All EOS blogs All Spain blogs  Start your own blog Start your own blog 

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.

18 May 2010 @ 19:05


Yes. If you have issued legal proceedings against a Spanish developer for breach of contract, you can settle at any time. So long as the defendant, the person you are suing, also agrees to settle.

Usually a document can be signed by the lawyers representing both parties and presented to the court dealing with the matter which will halt the legal proceedings.

If your matter is part of a class action and you settle after the defendant has been notified, then you could be subject to the other side's legal costs, subject to the discretion of the Judge. At any time individual members of a class action can settle their matter and the remaining members´ claim continues.

If your matter is part of a class action and you settle before the defendant has been notified, then you are unlikely to be subject to the other side's legal costs.

If you do settle, it is important that you halt the legal proceedings and sign your agreement with the developer at the same time. There have been cases of developers offering certain benefits in exchange for the withdrawal of legal proceedings, after which they do not complete their side of the bargain or the property they did offer you has suddenly been sold!

In the event of settling a matter with a Spanish developer, usually each party will pay their own legal costs for the proceedings issued to date.

Like 0


18 May 2010 @ 17:15

In the first posting on your blog 'Irwin Mitchell Launches New Spanish Property Blog', in a reply to a posters question, Irwin Mitchell Abogados state:

"it is the developer who is obliged to obtain and provide the bank guarantee for purchases of off plan properties, not the banks. The only obligation of the banks regarding section 1.2 Ley 75/68 is to apply the funds to the construction of the properties"

I do not think it is quite as straight forward as you state. LEY 57/68 Article 1.1 and 1.2 state:

LEY 57 / 1968

Article One - The legal and natural persons who promote the construction of homes, that are not of official protection, designed as a home for domicile or family residence with a permanent character or a seasonal residence, accidental or incidental and which seek to obtain deliveries of purchasers money before starting or during construction, must meet the following conditions:

First - To ensure the return of the payments made plus six percent annual interest, by means of Contract of Insurance granted with an Insurance Entity inscribed and authorized in the Record of the General Sub-department of Insurers or by means of a Bank Guarantee issued by an Entity inscribed in the Record of Banks and Bankers or Savings Banks, if the construction does not commence or complete for any reason by the agreed deadline.

Second - Depositing the sums advanced by purchasers through a Bank or Savings Bank, which must be deposited in Special Account, with separation from any other funds belonging to the promoter, which may only contain funds deposited for the construction of dwellings. For the opening of these accounts or deposits the Banking institution or Savings bank, under its responsibility, will demand the guarantee to which the previous condition refers.

The banks clearly have a responsibility under LEY 57/68 to ensure that off-plan deposit funds are held in a Cuenta Especial, separate from other funds belonging to the promotor. The Cuenta Especial may ONLY contain funds for the construction of dwellings.

The banks are fully aware of which funds they are receiving into a developers account. For example if you were buying at Roda - on your bank transfer document you would state - Mr Smith Plot 155 Roda Golf - or words to that effect, so that the bank and developer are able to identify where the funds have come from and what they are for. With even the minimum due diligence the Bank would know that the funds are for an off plan purchase and must be held in the Cuenta Especial. The final sentence of LEY 57/68 Article 1.2 then states: "For the opening of these accounts or deposits the Banking institution or Savings bank, under its responsibility, will demand the guarantee to which the previous condition refers"

Therefore, the bank who have received the payment, clearly referenced as a deposit for an off-plan purchase, must then demand the Bank Guarantee is issued. If the Bank fail to demand the issuing of the Bank Guarantee or fail to ensure the Bank Guarantee is issued then they are guilty of Gross Negligence as they will be allowing their client, the developer, to break the law. The Bank will be supporting this illegal activity, because without the Bank it could never of happened.

Taking the above scenario of Mr Smith again...... If Mr Smith was instructed to send his off-plan deposit to the developers bank and for some reason the developer instructed him to send the funds to the normal current account held by the developer (CUENTA CORRIENTE) then once those clearly referenced off-plan deposit funds arrive in an account which does NOT comply with the requirements of LEY 57/68 the Bank with minimum due diligence must either instruct the developer to transfer the funds to the CUENTA ESPECIAL or they must freeze the funds and return to the purchaser or report the developer to the relevant authorities for acting contrary to the requirements of LEY 57/68.

Let's face reality these Banks and Savings Banks who have received the off-plan deposits have been funding the developers for millions of Euros. With such huge investment in the projects the Banks would be monitoring the accounts and financial performance of the developer on a daily basis. The banks would be fully aware of the funds arriving in the developers accounts and what those funds were for.

However, for years the banks have turned a blind eye and allowed the developers to act illegally by failing to secure off-plan deposits and failing to issue the legally required bank guarantees.

Many Banks have been grossly negligent and acted with a complete lack of due diligence. They have knowingly allowed the developers to act contrary to the requirements of LEY 57/68. Many Banks have been complicit in the crimes committed by the developers.

Let us remember that without the funding and support of the Banks none of this would have happened. Not many developers could have raised private finance and began building without funds from the Banks.

Furthermore, LEY 57/68 clearly puts an obligation on the Banks. Article 1.2 demands that the developers "Deposit the sums advanced by purchasers through a Bank or Savings Bank". The reason the Banks have been mentioned so many times in LEY 57/68 is to give added security to the LAW. If the LAW only put the responsibility on the developers then it would be a pretty useless law - because we all know that many developers have no regard for ANY laws!!

Article 2 (c) of LEY 57/68 states that the Purchase Contract (Sales Agreement) must include the: "Name of the Banking Institution or Savings Bank and details of the account where the deposit funds will be held as a result of the celebrated contract"

Article 5 of LEY 57/68 states: "It is a prerequisite that any propaganda and publicity material issued by the promoter for the sale of housing containing information on the levying of amounts on account prior to the initiation of construction or during construction must meet the requirements of this Act, and make explicit reference to the guarantor, as well as the Bank or Savings Bank Special Account in which they will deposit the amounts advanced. The above mentioned must be specified in the text of the advertising that takes place"

So at many points LEY 57/68 puts the Banks very much in the spotlight as even any advertising material published by the developer must make explicit reference to the Bank or Savings Bank Special Account in which the off-plan deposits will be held and this must also be detailed in the Purchase Contract.

The Banks are the guardians of LEY 57/68 and they have a responsibility to protect the off-plan deposits.

Kind regards


IM Abogados said:
24 May 2010 @ 17:37

Dear Keith,

Many thanks for your comments. It is obvious you have been or are going through a traumatic experience with the issue of bank guarantees and deposits paid to a developer.

The aim of this forum is to inform visitors to the blog of the position generally regarding Spanish law. Specific matters and issues require specific advice. It is not our intention to comment on translations of sections of law on the blog without full sight of the documents and knowledge of the facts, as this could be confusing. This is an important point to bear in mind as in our opinion the law then needs to be interpreted by Spanish lawyers for a full and correct understanding of the same.

If you are interested in us assisting you with your particular matter, we would be happy to review the documents you have and then discuss the same with you.

Only registered users can comment on this blog post. Please Sign In or Register now.


This site uses cookies. By continuing to browse you are agreeing to our use of cookies. More information here. x