Spanish Property Developers in Crisis

Many British people have bought properties from Spanish developers who are now suffering as a result of the financial crisis. This blog will provide updates on the current situation and useful information about the problems British buyers are facing in respect to their Spanish properties.

Issuing legal proceedings in Spain? Set out below is a summary of the litigation process
Monday, April 19, 2010 @ 8:41 PM

If you issue legal proceedings against a property developer a lawyer has to prepare your claim and submit it to the Court of First Instance using a Procurator. A Procurator is a court agent who receives and sends court documents to the parties involved in litigation. They are instructed by your lawyer on your behalf and usually work in offices close to the courts.

Normally legal proceedings are issued where the properties are located or where the defendant is based. The defendant is the person or company being sued. Once the court has admitted the claim, it will be served on the defendant who will have 20 working days to prepare a defence to the claim and to prepare a counterclaim, if applicable.

A counterclaim is likely if for example the developer disputes the breach and termination of the contract, in which case they would submit their defence and a counterclaim against you to complete the purchase of the property by paying the balance due.

Once the defendant has submitted their defence and or counterclaim and this has been served on your lawyer, then your lawyer will have 20 working days to prepare a defence to the counterclaim. Once the response to the counterclaim has been submitted to the court and served on the defendant, the Judge will set a date for an initial hearing.

The purpose of the initial hearing is to see if the parties have reached an out of court settlement, to resolve procedural arguments and to propose evidence and witnesses for the trial. It is not necessary for clients to attend the preliminary hearings.

Once a date for the trial has been set by the Judge then the parties to the matter and all witnesses will be requested to attend the trial. The legal process in Spain, unlike the UK, is more inquisitorial with the Judge controlling the matter and the time frames. In the UK the parties can have more of an influence on these.

After the trial the Judge will prepare his sentence and issue this several weeks following the trial. Once the sentence is served on the parties, they will have 5 working days to notify the court of their intention to appeal or not against the sentence. After which the appeal will be prepared and submitted to the Court. The Judge will automatically refer this to a higher court to decide on the appeal. Normally no additional evidence can be added to the appeal as usually the appeal is based on points of law. If the appeal is rejected then a further appeal can be made to the Supreme Court of Spain based in Madrid, but this depends on the amounts involved in the claim.

The speed of legal proceedings very much depends on the workload of the courts and the competency of the people working in the court.

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6 Comments

Anne said:
Monday, April 19, 2010 @ 7:20 PM

What is not explained here is the procedure after an appeal is placed. The fact that it can take a LONG time before the court gives a term to respond to the developer's appeal, and thereafter a LONG time before the appeal is even heard, so even if you win the first instance judgment the financial enactment of the judgement can be delayed significantly ( or in some cases never, if the developer goes into administration). Also the process of preliminary enforcement order takes a LONG time after petitioning before it will be issued. And all the while the claimant runs the risk that developers' assets might be stripped or transferred in an effort to avoid payment as per the legal judgement. There are no timescale restraints to the administrative process and courts are bogged down with cases. The client is compromised at every stage and those who know the system " play the game" to extend the process as long as possible in the hope that the client may run out of monies or the stress becomes prohibitively unbearable. Justice? What justice, when delays compromise the eventual outcome? The Spanish Justice System is failing many people as things stand right now, and reform is essential if Spain is to regain any credibility.

IM Abogados said:
Tuesday, April 20, 2010 @ 10:19 AM

Thanks for your comment. You are correct in that the procedure can take a long time from the initial claim and trial at First Instance to Appeal whether it is the Provincial Supreme Court or the Supreme Court of Spain in Madrid. However whilst the process is ongoing, the property which is the subject of the dispute cannot be sold or transferred to a third party so it remains in effect in legal limbo until the matter is resolved. If the developer sold the property he would be breaching the contract. This does have a financial effect on the developer as he cannot sell the property during the legal process and at the same time if a buyer does not wish to complete, he is delaying completion with the legal process and avoiding the costs involved in maintaining a property. There are effects on both parties.

frustrated said:
Tuesday, April 20, 2010 @ 12:20 PM

what happens if you cancel your contract with the developer prior to them obtaining a building licence ( even though you were told it was in place prior to signing) and they subsequently obtain the building licence . the time frame involved from date of signing to date of cancellation was 27 months ( surly enough of a delay to warrent a cancellation ?)

IM Abogados said:
Tuesday, April 20, 2010 @ 3:57 PM

Much will depend on what the purchase contract for an off plan property states in the case of cancellation and what is in writing in respect of when planning would be available. Usually there are clauses in the contract covering these scenarios. In the absence of specific clauses dealing with cancellation, the following scenario arises.

You cancel prior to the developer obtaining planning permission after a considerable delay in obtaining planning. Normally your lawyer would send what is known as a burofax to the developer cancelling the contract. This is a letter hand delivered by the post office and contains a certificate stating date of delivery. If the developer rejects the cancellation, then you could claim on the bank guarantee and pursue reimbursement of monies paid using the bank guarantee. If that failed or was not an option, then you would have to issue legal proceedings against the developer for breach of contract in failing to build the property within the timescales stated and failing to obtain planning permission. You could also issue these proceedings jointly against the Bank, if you have Bank guarantee for the monies paid.

Considerable delay is as you will appreciate, subject to much interpretation. A delay of 27 months in obtaining planning permission could be considered excessive subject to you complying with the contract, there are documents in place confirming when planning permission should have been available and a review of all the documents.

realist said:
Tuesday, April 20, 2010 @ 9:17 PM

whilst appreciating that a number of developers in the murcia area have at best misled buyers and there have been numerous delays and facalaties not built , but in reality what are the chances of murcia courts ruling against local developers and in favour of the consumer as so much appears to be coming to light about the vagaries of the spanish legal system .
indeed are there any precedents in case law in these cases ?

IM Abogados said:
Wednesday, April 21, 2010 @ 6:45 PM

Thanks for your comment. If a developer has misled a purchaser regarding facilities and there is documentary evidence to support the case, (which in some of the cases we are dealing with there is), then legal proceedings should in principle be successful, subject to the legal process. The location of where the proceedings are issued, should not affect the eventual outcome.

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