Spanish Off-Plan Property - Bank Guarantees - LEY 57/68

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 deposit the funds paid in advance by purchasers into 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).

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 - Receiving 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.

Article Two - Contracts for the sale of the homes, referred to in the first article of this Law, which involve the payment of deposit funds to the Promoter must be expressly state:

a) The transferor is obliged to refund to the assignee of the sums received on account plus the six percent annual interest if construction is not commenced or completed within the agreed timeframe to be determined in the contract or if the Certificate of Habitability (Licence of First Occupation) is not granted.

b) Reference to the guarantee or insurance contract specified in the first condition of the previous article, with indication of the name of the guarantor or insurer.

c) 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.

At the time of issuing the contract the grantor will issue to the grantee the above mentioned Guarantee Document which must cover all amounts paid towards the total price.

Article Three - Upon expiration of the period allowed if the construction and delivery of the dwelling has not taken place, the assignee may choose between the dissolution of the contract with repayment of the amounts paid in advance, plus the six percent annual interest, or give the assignor extended time and this period must be stated in an annex to the contract awarded, specifying the new period with the date of completion of construction and delivery of housing.

In insurance contract or an endorsement attached to the authentic evidence which did not credit the initiation of construction or delivery of housing will be enforceable for the purposes provided in Title XV of Book II of the Civil Procedure Act to require the insurer or guarantor delivery quantities to the assignee's right, in accordance with the provisions of this Act

Article Four – Once the Certificate of Occupancy is issued by the Provincial Delegation of the Ministry of Housing and given by the promoter of the housing to the buyer the rights guaranteed by the insurer or guarantor will be cancelled.

Article Five – 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.

Article Six - Failure by the promoter to comply with the provisions of this Act will result in being fined per violation, which will be imposed under the rules laid down in LEY 49, 30^th July 1959, subject to the jurisdiction of the Courts of Justice.
Failure of the developer to return to the purchaser all sums advanced, will result in violation of the provisions of Article I of this Act and shall consist of misconduct or crime punishable under articles 587, number three, and 535 of the current Penal Code, respectively, and will result in the imposition of the penalties of section 528 in its maximum degree.

Article Seven - The rights that the present Law grants to the grantees will be of an indisputable nature.

FINAL PROVISIONS

First - The Government is authorized to make a proposal to the Minister of Housing, and by decree, to identify the bodies of official character that are able provide sufficient guarantees and are exempt from the application of these rules.

Second - It authorizes the Ministers of Justice and Housing to dictate the supplementary provisions as they deem necessary for the development of this Law, which took effect the day following its publication in the Boletin Oficial del Estado.

ADDITIONAL PROVISION

The Government is authorized to make by decree, and within six months against the entry into force of this Act, adapt the same principles that may be of application to the communities and housing associations.

LEY 57 / 1968

Articulo primero – Las personas fisicas y juridicas que promuevan la construccion de viviendas que no sean de proteccion official, destinadas a domicilio o residencia familiar, con character permanente o bien a residencia de temporada, accidental o circunstancial y que pretendan obtener de los cesionarios entregas de dinero antes de iniciar la construccion o durante la misma, deberan cumplir las condiciones siguientes:

Primera - Garantizar la devolucion de las cantidades entregadas mas el seis por ciento de interes anual, mediante contrato de seguro otorgado con Entidad aseguradora inscrita y autorizada en el Registro de la Subdireccion General de Seguros o por aval solidario prestado por Entidad inscrita en el Registro de Bancos y Banqueros, o Caja de Ahorros, para el caso de que la construccion no se inicie o no llegue a buen fin por cualquier causa en el plazo convenido.

Segunda - Percibir las cantidades anticipadas por los adquirentes a traves de una Entidad bancaria o Caja de Ahorros, en las que habran de depositarse en cuenta especial, con separacion de cualquier otra clase de fondos pertenecientes al promotor y de las que unicamente podra disponer para las atenciones derivadas de la construccion de las viviendas.  Para la apertura de estas cuentas o depositos la Entidad bancaria o Caja de Ahorros, bajo su responsabilidad, exigira la garantia a que se refiere la condicion anterior.

Articulo segundo - En los contratos de cesion de las viviendas a que se refiere el articulo primero de esta disposicion en que se pacte la entrega al promotor de cantidades anticipadas debera hacerse constar expresamente:

a) Que el cedente se obliga a la devolucion al cesionario de las cantidades percibidas a cuenta mas el seis por ciento de interes anual en caso de que la construccion no se inicie o termine en los plazos convenidos que se determinen en el contrato, o no se obtenga la Cedula de Habitabilidad.

b) Referencia al aval o contrato de seguro especificados en la condicion primera del articulo anterior, con indicacion de la denominacion de la Entidad avalista o aseguradora.

c) Designacion de la Entidad bancaria o Caja de Ahorros y de la cuenta a traves de la cual se ha de hacer entrega por el adquirente de las cantidades que se hubiese comprometido anticipar como consecuencia del contrato celebrado.

En el momento del otorgamiento del contrato el cedente hara entrega al cesionario de documento que acredite la garantia, referida e individualizada a las cantidades que han de ser anticipadas a cuenta del precio.

Articulo tercero - Expirado el plazo de iniciacion de las obras o de entrega de la vivienda sin que una u otra hubiesen tenido lugar, el cesionario podra optar entre la rescision del contrato con devolucion de las cantidades entregadas a cuenta, incrementadas con el seis por ciento de interes anual, o conceder al cedente prorroga, que se hara constar en una clausula adicional del contrato otorgado, especificando el nuevo periodo con la fecha de terminacion de la construccion y entrega de la vivienda.

En contrato de seguro o el aval unido al documento fehaciente en que se credite la no iniciacion de las obras o entrega de la vivienda tendra caracter ejecutivo a los efectos prevenidos en el titulo XV del libro II de la Ley de Enjuiciamiento Civil, para exigir al asegurador o avalista la entrega de las cantidades a que el cesionario tuviera derecho, de acuerdo con lo establecido en esta Ley.

Lo dispuesto en los dos parrafos anteriores se entiende sin perjuicio de los demas derechos que puedan corresponder al cesionario con arreglo a la legislacion vigente.

Articulo cuarto – Expedida la cedula de habitabilidad por la Delegacion Provincial del Ministerio de la Vivienda y acreditada por el promotor la entrega de la vivienda al comprador se canceleran las garantias otorgadas por la Entidad aseguradora o avalista.

Articulo quinto – Ser a requisito indispensable para la propaganda y publicidad de la cesion de viviendas mediante la percepcion de cantidades a cuenta con anterioridad a la iniciacion de las obras o durante el periodo de construccion, que se haga constar en las mismas que el promotor ajustara su actuacion y contratacion al cumplimiento de los requisitos establecidos en la presente Ley; haciendo mencion expresa de la Entidad garante, asi como de las Bancarias o Cajas de Ahorro en las que habran de ingresarse las cantidades anticipadas en cuenta especial. Dichos extremos se especificaran en el texto de la publicidad que se realice.

Articulo sexto – El incumplimiento por el promoter de lo dispuesto en esta Ley sera sancionado con una multa por cada infraccion, que sera impuesta conforme a las normas previstas en la Ley cuarenta y nueve/mil novecientos cincuenta y nueve, de treinta de Julio, de Orden Publico, sin perjuicio de la competencia de los Tribunales de Justica.

La no devolucion por el promotor al adquirente de la totalidad de las cantidades anticipadas, con infraccion de lo dispuesto en el articulo primero de la presente Ley, sera constitutivo de falta o delito sancionados en los articulos quinientos ochenta y siete, numero tres, y quinientos treinta y cinco del vigente Codigo Penal, respectivamente, imponiendose las penas del articulo quinientos veintiocho en su grado maximo.

Articulo septimo – Los derechos que la presente Ley otorga a los cesionarios tendran el caracter de irrenunciables.

DISPOSICIONES FINALES

Primera – Se autoriza al Gobierno para que a propuesta del Ministro de la Vivienda, y mediante Decreto, determine los Organismos de caracter oficial que, por ofrecer suficiente garantia, se exceptuen de la aplicacion de las anteriores normas.

Segunda – Se autoriza a los Ministros de Justica y Vivienda para que dicten las disposiciones complementarias que estimen necesarias para el desarrollo de la presente Ley, que comenzara a regir el dia de su publicacion en el Boletin Oficial del Estado.

DISPOSICION ADICIONAL

Se autoriza al Gobierno para que por Decreto, y en el plazo de seis meses a contra desde la entrada en vigor de la presente Ley, adapte los principios de la misma que pudieren serles de aplicacion a las comunidades y cooperativas de Viviendas.

Spanish Prime Minister Mr José Luis Rodríguez Zapatero said in the European Parliament 6 July 2010:

"My country is based on the rule of law and it respects and ensures that laws are respected.  The courts are responsible for the application of law.  We stand shoulder to shoulder with those people who, maybe, have had the wool pulled over their eyes in the property sector"

Mr Zapatero has certainly not ensured that LEY 57/68 has been respected and the courts have failed in their reponsibility of applying LEY 57/68 to many hundreds of cases.

It is all very well standing shoulder to shoulder with people like us who have 'had the wool pulled over our eyes' by the corrupt developers and negligent Banks, but what action is he taking to ensure that our deposit monies will be refunded?

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.

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.  Shame on them.