At what point can a bank guarantee be executed?

We have two investments in off-plan properties near Malaga. The developer has made some progress, but recently work appears to have stopped and I suspect that they will not be able to complete the development ahead of the delivery date of 30 June 2009. They have a 6 month grace period under the terms of the contract, which means they actually have until 31 December 2009 to deliver, but given the progress to date, I suspect that even this will not be possible even if they started work again immediately. The bank guarantee is with ACC Seguros. 

At what point can a bank guarantee typically be executed? Are they likely to say that the bank guarantee cannot be executed until 1 January 2010, once the deadline has passed, or will they take a more pragmatic approach and agree to repay the money now if they can see that there is little chance that the developer will be able to deliver on time.

Any advice please. Any experience of executing a bank guarantee "early"? Any experience of dealing with ACC Seguros?

Thanks

Ed.

I am adding some comentaries below in bold green:

We have two investments in off-plan properties near Malaga. The developer has made some progress, but recently work appears to have stopped and I suspect that they will not be able to complete the development ahead of the delivery date of 30 June 2009. They have a 6 month grace period under the terms of the contract, which means they actually have until 31 December 2009 to deliver, but given the progress to date, I suspect that even this will not be possible even if they started work again immediately. The bank guarantee is with ACC Seguros. 

At what point can a bank guarantee typically be executed? 1st of July 2009. The automatic extensions are null and void according to Contract and Consumers Law. Every extension needs to communicated to the purchaser ( with the corresponsing justification) and expressly allowed by purchaser. Are they likely to say that the bank guarantee cannot be executed until 1 January 2010, once the deadline has passed, or will they take a more pragmatic approach and agree to repay the money now if they can see that there is little chance that the developer will be able to deliver on time.

Any advice please. Any experience of executing a bank guarantee "early"? You need to fix fo completion deadline stated in the contract, without the automatic extension: 30 June 2009.  Any experience of dealing with ACC Seguros? Yes, usually a Court case is needed.

Thanks

Ed.

Maria,

Thanks for your reply. I had a couple of points of clarification:

1) You state that: "You need to fix for completion deadline stated in the contract, without the automatic extension: 30 June 2009".

The developer has clearly taken out the bank guarantees to the later date of 31 Dec 2009, as the "vencimiento" on my bank guarantee from ACC Seguros says 31 Dec 2009. Does that mean that I cannot execute it until 1 Jan 2010, even if my private purchase contract says that the developer has to deliver the property by 30 June 2009 (ignoring the 6 month grave period, which you say is not legally allowed)? Or will ACC Seguros be legally bound by the date of 30 June 2009 in the contract?

2) I have two separate bank guarantees in place covering the two properties. On closer inspection, only one of the two bank guarantees appears to include any legal interest, i.e. the insured amount is equal to the amount I invested plus an amount of c.5-6% over the period insured (to 31 Dec 2009). The other states that the insured amount ("Capital Maximo") is equal to the amount I invested. I thought that it was a legal obligation for the developer to take out bank guarantees to protect all monies invested in off-plan developments and paying legal interest on those amounts. Are ACC Seguros legally obliged to pay legal interest on all amounts, or will I be forced to chase the developer to get a new bank guarantee put in place paying legal interest on all monies invested? The developer is paying a lower premium for the bank guarantee without legal interest, so I assume they have done this intentionally. Will I need to chase the developer or ACC Seguros to get this sorted?

Thanks

Ed.

Answers below in bold green: 

1) You state that: "You need to fix for completion deadline stated in the contract, without the automatic extension: 30 June 2009".

The developer has clearly taken out the bank guarantees to the later date of 31 Dec 2009, as the "vencimiento" on my bank guarantee from ACC Seguros says 31 Dec 2009. Does that mean that I cannot execute it until 1 Jan 2010, even if my private purchase contract says that the developer has to deliver the property by 30 June 2009 (ignoring the 6 month grave period, which you say is not legally allowed)? Or will ACC Seguros be legally bound by the date of 30 June 2009 in the contract?ACC Seguros be legally bound by the date of 30 June 2009 in the contract

2) I have two separate bank guarantees in place covering the two properties. On closer inspection, only one of the two bank guarantees appears to include any legal interest, i.e. the insured amount is equal to the amount I invested plus an amount of c.5-6% over the period insured (to 31 Dec 2009). The other states that the insured amount ("Capital Maximo") is equal to the amount I invested. I thought that it was a legal obligation for the developer to take out bank guarantees to protect all monies invested in off-plan developments and paying legal interest on those amounts. Are ACC Seguros legally obliged to pay legal interest on all amounts, or will I be forced to chase the developer to get a new bank guarantee put in place paying legal interest on all monies invested? The developer is paying a lower premium for the bank guarantee without legal interest, so I assume they have done this intentionally. Will I need to chase the developer or ACC Seguros to get this sorted? Developer.

Thanks

Ed.

Maria,

Thanks for your response.

I assume that Spanish consumer law 57/68, reinforced by Decree 5151/89, makes it illegal for the developer to take out a bank guarantee / insurance policy that only returns the original amount I invested and does not pay any legal interest over the period of the investment?

According to the bank guarantee / insurance policy I have with ACC Seguros, the annual premium for this cover was 1% when it was put in place two years ago. Over the three year period of cover to 31 Dec 2009, this amounts to about €1500 (the one with legal interest) and €1300 (the one without legal interest). Given this small difference, it seems incredible that the developer would have intentionally broken the law for the sake of just €200 of extra cost to them.

Is it a straightforward process for the developer to get the bank guarantee / insurance policy changed to include the legal interest, perhaps by paying a small additional premium? I assume banks are charging higher premiums in the current climate than they were two years ago when this bank guarantee was taken out, but we are only talking about a couple hundred euros I assume?

Am I unrealistic in thinking that the developer will agree to change the bank guarantee to include legal interest without me taking them to court (or at least threatening to)?

Thanks for your help.

Ed.

Hi Ed,

You are fortunate to have a BG. Many builders don't give them at all and many lawyers don't enforce the law to make sure their clients have one. It will be interesting to see if the developer will change the details for you.

,

I spoke to the developer. They tell me that ACC Seguros refused to give legal interest on both bank guarantees. They are going to provide me with a letter from ACC explaining their reasons. Apparently my lawyers at the time accepted their position.

Q. Who has broken the law protecting my rights as an off-plan investor? The developer or ACC Seguros?

Any views? Maria?

Thanks

Ed.

By Law, those guaranteed include legal interests, so the action in Courts against the Guarantoors need to be from full deposits plus legal interests, regarless what the paper actually says. Consumers Protection brings the strong coverage.

Hi Maria de Castro ,

 I  wonder if you can help me please regarding my Bank Guarantee ?

I purchased a property in July 2005, with the Bank Guarantee , because the build has not finished the Bank Guarantee was

extended to May 2009,The property is due to be completed in May  2009 but  not to what  I was led to believe when I handed over my stage payments i.e. No finished golf course no Clubhouse no Sports faciltiys, all these were in their brochure and I was told from the Sales persons this would be the case.Having waited nearly three years .I do not want to wait at least  another three on empty promises , My question is I am thinking of taking them to Court for not providing the "lifestyle" I was told at time of the purchase .   My Bank Guarantee runs out in May 2009, they said my property will be completed by then , but not the other Facilitys that was suppposed to come at the same time.   I am worried that if I go to court and they decide to stop building and the case go past my Bank Guarantee date and other purchasers decide to also do the same.

What happens if they go Bankrupt  will be left with no cover ?

Best Regards

Is any one in the situation of not being clear about the construction period stipulated in the sales-purchase agreement? My contract refers to a period which starts from the date the "Acta de replanteo" (the official document stating readiness for construction) is signed. This can be very tricky because, in my case, for example, such a document was signed 12 months after the actual contract was (which I only recently found out).

By the time my apartment is delivered it will have been almost three years since the signing of the contract, far too long, I think. Would I stand a chance if I wanted to claim my deposit back?

Jored:

Please have answers below in bold green:

Hi Maria de Castro ,

 I  wonder if you can help me please regarding my Bank Guarantee ?

I purchased a property in July 2005, with the Bank Guarantee , because the build has not finished the Bank Guarantee was

extended to May 2009, did you sign an extension to the  completion deadline of the contract? The property is due to be completed in May  2009 but  not to what  I was led to believe when I handed over my stage payments i.e. No finished golf course no Clubhouse no Sports faciltiys, all these were in their brochure and I was told from the Sales persons this would be the case.Having waited nearly three years .I do not want to wait at least  another three on empty promises , My question is I am thinking of taking them to Court for not providing the "lifestyle" I was told at time of the purchase .   My Bank Guarantee runs out in May 2009, they said my property will be completed by then , but not the other Facilitys that was suppposed to come at the same time.   I am worried that if I go to court and they decide to stop building and the case go past my Bank Guarantee date and other purchasers decide to also do the same.

What happens if they go Bankrupt  will be left with no cover ? If you have got a Bank Guarantee you are safe.

JAgudelo:

Is any one in the situation of not being clear about the construction period stipulated in the sales-purchase agreement? My contract refers to a period which starts from the date the "Acta de replanteo" (the official document stating readiness for construction) is signed. This can be very tricky because, in my case, for example, such a document was signed 12 months after the actual contract was (which I only recently found out). You need to send a certified fax to the developer asking them to send to you the acta de replanteo and if not effectively attended, you can opt for contract nullity.

Maria,

Back to the original thread, I have the following from ACC Seguros "explaining" the reason why they will not pay legal interest on one of my two off-plan properties.

"La poliza o polizas adjuntas no se encuentran sometidas a la Ley 57/68, ya que las fincas objeto del seguro no van a ser destinadas a domicilio o residencia familiar, con caracter permanente, ni a residencia de temporada, accidental o circunstancial. En consecuencia no se garantiza interes alguno de las cantidades anticipadas entregadas por el comprador, sino unicamente el principal"

I have read somewhere before that banks and insurance companies try to justify this by saying that anybody with more than one off-plan is not a consumer but an investor. Whilst both properties are in my name, one was purchased for a relative with their money, and both were intended as holiday homes in the same development.

Do you have any views on their legal position or how I would force them to pay legal interest on both bank guarantees if I needed to execute them?

The developer is hiding behind ACC's position. The developer also says that my lawyers accepted this explanation at the time the bank guarantees were put in place (without my knowledge).

Thanks

Ed.

 Dear Ed:

I would like to see the documents, the policies for a better assessment.

There is no legal grounds to back the reasoning for not paying interests as they are always attached to every cancellation ( good and fruits) according to the Civil Law, but again, I need to see the Policy to give to you a most secure answer. Please feel free to email it to us. You have got our contact details in the website which appears below.

Best regards,

Maria

Hi Maria 

As always thanks for your reply, most kind and I will answer as best I can,

I did not sign any extension to the Contract deadline

I have a Bank Guarantee till May 2009 , I presume this does not need to extend again as you stated Bank Guarantee dont expire ? 

So does that mean if I go to Court I will still be covered as is more likely it will take it beyond May 2009 ?

Best Regards

Jored:

Thanks for your kind words. Answers below in bold green:

Hi Maria 

As always thanks for your reply, most kind and I will answer as best I can,

I did not sign any extension to the Contract deadline

I have a Bank Guarantee till May 2009 , I presume this does not need to extend again as you stated Bank Guarantee dont expire ?  Correct.

So does that mean if I go to Court I will still be covered as is more likely it will take it beyond May 2009 ? What is the completion deadline of the contract?

Best Regards

 

Hi Maria

the completion date is May 2009 (hence the Bank Guarantee to MAY 2009)

We paid our stage payments in July 2005

I understand they did not recieve the final approval for building the Resort till April 2008

My contract states that if not completed in 18 months I can revoke the clause and ask for my deposits back  BUT this means       they have till October 2009(being the 18 months )

I have waited 4 years for this Resort and although they now say that they are " planning" to build the sports facilty  and club house etc , I really dont want to complete and live on a building site for another 4/5 years . They have started the Golf course but that will not be playable to at least mid 2010

They state the Facilitys they named will be finshed by the end of the year, but  i no of  their other Resort and the hotel was promised in 2006 and now they say because of the worlds markets on Credit etc the Hotel will be put off to be looked at again in 2010 so not built

I do not want to pay my money and recieve empty promises , The Developer is putting pressure on me ( I am not alone all of phase1 and 2 purchasers that I no of ) Funny that we recieved the info about the starting of the facilitys I mentioned only because it near the time of completion just yesterday by e-mail

Again Maria priceless info your blog etc is well read by many

Best regards

Unfortunately I have not received any bank guarantee from the developer in relation to any payment made by me to him, so recently I have been chasing to have the said guarantees issued. My contract states that the developer will 'deliver bank guaranteees prior to the execution of the sale and purchase deed'. Despite being close to completion I realise the importance of this documentation as a safeguard should anything go wrong and as a result of this interest I have been reading any posts to do with bank guarantees.

This thread is very informative but what stood out for me was the post by Jagudelo because I have always found my contract vauge in terms of start and completion dates. For example my purchase agreement begins with El presente contrato se celebra en Torre Pacheco a 27- 07- 2007. Later in clause one It states that the seller will deliver the property under a maximun period of 18 months, and here is the bit thats confusing, from the start of the building works of the sold property. Does that mean that the 18mth period is from the 27/7/07 or from the time the work commenced on my apartment block.  If from the commencement of building works of my block how do I find out when precisely these works began.

I am taking it that my completion date is the 27th of Jan 2009 and the developer indicates the habitation cert will be available at the end of January so all there is well. But in truth, for peace of mind, it would be great to firstly receive my guarantees and secondly to know my precise completion date.