding of the consequences on the side of the buyers and has been offered as a mere business: you pay me and I will sue on your behalf! I wish them every success.

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Contrary to what has been divulged by some, Property Income Tax (PIT) for 2008 will not have to be paid in June but prior to the 31st of December, as has been the case in previous years. Property Wealth Tax (PWT) has now been abolished and will not have to be paid alongside PIT.

PIT will also be calculated in the same manner as before, that is, by applying 2% to ratable value (or 1.1% if it this value has been revised after 1994) and applying a 24% on the resulting amount. Form 214 is no longer used, and instead Property Income Tax will have to be filed using Modelo 210.

If the property is being let (and the income declared to the authorities!), Property Income Tax is not applicable and if it is only let for part of the year, the tax is only applicable for the part of the year that the property is vacant from tenants. In this case the income is taxed at a flat rate of 24%, without possible deductions.

The elimination of PWT by the Spanish Government was a consequence of the economical crisis and seen as a measure to boost foreign investment. The reality is that very few investors get to know that this tax ever exist prior to deciding to purchase a property and even if they had known it was still applicable it is doubtful that it would have had any influence on the decision to purchase property. In any event the elimination of PWT has been welcomed by owners.

Property owners who have bought a property through a foreign company will need to provide a certificate from the Tax Office in the country of domicile proving fiscal residency of the company and shareholders in a country with a Double Taxation Agreement (all UE countries are), in order to avoid the Special Tax on Foreign Companies, currently at 3% of the ratable value. We will provide assistance in this matter. Property owners who have bought through a Spanish company are exempt from payment of taxes for owning property.

As in previous years, from Lawyers of Spain we will be offering the Fiscal Representation Service to all our clients as from September. The service includes not only the calculation of the taxes and filing of the forms and payment of tax due but also acting a fiscal representative for the duration of the fiscal year (calendar year), notification of any communication from the Spanish Tax Office in relation to the tax and free consultations in respect of any tax matter.

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