Law 57/68 explained

A very good explanation of Law 57/68 by Keith Rule.

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 receive the funds paid in advance by purchasers through a Bank or Savings Bank and deposit in 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).

Thank you Maria.

So if an end of works certificate was not produced by the end date stipulated and mutually agreed in the contract is this a breach Maria?

Also if a deadline was extended through provision of another BG without purchaser knowledge or consent, is this a breach Maria?

From your recent postings, are the Supreme Court now retrospectively removing these inalienable rights that were, in effect, an essential pre-requisite to purchasers original consent?

Do we now have the situation where the precise terms of the contract, mutually agreed,, are no longer respected?

If this is the case, then this will mean that there will be no legal certainty when purchasing in Spain, and that at any time the terms of the contract can be undermined by retrospective action (not consented to by the purchaser), without any adequate consumer protection in place.

How can continuing challenges in the form of retrospective actions of this nature serve any purpose in Spain when legal certainty is an essential element for any investment environment?

It beggars belief, Maria.

As Keith has identified "The failure is that of the authorities whose duty it was to uphold the rule of Law. "

Can I ask therefore if Keith Rule is considering any challenge to these recent Supreme Court decisions via an amended or updated BG petition to the European Commission and relevant Spanish Authorities?

Great post Maria (and Keith).

There are several references to the legal interest in a claim and also the legal interest is to start from the date the deposit is paid. I recall many instances of court rulings where the legal interest has only been paid from the date of the lawsuit (as in Keith Rule's case, I think) or it has not been paid at all (when the bank has settled out of court). I wouldn't be inclined to accept a 'deal' like this from the bank when the Law clearly states (several times) that the interest is from the deposit date. Is this down to the Judge's discretion at the court?

Answering questions below in bold green ( same text as your email):

ADS

Thank you Maria.

So if an end of works certificate was not produced by the end date stipulated and mutually agreed in the contract is this a breach Maria? In my opinion, of course it is.

Also if a deadline was extended through provision of another BG without purchaser knowledge or consent, is this a breach Maria? It is a null extension. If made without your consent by your conveyancing lawyers, he is liable of all provable damage arising from that.

From your recent postings, are the Supreme Court now retrospectively removing these inalienable rights that were, in effect, an essential pre-requisite to purchasers original consent? In my humble opinion, those SC interpretation of lack of first occupation license and delay in relation to cancellation and refunds are against Law 57/68

Do we now have the situation where the precise terms of the contract, mutually agreed,, are no longer respected? No, that is not the case as if First Occupation license lack was agreed as producer of cancellation and refund, the SC agrees on this to be one of the cases where this cancellation/refund needs to happen. What these SC rulings are outting into question are the protective and clear limits that Law 57/68 gave to delays in favour of buyers. Most chocking when these rights are considered as inaliaenable in this Law.

If this is the case, then this will mean that there will be no legal certainty when purchasing in Spain, and that at any time the terms of the contract can be undermined by retrospective action (not consented to by the purchaser), without any adequate consumer protection in place.

How can continuing challenges in the form of retrospective actions of this nature serve any purpose in Spain when legal certainty is an essential element for any investment environment?

It beggars belief, Maria.

As Keith has identified "The failure is that of the authorities whose duty it was to uphold the rule of Law. "

Can I ask therefore if Keith Rule is considering any challenge to these recent Supreme Court decisions via an amended or updated BG petition to the European Commission and relevant Spanish Authorities? It would possibly be good to have the opinion of other authorities. I do agree with you.

FAZARELLI

There are several references to the legal interest in a claim and also the legal interest is to start from the date the deposit is paid. I recall many instances of court rulings where the legal interest has only been paid from the date of the lawsuit (as in Keith Rule's case, I think) or it has not been paid at all (when the bank has settled out of court). I wouldn't be inclined to accept a 'deal' like this from the bank when the Law clearly states (several times) that the interest is from the deposit date. Is this down to the Judge's discretion at the court? No. it is not, you can always challenge it at the Appeal level.

Excellent. Thanks for that Maria.

Keith have you considered widening the scope of your BG petition to an AVAAZ petition to bring pressure to bear on EU and Spanish authorities? There must be thousands affected by this across all the offplan communities on EOS, let alone those who are not EOS members.....

AVAAZ appears a remarkably effective campaign organisation.