Glimmer of hope for those
lost Spanish property deposits
The beginning of the 21st century property boom encouraged
many people to invest in property abroad and particularly in the
South of Spain.
Investors saw potential of the area, whilst
lots of Britons enjoying the great weather
decided to invest their life savings in a
property there, maybe for holidaymaking
or to retire.
At that time, the Spanish coast was
being developed without limit and
developers were even advertising property
developments before obtaining the
appropriate licences. Many people were
paying deposits for off-plan properties and
without making sure the contracts or the
conditions were not abusive.
Unfortunately, the property boom in
Spain also crashed with the global credit
crunch. Many people realised that their
dream properties had not yet been built
and developers were giving excuses
and delaying the construction. In some
circumstances, they were not able to
continue with the development due to lack
of cash flow. The Spanish coast was left
with a skyline of property structures which
have never been completed.
Many developers went into liquidation,
housing developments were never
finished and there are still many insolvency
proceedings pending in Spain. Many
buyers who lost their deposit are currently
waiting to hear whether they will be
entitled to recover these monies, but
unsurprisingly many have little hope.
However, there has been a recent court
decision in Spain which may bring
some hope to those still waiting. The
Spanish Supreme Court decided back
in December 2015 that banks, together
with developers, may be obliged to
refund those deposits invested in off-plan
properties when they were never built
or completed. This gives some hope
to home buyers who thought that their
deposit was completely lost and who have
probably already forgotten about it.
The case was issued by a Spanish
buyer who in 2004 invested under EUR
39,000 for a deposit of a property in
Alicante. The property was situated in a
development of 94 properties which was
promoted by a German developer. The
commencement of the constructions
was delayed and it was not until 2007
when the buyers were notified that work
would start. However, they were never
completed. In this particular case, the
developer was sued, together with the
bank. It was a very unusual case, as most
people who were also affected decided to
commenced proceedings only against the
developer, without joining the bank into the
proceedings, as they did not consider that
the bank could be a defendant.
Surprisingly for most, the case against the
bank was successful in the first instance,
however dismissed at appeal. The Appeal
court reviewed whether the banks were
considered third party and therefore
unconnected to the relationship between
the buyer and seller.
The case was unexpectedly then taken
to the Spanish Supreme Court for further
consideration. Unsurprisingly as this
instance is a complex one, not many
claimants were willing to incur the cost
of going through this route. The Supreme
Court judges decided that the first
instance had been the correct one and
confirmed that the bank must refund the
deposit money paid by the claimant, plus
interest and legal costs.
The Spanish Supreme Court judgment
was based on an old Spanish Law which
came into force during the Spanish
Dictatorship of Franco, dated 1968. The
Law was originally published to protect the
consumers and imposed obligations upon
the banks to provide guarantees for the
deposits paid for this type of properties.
The banks were responsible to check
and guarantee that the monies paid as
deposits were paid into a special account
and always used in the construction of the
specific property or complex. They were
also responsible to check that the required
guarantees were in place in the event that
the developer went into liquidation.
During the period of the property boom,
developers and banks did not see the
need for providing or checking guarantees.
They were more concerned in making
profit as property prices were rapidly
escalating. These varied examples include
a resort in the Murcia region of over 2,500
properties, which was never built. Buyers
paid over EUR 53 millions in deposits,
however the guarantees provided by the
Spanish bank only covered EUR6 millions.
In the judgement of December 2015, the
Spanish Supreme Court indicated that the
banks were in fact in breach of the 1968
Law as they had a duty of care to their
customers. Although the 1968 Law was
abolished in January 2016, the Supreme
Court judgment has opened the possibility
of trying to recover the lost deposits, plus
interest, from the negligent banks.
Some sources state that the number of
buyers who may have been affected could
be in the region of 600,000 however it
is likely that this is a conservative figure.
We know that a big percentage of that
figure may be deposits paid by British and
German residents who may have invested
in their dream holiday home which they
never received.
Cases will need to be reviewed on an
ind ividual basis; however it may be worth
dusting off your old Spanish property
paperwork and sending it to us to review.
By Carmen Calvo-Couto
91