To our former clients it has come as a bit of a surprise that the Courts in Cordoba have all, invariably, ruled against them: the reason for their surprise? That they were told they had a strong case by a Fuengirola-based lawyer.

The developer for Altos de Alcaucin had finalized the construction on time and seemingly in accordance to the plans given to the buyers, and was hoping they would make arrangements to complete. Buyers on the contraty wanted to pull out as their hearts were no longer in this part of Spain. They sought legal advice from us and we said there was no case to be had. They then went to a see a lawyer that had the opposite opinion…

The contract in question stipulated that that in the event of the buyers failing to pay any of the instalments, as agreed to in the contract, they developer would be entitled to rescind the contract and return 80% of the sums received up to date, keeping 20% in concept of penalty. When our clients, due to the adverse economic climate, chose to invoke this stipulation to pull out, notwithstanding the developer’s complete fullfilment of their obligations, we advised that it was not in the essence or nature of such convention the right to pull out in case of convenience, but rather the developer’s prerrogative to do so, should he chose to.

Unfortunately for our clients they were herded away by the very unnatural legal thesis that this was a Get Out Clause and could enforce it. Far from it, 2 different Courts held that:

• That the prerrogative to rescind the contract is only available to whoever meets their contractual obligations, and not to who defaults and invokes its own default.
• That the penalty clause is a legal tool that serves one of two purposes: to coerce the party to the contract to fullfil the obligation he has entered into and to fix, in advance, the sum of damages caused by reason of default. According to the Court, the bursting housing bubble has prevented that such clause is used for one of the above two purposes and paved the way for it to be used incorrectly and unfairly: as a get out clause for buyers for whom the purchase is no longer a profitable venture.
• That, having the Courts the right to modify the penalty clause by either reducing (when excessive) or increasing it (when notably small compared to the default in question), in the light of the circumstances, it is clear that the 20% penalty clause is clearly insufficient to cover the losses incurred by the buyer when defaulting, as it does not cover the real estate commission paid to the intermediary, bank interest and the loss of value sustained by the property (the Judge puts it at 15%, according to the Ministry of Housing).

Luckily for them the developer counter-sued to retain the full deposit, and not to force the buyers to fullfil the contract. Unluckily, there are costs incurred in that the developer could chase them for.

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The decision came unexpectedly: shortly after the Judge ruled in favour our client, a British citizen, SGR (Sociedad de Garantia Reciproca), defendants, filed a motion to appeal hoping to get the decision reversed and requested that enforcement of the ruling was stayed pending the Appeal Court decision, not before lodging the amount of the deposit with the Courts’ bank. 

But the Judge of the Court of First Instance either did not get the petition of stay on time or simply ignored it and, unexpectedly, handed over the payment order written out to BBVA bank to us so that we could collect the payment. Because under Spanish law, you are able to enforce execution of a ruling without having to wait for the appeal decision, nor provide a security in case the decision was reversed, and in this case the defendants SGR argued that if our client received the funds and took them to the United Kingdom, in the event of she losing the case on appeal, it would be difficult or impossible to get the payment back.

The case continues…

antonio Litigation

Sur newspaper publishes today that Aifos´ CEO, alongside his wife, are being accused of missapropriation of approximately €72,571 of a client of theirs that paid a deposit on account of a property that was never built. The indictement and further accusation is the result of two premises:

1. Having taken a deposit upfront without providing a bank guarantee to ensure repayment and
2. Not using the deposit towards expenses arising directly from the proposed construction.

Many developers these are still believing that taking hundreds of thousands of deposits from punters, not guaranteeing them and using them to pay salaries, marketing, dividends (yes, even if no property has been delivered!) is something that, quite simply, is acceptable from a legal point of view.

Contrary to other businesses, property developers cannot incorporate downpayments received into their company normal business account and use for purposes different from the construction of the property, as such purpose would be deemed as unathorised, unless a bank guarantee is provided.

And as such, property buyers on off-plan property may not be deemed as regular creditors, but protected parties that pay deposits to a professional developer who assumes a fiduciary duty.

antonio Litigation aifos, Benalmadena, missapropriation, property, Spain

It’s not as if Peinsa 97 S.L. has much to oppose in this case, but it was not a lay down as we thought because, although the developer accepted liability on the refund of the principal, they opposed the interest count, invoking some minority case law that states, prima facie, that these are to be calculated from the date the claimant effectively sent notice of legal action, and not some years back when the monies were given to them.

It seems the case when we litigate in Murcia that judges have an inclination to favour property developers, perhaps due to the region being governed by the conservative party PP (Partido Popular) but who knows, it may be speculating a bit too much or entering straight into the terrain of conspiranoia, which so many people like.

The developer for Residencial Calas del Pinar in Cuevas de Almanzora was, luckily for them, not given the costs due to them accepting guilt on the principal so our client will have to bear these. Alas, if they pay back quick I’m sure the pain will be mitigated almost in its entirety. If not, an execution case will be then filed where there will be no running away from costs, not this time.

antonio Litigation Cuevas Almanzora, litigation, Piensa 97 S.L., Residencial Calas del Pinar, Spain

Manilva Costa S.A. (MC) has seen it’s appeal rejected by the Malaga Appeal Court on similar grounds to those of the Court of First Instance. The ruling judges maintaned the following:

1. That Ocean View Properties’  (OVP) presence was not required as a defendant, since they were acting agents for MC and therefore, their intervention in the judicial action was irrelevant for which the exception of “joint defendant litigation” was dismissed.
2. That the fact these contracts were not signed by MC was equally irrelevant, particularly where they had ratified them, as was proven it Court. It then goes on to insist that any discrepancies between OVP and MC in respect of the contracts were unopposable to the claimant by virtue of it being a relationship alien to him.

The biggest mistake MC made, according to the appeal judges, was to have summoned the buyers by using a registered letter with ackowlegdement of content (“burofax”), starting off with a “Dear Buyer…”, as quotes the ruling. 

And now, the big question any succesful claimant has in mind: where do we go from here? That is an interesting one considering that MC has most, if not all, properties mortgaged and little equity can be found in them. Its now time to turn to private investigators…

antonio Litigation court ruling, judicial, malaga provincial audience, manilva costa, ocean view properties

We took some chances and it worked out. A claim filed against the guarantor of the Herrada del Tollo S.L., developer for Santa Ana del Monte (and who we jumped over since they’d filed for voluntary insolvency), has been resolved favourable for the claimant. From a procedural point of view, it is an interesting case for it was not heard given that, legally speaking, the issues at stake were purely juridical and therefore, no evidence was to be proposed for admittance. In other words, there was no evidence of probative value in dispute and consequently, the pre-trial was enough to fix the object of the case and conclude that there was no possible settlement.

admin Litigation Herrada del Tollo S.L, Santa Ana del Monte, spanish bank guarantees

The Court of First Instance had resolved, when presented with a request for contractual resolution and refund of deposit, that although a delay was visible it was not essential and therefore, granting contractual cancellation was too harsh a measure. This Judge also found reasonable justification of a delay that a strike took place in December 2005 and January 2006 although only newspaper articles were submitted to back this up.

Furthermore, this judge had deemed that when the claim was filed the delay was of only a few months even though 8 months later, during the course of the trial, it was proved again by our lawyer of choice Mr. De las Heras that the works still remained many months away from completion (in fact, still today it has not been concluded).

The Appeal Court, as usual more sensibly, departed considerably from this understandingand applied a different legal criteria based on the following points.

1. That it was clear that the developer Brisamar Cuatro S.L. had defaulted subtantially given that, when the trial took place, build works not only had not been finalized but the delay was then already running into the 24 month period.
2. That the developer, although submitted journalistic evidence of a strike, had not proved that this incidence resulted in any delays. Furthermore, even if this delay was accepted as valid, it would have had little impact on a 24 month default in delivery of the unit.
3. That in consideration to the above, the Appeal Court finds that the developer hasplain and simply defaulted on the essential obligation, that being delivering a unit

Cajamar, who had resisted paying on the basis that an individual bank guarantee policy was not issued, even if everyone else had it, refused to cover the loss. On a meeting with the branch manager some time ago, I was advised that the policy was actually in safe deposit, somewhere in his office, but that he had no instructions of giving it to the buyers or paying up the loss.

Evidently, such a silly argument carries little weight and therefore Cajamar is now poised to pay up over €100,000, particularly where the Court has now found that their client was in default.

From a legal stand point the ruling has little juridical interest although it does expose the uncertainty any litigant will find himself in when faced with one Judge that sees black where another one (supposedly more experienced) feels it is actually white…!

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I would say so if we take a look at how they have indemnified their clients for not building Lar Sol Estepona. Not only have their insurers repaid 100% of their deposits plus interest, but now an out of court settlement has been reached with Grupo Lar so that a group of investors that never got their homes also get, additionally, compensation valued at almost 50% of the original deposit they paid.

Admittedly, this penalty clause was not imposed by us back in 2005-6, when exchange of contracts took place, but was offered by Grupo Lar to prove their commitment to the project and boost their sales.

This is probably the best outcome any investor could have had as not only was the deposit returned, with interest, but also an additional payment received at a time where the exchange rate will allow them to buy 20% more sterling than they had to disburse to buy the Euros and…, they did not have to complete on a property that would have been worth, in the best of cases, 30% less.

antonio Litigation Estepona, Grupo Lar, Larsol, out of court settlement

El Mundo reports today on the case of a hundred or so purchasers from Northern Ireland who between them paid 6 million € in deposits in the years 2005 and 2006 for 350 apartments in the Estepona Beach and Country Club, via the British real estate company, Ocean View Properties.

The newspaper brought some 70 families of those affected to a meeting in Belfast where the Marbella lawyer, Antonio Flores, from the company lawbird.com explained that the urbanisation was promoted by the Spanish company Sun Golf Desarrollos Inmobiliarios S.L.

The lawyer explained that there was a ‘commercialisation agreement’ between Sun Golf and Ocean View, under which the latter was to pay commissions to the former for the collection of deposits. Ocean View also found lawyers in both Spain and the U.K. to represent them and recommend the promotion.

Lawbird now has the idea of starting legal action in the Estepona courts, although they have not ruled out starting proceedings in the National Court because the single administrator of Sun Golf, Ricardo Miranda Miret, has his headquarters in Madrid, and the Ocean View representatives are based in Britain.

Similar frauds to the Estepona development are alleged to have been carried out in Morocco and the Dominican Republic.

The Northern Ireland victims have called for a meeting with the N.I Prime Minister, Peter Robinson, over the matter, and have also lamented the lack of coverage of the case in the Ulster media.

El Mundo prints statements from many of those defrauded, who say they were told the LTA British Tennis Federation were to invest, and that they were told that Disney World was going to Estepona.

Original Story: José Carlos Villanueva | El Mundo - Un centenar de familias irlandesas, víctima de una estafa inmobiliaria en Estepona

English Translation Courtesy of Typically Spanish.

Links to News Articles

• 13-12-2010 – El Mundo Printed Edition - Cien familias irlandesas denuncian una estafa inmobiliaria en Estepona (1-2) (PDF)
• 13-12-2010 – El Mundo Printed Edition - Cien familias irlandesas denuncian una estafa inmobiliaria en Estepona (2-2) (PDF)
• 13-12-2010 – elmundo.es - Un centenar de familias irlandesas, víctima de una estafa inmobiliaria en Estepona
• 13-12-2010 – typycallyspanish.com - El Mundo newspaper highlights case of 100 Northern Ireland victims in Costa del Sol real estate fraud
• 13-12-2010 – The Telegraph – Britons lose millions on the Costa homes that never existed
• 13-12-2010 – El Ideal de Granada - Familias denuncian una estafa en promoción de 350 viviendas en Estepona
• 13-12-2010 – finanzas.com - Familias denuncian una estafa en promoción de 350 viviendas en Estepona

Television

Canal Sur Noticias 13-12-2010

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The title is certainly misleading, as it gives the impression that Aifos has won a case (a very rare scenario indeed); the reality is that a client of ours sued an Aifos buyer from whom he had bought, prior to completion, via transfer of rights and obligations of a private purchase contract, for refund of the deposit.

The defendants, being the assignors of the private purchase contract rights and obligations, claimed that the fact that the contract had not been fulfilled by the developer, by signing title deeds at a Notary Public office, was not attributable to them and certainly not a reason to cancel the contract. According to the defendants, the inexistence of a license of occupancy, certificate of finalization of works, water and electricity contracts, lack of completion of works and lack of bank guarantees are not obligations incumbent on the assignors of the private contract rights.

In reaching a decision, the Judge considered that the above was not a valid argument to dismiss the case, and ruled that:

1. A private arrangement between a assignor and a assignee of an off-plan property contract can only be fulfilled inasmuch as the developer complies with the obligations pertaining to him, namely finalize the construction in a timely manner and according to the legal and contractual specifications. In other words, the validity of a private agreement on an prior contract depends fully on the validity of the latter.
2. The contract specifically stated that, in order for a private sale of rights to be fully valid, the full price would have to be paid. This meant, in essence, that for the assignor of the rights to have released him from further obligations, the property should have been finished.
3. In spite that such private sale of rights was not given a time to be consummated, by reference to the main private purchase contract, it was stipulated that 20 months from the license of works was a reasonable timetable to expect delivery of the property. This is justified by reference to applicable legislation that prohibits open-ended delivery times as it would leave performance of the contract in the hand of one of the parties.
4. Finally, the defendants argue that the funds they received were paid to Aifos, without proving this point.

As usual, a copy of this ruling is available upon request.

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