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Spanish Off-Plan Property - Bank Guarantees - LEY 57/68

This blog is for all those Off-Plan property purchasers in Spain who have not received Bank Guarantees for their deposit funds as required by Spanish Law, in particular LEY 57/68 Article 1.1 and 1.2 and are now at risk of losing their money. In addition many purchasers who did receive Bank Guarantees are now finding that the Spanish Banks are refusing to honour them without legal action being taken by the purchaser.

LEY 57/1968 - AN EXPLANATION
20 July 2010 @ 17:42

LEY 57/1968 - AN EXPLANATION
 
LEY 57/1968 is a short but very important Law which was implemented in the Public Interest on 27 July 1968 specifically to safeguard purchasers deposits paid in good faith to developers for off-plan properties.
 
The preamble of the Law explains clearly the reasons for its implementation.
 
The preamble states that there was justified public alarm at the fact that repeated abuses had been taking place with regards to off-plan deposits.  It says the abuses which were obvious criminal acts had a serious disruption of social life, constituted a serious alteration of the social coexistence and caused irreparable damage to trust and good faith.  It says LEY 57/68 was being introduced in the Public Interest to create general preventative standards to ensure the real and effective protection of funds paid in advance by purchasers and to ensure they received a refund in the event that the house building did not take effect.
 
It appears that 40 years after LEY 57/68 was implemented we are experiencing the same 'repeated abuses' and 'obvious criminal acts'.  We now have the exact same situation of a 'serious disruption of social life' which unfortunately for many innocent purchasers has again caused 'irreparable damage to trust and good faith'.

This is a serious public order matter that the Spanish Authorities must tackle immediately.
 
As you can see below the LEY 57/68 is very clear and provides absolute protection for the purchaser.

It is not LEY 57/68 that has failed.

The failure is that of the authorities whose duty it was to uphold the rule of Law.
 
LEY 57/1968 Article 1 states that any developer or promotor of homes that are designed as a permanent or seasonal residence and who accepts purchasers deposit funds before starting or during construction must meet the following conditions:
 
Article 1.1

Must issue at no cost to the Purchaser a Bank Guarantee or a Certificate of Insurance for ALL deposit payments plus legal interest.  The Bank Guarantee or Certificate of Insurance may be executed by the purchaser if the construction does not commence or complete for any reason by the agreed deadline.
The buyer is then entitled to a full refund of their deposit together with the addition of legal interest.
The rate of legal interest mentioned in LEY 57/68 is 6% per annum.  However, The Building Act LEY 38/99 amends this percentage to the legal rate as published annually in the Boletín Oficial del Estado.
The interest is calculated on a simple annual basis and is not compounded.  If the developer mentions in the purchase contract that the interest payable is 6% per annum as stated originally in LEY 57/68 then this will overrule the legal interest rate, providing the legal interest rate is lower than 6%.
The interest is calculated from the date of the deposit payment until such time as the refund is made.
 
Article 1.2

Must deposit the funds paid in advance by purchasers into a Special Account held at a Bank or Savings Bank.  The Special Account must be separate from any other account held by the developer or promotor and the Special Account must only contain funds deposited for the construction of dwellings.
It is the responsibility of the Bank or Savings Bank to ensure that the Special Account is opened and the Bank or Savings Bank must either issue the Bank Guarantee referred to in Article 1.1 themselves, demand that the Bank Guarantee is issued or verify the existence of a Bank Guarantee or Certificate of Insurance to fully cover the off-plan deposit funds in their custody.
 
Article 2


The Contract or Sales Agreement for which the developer or promotor receives
advance payments must state:
a) That the promotor or developer must refund the full deposit with the addition of legal interest if the construction does not commence or if the construction is not completed by the date stated in the contract.  The full deposit with the addition of legal interest must also be refunded to the purchaser if the Certificate of Habitability (Licence of First Occupation) is not granted by the Local Town Hall.
 
b) The contract must make reference to the Bank Guarantee or Certificate of Insurance and it must name the Bank and/or Guarantor.
 
c) The contract must give the name of the Bank or Savings Bank who will hold the deposit funds and it must give details of the Special Account where the funds will be held.
 
Immediately after receiving the deposit funds and at time the contract is issued the developer or promotor MUST provide the purchaser with the Bank Guarantee or Certificate of Insurance which must cover ALL amounts paid towards the price of the property.
 
Article 3


If the construction and delivery of the property has not been completed by the date set in the contract then the buyer may chose between cancelling the contract and having the full deposit refunded together with the addition of legal interest or have an annex to the contract drawn up giving the developer or promotor extended time to complete the property.
 
Article 4


The Bank Guarantee or Certificate of Insurance must not have an expiry date.  It only expires when the Certificate of Habitability (Licence of First Occupation) is issued by the Local Town Hall.
 
Article 5


Any sales and promotional material issued by the developer or promotor, which makes reference to the payment of funds in advance for a property, must name the entity who will issue the Bank Guarantee or Certificate of Insurance and must give details of the Bank or Savings Bank Special Account in which the deposit funds will be held.
 
Article 6


This article gives details of the punishments and fines that will be imposed on the developer or promotor if they fail to comply with the provisions of this Law.  As detailed in the Building Act LEY 38/99 the fines imposed for each violation can be up to 25% of the deposit amount which should have been protected.
 
Article 7


This article states that the rights this Law gives to the purchaser have a 'Caracter de Irrenunciables', which translates to 'Inalienable Character'.
In this context inalienable means: Unchallengeable, Absolute, Immutable,
Not Able to be Forfeited, Unassailable, Incontrovertible, Indisputable, Undeniable.
This article also states that the purchasers rights granted by this Law are so strong that they cannot be waived even at the request of the Purchaser.
 
The Building Act 1999 - LEY 38/1999, de 5 de noviembre, de Ordenación de la Edificación As mentioned in the above paragraph titled Article 1.1, the Building Act 1999 - LEY 38/1999 in the First Additional Provision amended the rate of interest payable on a Bank Guarantee refund to the legal interest rate instead of a fixed 6%.
 
As mentioned in the above paragraph titled Article 6, LEY 38/1999 also confirmed that fines imposed on developers for breaching the requirements of LEY 57/1968 can be up to 25% of the deposit amount which should have been protected.
 
In addition LEY 38/1999 also states:
 
That the requirements of LEY 57/1968 will apply to the promotion of all types of homes, including those purchased by a community of owners or a housing co-operative.
 
The protection provided by LEY 57/1968 is also extended to amounts paid in cash to the developer which must be deposited in the Special Account (Cuenta Especial).

 



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5 Comments


vilprano said:
20 July 2010 @ 16:10

Many thanks for your clear and concise article.
If we as laymen can understand this law why cant the majority of Spanish Judges ?????????


Keith - FINCA PARCS ACTION GROUP said:
20 July 2010 @ 17:40

I am shocked at some of the 'technicalities' that seem to be invented by Judges in an effort to allow the developer and banks to get away with their obvious illegalities and negligence.

We have to ask ourselves, why do some Judges 'invent' reasons to support the Banks? Could it be political?

I am also shocked at the number of statements I see from Lawyers who tell their clients "You are unable to execute your Bank Guarantee because it has an expiry date and it has now expired" It is clear from Article 4 of LEY 57/68 that a Bank Guarantee only expires when the "Certificate of Occupancy is issued by the Provincial Delegation of the Ministry of Housing and given by the promoter of the housing to the buyer"

It cannot be any clearer, but still we have Lawyers who do not execute Bank Guarantees due to the fact that the Bank Guarantee contains a pre-determined expiry date..........and we have Banks who attempt to refuse to refund purchasers due to the illegal 'expiry date' clauses that the Banks themselves have included in the wording of the Bank Guarantee!!

The Banks have been grossly negligent and acted with a lack of due diligence and now those same banks are using delaying tactics to force buyers into expensive and time consuming litigation which in most cases is not necessary.

One day the banks will be forced to pay for their total lack of respect for Spanish Law and consumer rights.


amaghrebi said:
01 June 2011 @ 02:04

Hmmm.. I obtained a copy of this 'law' and must admit I looked everywhere for the things that are stated in this 'posting' and there was nothing like that. At the risk of upsetting all those good honest folk who gave hard earned money for a second home in Spain or worse still, their only home in Spain, the law seems to have been passed at the time FRANCO was in power and Spain in social turmoil. The law 'protects' family - households of working class families as the spanish state was obliged to provide accommodation - those seeking to move out of state provided family accommodation found their savings 'protected' in the event these were used to purchase 'private' homes. I must admit that I need to see a good translation of this law from Spanish to English line by line and in the context of the setting of the legal framework of the 'time'. My own research seems to suggest that Spanish Law respects the 'idea' of subsidiarity in law and as time has moved on , with the removal of FRANCO and a Capitalist system , there has been a shift toward greater personal responsibility and 'investors' in property development schemes are treated the same as other speculators who lose money on the capital markets ( such as shares and all sorts ). I think it is time for some basic honesty in all this and a 'come clean' from lawyers who might simply be asking people who have already lost money for more as they are gullible or ignorant of the legal framework they find themselves 'in'. Information after all cannot be 'free' !


Keith said:
01 June 2011 @ 12:17

Amaghrebi

You can find a translation here:

http://www.eyeonspain.com/blogs/ley5768/3904/ley-5768-on-amounts-paid-in-advance-for-the-construction-and-sale-of-property.aspx

LEY 57/1968 was introduced in the time of Franco, but it has never been replaced or had any elements removed from it. In fact LEY 57/1968 was strengthened by the Building Act of 1999 - LEY 38/1999 which states that:

The requirements of LEY 57/1968 will apply to the promotion of all types of homes, including those purchased by a community of owners or a housing co-operative.

The protection provided by LEY 57/1968 is also extended to amounts paid in cash to the developer which must be deposited in the Special Account (Cuenta Especial).

Kind regards

Keith


W3ndya said:
26 July 2013 @ 10:00

This is very interesting, but what happens when the developers, having spent all our hard earned money go into administration. Who pays the money back then?


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