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).