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A View from La Concha

A "Legal Eagle's" views on family life, the property market, the locals and expats, the beauty of the Costas and the diversity and warmth of a life lived under the Spanish sun.

27 June 2008

There are very few things that amaze. Being frightened is one good way to shake down your enjoyment. Since I was in my early 20’s standing on the edge of the World Trade centre in New York – looking down – my fear of heights has become progressively worse. So my kid’s idea to take the cable car up Benalmadena Mountain was not greeted with huge enthusiasm.
That said it was a birthday treat! Going up a mountain dressed in skiing gear has never posed a problem - well sky lifts in Europe are head height plus and you stand sandwiched with other skiers and snow boarders such that you cannot see the outside and the DROP!!! Travelling in a chewing gum bubble the size of “Bazooka Joe’s Flashlight” - if any can remember that - is an altogether different experience.
On the way up with my wife and middle daughter my palms are wringing! The climb is apparently 800 metres and only 15 minutes but seated in this small cable car for such a time was purgatory!
Arriving at the summit to be told that the much talked about Horse show has temporarily been cancelled was a disappointment – but we’d get over it. The true highlight was the Bird of Prey show. The Griffin Vulture – bald so his feathers don’t impede his delving into a carcass - the Harris Hawk, the Chilean Eagle – with the blue plumage to camouflage him as he climbed high for an attack - were just astonishing: A rare white vulture who answered to the name “Gabby” and was allowed to fetch a morsel of meat from my heavy leather gloved left hand. Various Kites who spiralled high in the air and upon hearing “Pepe, Pepe” - as they all seemed to be called - would lock their wings and dive earth wards at great speed to catch morsels of mouse.
Nick the brilliant Dutch/Swedish sounding trainer and lead demonstrator gave a brilliant performance in Spanish and English. Various audience members were used as birds that’d happily peck your eyes out were sent high into the bright blue air to return for catapulted carrion.
That’s a weak link - what do you mean that Spain’s property market is now fast becoming a Vulture market! Exactly as is happening in the UK, opportunities in the Distressed and Repossession market grow daily. We are gearing ourselves up to handle the level of client interest that grows in line with the available stock. The sources of such property are equally broad but beware of those pieces of property stock that are being marketed as “distressed” simply because they have stuck to date as they have either been too highly priced, are in poor locations or lack quality. “Location, Location, Location” has never been more relevant!
On the Costa del Sol – my patch – a lot of property is starting to become available at discounted prices because of developer’s going bust. This has an obvious danger for off plan purchasers who are seeking to protect their deposit and stage payments which they have invested with a developer. We have talked before about the position of an off plan purchaser where he becomes an unsecured creditor of the developer if the developer files under Spain’s creditor protection legislation.
Last week I attended a Seminar to discuss debt collection in relation to Spanish companies and came across the concept of “Concurso Necesario”. I am still receiving further legal opinions as to its precise operation but I understand that it gives “suppliers” or general creditors of a Company/Developer – I would argue that an off plan purchaser falls into this category - the opportunity to commence a Procedimiento Concursal – an Administrative Receivership action - where they are clearly owed money by a Company that cannot pay. I understand that this gives such a creditor the rank of “Privilegio General” and means that they would take priority over unsecured creditors – for example – and rank alongside the Tax Office and Social Security on a “first to list first to be paid” basis.
Where the purchaser of an off plan development has a provable fear that their Developer is likely to file for Bankruptcy – but hasn’t taken that step as yet - then rather than waiting for the Developer to take such action wouldn’t it be more attractive for a group action by off plan purchasers to explore further the prospect of initiating such a Concurso Necesario. I have asked our legal colleagues to explore whether this may be an attractive solution for off plan purchasers to improve their position in the Administrative Receivership by being the party responsible for initiating and running the proceedings, appointing the Administrative Receiver etc.
There of course will be legal costs but they can be share amongst a group of creditors to reduce the overall costs per capita.
I am not yet confident that this will work but if it could be made to work for Creditors of a Developer wouldn’t it be great to get the boot on the other foot for a change.

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New Sub-Prime Crisis
09 June 2008

New Sub-Prime Crisis
If at 40 you are regarded as being in the Prime of Life, does it mean at 50 that you are in the Sub-Prime of Life?

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Gibraltar - I like it but I just don't know why!
05 June 2008


Gibraltar – I like it but I just don’t know why!

After a few days of Birthday celebration it was time to return my Mother to Gibraltar for her Easyjet flight home. A few days with an older relative tends to slow things down and Gib is the perfect end to a good visit.

Compared to the mayhem of Malaga Airport – where I was mid last week meeting a client from the UK – which can be likened to the bling that is Caesar’s Palace in Las Vegas, Gibraltar is a genteel Country House Hotel. Like the rest of the Rock, it’s stuck in a rather British time warp with metaphoric plumped up feather pillows and a breakfast of farm fresh eggs and bacon! 

The unkind have likened Gib to Woking circa 1950 with vast expanses of Formica and the ever present whiff of tobacco. Indeed some of the clothes stores at the top of Main Street, stock the kind of garments that Grandfathers wore in the 1980’s – half suede leather and half wool relaxing jackets and bottom of the barrel colours of Lacoste T shirts.

In fact Gib’s airport building looks like a 1960’s Sainsbury’s with its domed roof and rather low ceiling. The “Duty Free” shop is spectacularly poor but if you ever need to buy a variety of English products by Barker and Dobson you’ll not find better.

My kids always send me to Gib with a short list of must have items from Morrison’s – and the diesel is cheap so worth a visit to fill up. Seedless grapes, fruit Winders and crumpets. 

Driving to and through Gib can be treacherous. The Spur – as it’s affectionately known – from La Linea (Spain) onto the Rock can be a place of some conflict. Although there is a roundabout at which you can turn left to join the queue to enter Gib, God forbid you try. Hysteria breaks out as I tried. I am forced by some very pushy drivers to join the back to the Spur filter some 500m further north.

Casemates Square, with its curious blend of timeless and rather posh glass goods, fast food restaurants and shops selling linen tea towels with images of Gib and “made in china” Monkeys bearing the familiar red and white emblem of Gib – which I suppose are intended to ape those at the top of the Rock.

Behind Casemates Square is a scruffy café and Pool Hall called “The Roxy”. I have noted before that there is an amazing blend of people in Gib but today sitting on the pavement outside the café are three people of indeterminate age. One is of Afro
-Caribbean origin, another is of Asian origin and a third is very definitely of old Gib origin. In the usual course of event this group would have been completely unremarkable but for the fact that they are all wearing new white baseball caps promoting the current Gib phenomena – online gaming!

Pulling up at the supermarket, Morrison’s have recently refurbished extensively. A quick trip through the store picking up my bits – including fresh chillies that you don’t seems to be able to buy in Spain - and it’s up to the Express till.

On the plastic screen that protects the cashier from any would be thief there is a red sticker. It warns that unless you are 25 and can prove it you cannot buy alcohol in the store. When quizzed about the effect of this the cashier knew little but though it may have originated in the UK. I am not sure that such a move could resist a challenge from the Civil Liberties folk, but in Gib you clearly get the impression that it’s pretty much a law unto itself. Given the apparent lack of antisocial behaviour, I wonder whether conscription may be considered next! 

© Mark FR Wilkins (Marbella) 2008 All Rights Reserved.

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What do you need to do if your Spanish property developer goes bust?
03 June 2008

What do you need to do if your Spanish property developer goes bust?
Please note that the information provided in this article is of a general interest nature and intended as a basic outline only. It is not intended as any substitute for detailed legal or other professional advice specific to the reader’s circumstances. Nothing contained in this article should be seen or taken as the writer or publisher providing legal or financial advice.
Without any intended insult to the text of the Old Testament, the sub-prime disaster in the US begat market jitters, market jitters begat the collapse of age old financial institutions, the institutional collapse begat the credit crunch and the credit crunch begat the withdrawal of project finance. Sprinkle lightly with a reduction in demand and an over supply and what do you have Spanish property developers falling off the perch, howling about liquidity issues and seeking creditor protection under the Spanish equivalent of Administrative Receivership (as in the UK) or Chapter 11 (in the US).
In the last month a company owning most of projects of the Grupo Jale, a major developer on the Costa del Sol, and Grupo Sanchez – equally big on the Costa del Sol - entered into Administrative Receivership and this week we heard that San Jose with projects in Murcia has sought similar protection.
Obviously in an already changed market, awash with fears for the security of hard earned money invested in Spanish property, this is not great news.
But where does this leave the property purchaser? 
If you have already completed it is likely that your developer may not have sold his entire stock of properties at your new Urbanisation. This means that the developer will also become your neighbour, a member of your Community of Owners and be as responsible as you for their share – their quota - of community fees. 
However, the effect of the appointment of an Administrative Receiver over the assets of the company will mean that your Community’s will be required to deal with the office the Administrative Receiver and no longer with the developer themselves. Any subsequent sales of properties at your Urbanisation will generate cash for the Administrative Receiver’s office. This will be used to pay out secured creditors – including the tax and social security offices – but it will also provide cash flow for the continuance of the company under the creditor protection. This means that the developer’s employees – for example - will continue to be paid whilst the company attempts to trade its way out of trouble.
As a consequence, it is likely to be necessary to call either an Extraordinary General Meeting or an Annual General Meeting in order to protect the Communities position in respect of the unpaid Community Fees. I am told that only after these have been voted upon at the EGM or AGM will it enable the Community to enforce the unpaid fees as a debt against any incoming purchaser and thereby collect the unpaid balance. This may be an unpleasant surprise for the incoming purchaser – who’s Abogado should have advised them on such matters and checked with the Secretary of the Community whether any such fees were outstanding. But the legal position appears to be only once the unpaid fees have been voted upon and passed into the Minutes of the Community that following a purchase will the incoming purchaser be obliged to assume responsibility for the unpaid fees. This should benefit the Community.
Alternatively, another potentially interesting scenario is starting to emerge – and we are seeking detailed legal advice on this point as I write. If like any other owner, the developer fails to pay their share of the community fees; will the remaining members of the community – probably a majority – be able to take legal action to recover the debt against the developer? Further should they be successful in obtaining judgment will the Community of Owners be able to obtain an “embargo” over the property to the extent of the Community Fee debt? As a consequence, will the Community then be able to progress to a “subasta” or auction sale of the defaulting owner’s property to realise the unpaid Community Fees? Will this create an interesting new market of distress stock – whereby willing purchasers can acquire finished property at a knock down price?
We believe that this may be relevant where the developer, as is usual, has established an individual company vehicle to develop and sell a particular development. If they have sought creditor protection for only a member of the group of companies – rather than the individual development company - then the moratorium which prevents creditors taking action against the group member but may not apply to the individual development company. Careful review by an appropriately qualified professional is required as group wide creditor protection may operate to prevent a challenge by the Community of Owners.
What if you have not yet completed your purchase but you have paid over your deposit on signing your Private Purchase Contract (PPC) plus – possibly - several stage payments?
Under the terms of the PPC that you have signed, you will usually be acquiring an option to purchase the property at completion. This is not a property right as such but a debt owed to you by the development company with whom you’ve signed your PPC. As in English law, there are different categories of creditors. These include: “Secured” creditors who have registered charges against the development company’s assets probably by way of mortgages or other loans – often manifested in an up to date Nota Simple of the property - the Spanish state tax and social security offices; “Favoured” creditors such as the company’s own employees and “Unsecured” creditors.
Until completion it is usual that a property purchaser will be an “unsecured” creditor of the developer. This means that your rights in respect of your cash as deposited with the developer will mean that you rank behind the “secured” and “favoured” creditors.
Spain has a developed and legally backed system of Bank Guarantees (Aval Bancario). The Law 57/68 establishes a system of bank guarantees - or insurance policies - to protect the amounts paid by the buyers in case of the developer’s failure to complete the development. The aim is to ensure that you do not lose your money should the property not be built for some reason. This is usually offered by the main funding bank which has provided the developer with their project finance.
In practice, bank guarantees may not always reach the require level of protection as envisaged by the law. In our experience they need to be studied very closely to ensure that they are valid, up to date and signed by all relevant parties. To give you added comfort, you should seek from your Abogado written assurance that they have hold original versions of up to date – amended to include your deposit funds and any subsequent stage payments - fully signed and original Bank Guarantees from the developer’s banker.
Should you find yourselves in a position where your developer has announced that they are entering into a formal creditor protection arrangement or they have filed for, Administrative Receivership, voluntary liquidation or similar you should consider whether it’s appropriate to give your Abogado instructions to seek to call upon the bank’s Guarantee. Whilst it may be difficult in practice to invoke this guarantee – it will usually require the intervention of your Abogado and possibly formal court proceedings – which may prove costly – it shouldprovide you with long stop protection in the event of the collapse of the developer that results in the property not being constructed or completed.
It is not the intention to overly simplify this process and for one reason or another it is likely that the bank providing the guarantee – given the current financial climate - may seek to delay honouring or even refuse to honour their guarantee - so ensuring that your Bank Guarantee arrangements are at all times in “apple pie” order is very sound advice.
If you developer does not appear to be in financial difficulties we’d recommend that you review your Bank Guarantee arrangements in any event. A difficulty often arises if a date of expiry of the Bank Guarantee is specified on its face. Such a date may be an “in any event” date meaning that the Bank Guarantee will expire whether or not the property is “legally” completed. You should check with your Abogado to ensure whether such a date is stated in your case and he/she should apply to have them renewed before they expire. It is usual that the developer and the bank will need to sign each Guarantee and any extension to it which in our experience may well not happen if the developer and their financier are in dispute over other liquidity issues.
I have been approached by some purchaser’s saying that their Abogados failed to advise them in relation to a Bank Guarantee. There may be one of two scenarios here. Firstly, the Bank Guarantee was issued in the usual way - as is required by the law - but for some reason the Abogado just didn’t give the purchaser a copy. In which case, a note to your Abogado’s office should reveal its whereabouts. Secondly – and of much more concern – is where either the Bank Guarantees has not issued for a variety of reasons. This may include that they were not requested by anyone including the purchaser’s Abogado, were not offered or that they were issued and have now expired. Whichever way fully independent professional advice should be sought as to your available remedies against your advisors and the Administrative Receiver – or similar.
Finally, and this sounds like total stupidity, if your property is pretty much completed – snagging done etc. - but lacks - for example - the final formal licences from the local Town Hall – particularly the License of First Occupation (LIFO) - but – and this is an enormous but – your developer is threatening to file for creditor protection, Administrative Receivership or similar, it may be worth considering – if you are in a position to do it – to complete on your property in any event. For obvious reasons, care and professional advice must be taken if you are considering upon such a strategy – it may well be a massive gamble – e.g. the LFO may never be granted - but the net result of such completion will mean that the property is registered in your name. Instead of a debt owed to you by the developer you will have a property asset with an enforceable title.
© Mark FR Wilkins (Marbella) 2008

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The Russians are Coming!
01 June 2008

Last Saturday, the Eurovision Song Contest saw a Russian pop demigod and his mate, an ice skater – do you remember Howard Jones in the 1980’s whose performance involved a bloke dipped in oil and wrapped in chains - take poll position in the latest round of humiliation for Britain talent on an international stage. 
Democracy is a strange beast and the tactical voting of the former Eastern Bloc is really quite curious. Threats from the UK's "Mr Eurovision" Terry Wogan to throw in the towel and accept that the success of “Boom Bang a Bang” will never reoccur are greeted by the UK's redtops with howls of concern.
By Tuesday, I have heard for the third time this week that the majority of sales of “higher end” property on the Costa del Sol are being made to Russians. Various developers are reporting that their properties that were “sticking” are being snapped up by Russians seeking their slice of the Sun.
This has a potentially interesting impact on the thinking of Northern European buyers who have been sitting on their hands awaiting the much heralded Spanish property crash – which seems not to have happened. Yes there has definitely been some what of a correction due to general World economics and over supply issues on the Costas but the fire sale reality hasn’t been evidenced by the facts.
This means that there are bargains – at all levels of stock – but the better quality properties on high end urbanizations are proving to be a magnet for “new purchasers” such as the Russians.
A month ago one of our clients seeking a sale for her beautiful property on one of Marbella new “country estate” type developments was impressed by our ability to attract a potential purchaser who hailed from Moscow. 
The local agent based in Moscow had told us that his client was coming to Marbella at the end of April to look at a handful of properties including that of our client. He arrived on 23.04 and we received a call from the Agent saying that within 48 hours of arrival his client had seen three properties and had snapped up the second! 
On Wednesday, I attended a signing at the Notary’s in Central Marbella. Out of one of the small offices came the familiar guttural sound of Russian being spoken. The tone of language – interspersed with some clearly spoken English - precedes a group of six signing their purchase paperwork. Three Versace clad guys and three, one more beautiful than the last, long limb and tanned girls dripping with designer clothes and white diamond bling.
There are hints of similar stories as the Saudi’s in London in the 1970’s starting to emerge.
On Thursday, a friend, Bill, a local estate agent specialising in providing services to investment orientated purchasers, tells me that the an English small scale developer of bespoke houses was visiting one of his recent sites when an E55 Mercedes pulled up and the driver’s window lowered. The developer was asked if he spoke English by the eastern European accented driver: Was the property for sale? After a brief inspection, the developer had chanced his arm and suggested a purchase price €1.5m over his anticipated price. After some negotiation he happily accepted a figure inflated by €1m. Three days later the 10% non refundable deposit hit the developer’s bank account.
On Friday evening with my wife I am invited to the Nikki Beach White Party – the signature event that signifies – for the non-Spanish - the start of the Season in Marbella.
We are lucky to be invited to the VIP area on the upper floor of the rush roofed Polynesian building. The sushi is served and the Champagne poured amongst several hundred beautiful people all dressed head to toe in white.
On the main terrace, outside the ultra VIP room, is a large Grey Goose Vodka Bar, the spiritual home to our Russian friends. Several of whom are getting a taste for the excellent cocktails being shaken and stirred. 
My football team of choice has for many decades been the famous Chelsea FC. I cannot be negative of the over half a billion Pounds that owner Roman Abramovich has lavished on the club over the last nearly five years. Cup, Premiership and UEFA honours have eluded us this year but Roman’s position in London life has brought a new and somewhat demystifying vanguard for his fellow Russians. 
We had a Cold War mass media driven concern about the Russians. We didn’t really understand them and forever they have been regarded with suspicion. Equally, there was a concern about the creation Russian only areas which would act to repel other non Russians. 
So how has the UK coped with the influx of many such new purchasers – what can Marbella learn from the UK experience? On Saturday, I was talking to a friend who’s involved in the London and the Home Counties property market. The typical high end Russian purchasers are buying in South Kensington/Chelsea and the Surrey “Stockbroker Belt” around Cobham, Weybridge and Virginia Water. It seems that local integration has not proved to be a particular problem. These areas are already very cosmopolitan with many nationalities and many tongues already happily living side by side. Err… a bit like Marbella!
Copyright © 2008 Mark FR Wilkins All Rights Reserved

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