buying off-plan comes more risky. Law 20/2015 abolishes Law 57/1968 and modifies Law 38/999

Last 14th july the Spanish Parliament issued Law 20/2015 (published in the Official Gazzete wednesday 15h july 2015), which contains the new regulation for the insurance sector.

Of course, there would be lots to comment on the new insurance regulation, but this is not the aim of this forum, nor of this post. In fact, we would not mention Law 20/2015 in this blog, being the only reason to comment it the deep changes this Law implies for off-plan property buyers.

Hidden in an Additional Provision of the said Law 20/2015, we can find two relevant decissions that affect seriously the rights of the buyers:

          1) Law 57/1968 is abolished

          2) Law 38/1999 is modified, and the obbligatio to issue BGs or Insurance just comes since the building licence is issued to the promoters.

It seems the pressures from the Banking and Insurance Companies lobbies have been succesful because this means a significant cutting on buyers rights.

Law 57/1968, that was ratified by Law 38/1999, had operated as a Consumers' Protection regulation, protecting off-plan buyers from losing the monies paid in advance for the properties in case they weren't built or finished and/or the promoter came to insolvency.

Now, with Law 57/1968 out-of-game and Law 38/1999 modified, the protection to the off-plan buyers is limited, as far as now the obbligation to issue guarantees for the advanced payments comes out only since the building licence is granted.

For us it's really a nonsense regulation, as far as the Supreme Court is, in the latest judgments, highlighting the protective nature of Law 57/1968 and ruling in favour of the buyers' rights, and this new regulation comes to erase all the safeguarding system stated by that Law, pointed by the Highest Court as the lead to follow.

If this new regulation would have been in force within the latest years, buyers of such famous developments as Trampolin Hills, Fortuna Hills or Santa Ana del Monte would be absolutelyunprotected.

Fortunately, this new regulation just will operate since 1st january 2016, so the former off-plan buyers would be still under the protection of Law 57/1968 and Law 38/1999.

But, should you be interested in buying an off-plan property, you shouldn't make any payment until the building licence is granted to the promoters, unless you want to risk to be unprotected for the advance payment.

No doubt this is a good moment to invest in Spain, but, more than ever, proper legal advice and precautions are needed.

Read in on our blog on Eye On Spain

What will happen to those who submit their claims prior to Jan 2016, but due to major delays in the court administration system don't get their lawsuits accepted into the court in time? Will they be denied the right to fight for their rights under Ley 57/68? Also won't all those that have already placed deposits on offplan properties whose completion dates are beyond Jan 2016 now be at risk?

It's not a matter of when you place your claim or when your completion is suposed to take place.

The new regulatios just affects to purchases donde after 1st june 2016.

So, any action or roght outcoming from an off-plan purchase prior to 31st december 2015 is out of reach to the new regulation, and will be ruling under Law57/1968 and Law 38/1999.

You should never pay any amount without getting a BG against the payment, but what happens from 1st january 2016 is that issuing BG is not going to be abbligatory until the promoter is granted the building licence. And our advice, subsequently, is not paying anything before that date (unless satisfactory guarantees are given).

Thank you for the clarification. 

So long as financial institutions are not effectively monitored and regulated in Spain then any removal of law, in place to protect purchasers from abuse and malpractic of this nature, will be perceived as an understandable threat, not only from these institutions but also from a Government that in effect will be de-regulating an industry in dire need of greater regulation and transparency, let alone the opposite!

This also has the potential to undermine any progress made in these intervening years in restoring faith in the Spanish  real estate industry and accountability of Financial Institutions, which would appear counter productive to growth.

Why would anybody think of buying off plan when you can take you're pick of the 25,000 unsold empty properties throughout the costa,s .

I wonder how many of these properties are Bank repossessions, repossessed from insolvent developers, that have never returned offplan deposits following developer breach of contract and  Bank Guarantee abuse???????

This ironically has the potential to bring negative attention to the Spanish real estate industry due to the fact that it will be perceived as a manipulative ploy by the Banks /insurers to lobby and remove law intended to protect against abusive malpractice. It only reinforces mistrust of financial institutions which is already at an alltime low.

I would like to know if this has been a legal oversight or if it was a cynical manipulative ploy by the Banks/Insurers/ Government?

To create an alternative law that already has a loophole open to abuse, begs the question as to its intent. Perhaps this can be clarified?

So just as one trap is closed with the success of cases under Ley 58/67, another is opened!  If only we could be sure that buyers can access good information when purchasing off plan.  Along with the requirement for buildings licence to be in place before a bank guarantee can be issued, it would make sense if it was also made illegal for developers to take deposits until the buildings licence is granted.  Surely the legal profession also needs tighter regulation on these matters to make sure that prospective purchasers are protected.  Why is it always the buyer who takes the risk?

As far as people buyong new off plan properties, providing they have good independant legal advice, I don't see what the major issues is here

I have just gone through 2 off plan purchases with clients, one in Lo Pagan and another at Vistabella, on both occasions the lawyers first check was to see if the building licences were in place, BEFORE any payments were made and they ask for the clients to pay the lawyer the staged payments, which they exchange for the BG's

Also the reason that people atre buying off plan is because they want ultra modern, clean lines and much higher specification properties

Let’s be honest here, many people did use solicitors and when things went wrong they did not accept any  responsibility as they were part of a system that did not protect the client.

I do not think any legal person had a case against them won in the court or if their association did  take any action against any legal firm for being part of a system that was stacked against the purchaser.

How they can introduce a law that offers less protection than the one they tried to hide away and the judges tried to protect the builders and banks.

It was the work of one English purchaser to find the law in the first place …………a law that no Spanish solicitor could find and even still the courts and banks use every avenue against the client getting their money back.

BEWARE OF SPAIN

Agaun as I say decent independant advise is viital

On one recent purchase we had a strip 2 clauses, one that stopped any inspection of the property condition, until after comlpletion the 2nd that said it was only suffucent for the COH to be applied fo,r to deem the property complete and liable to payment

Both clauses gone from the contract

Inspectahomespain

You did not say if you're client's have got the keys and all the legal papers to their off plan properties .

Agree with grumpy 121 we were the victim of the system any body that even thinks about buying off plan is off their head!  Stay clear no matter what advice you get.  Cost us thousands in solicitors fees to get money back via bank guarantee And we were one of the lucky couples.

It's not the fact that purchase can "be made safe" with good individual professionals on board, it's more to do with ensuring the conveyancing SYSTEM and protective LAWS in Spain are water tight, and in place to protect against the existing regional "lottery", so as to minimise abuse/malpractice whether this be from agents/ developers/ lawyers/banks.,etc. 

Lessons learned cannot depend upon individuals being " good" alone , but need to be addressed from a far wider perspective if progress is to be made, and trust re-established.

For instance, are professional bodies within the real estate sector in place and effectively regulated ( agents, lawyers, banks, etc)? Are there adequate disincentives in place to minimise/eradicate professional negligence?  Are the laws  clear and effective and free from legal loopholes that minimise the opportunity for legal misinterpretation, etc? Are monitoring and reporting systems in place to improve transparency? 

All manner of lessons come from this last decade, and to introduce a new law that appears highly questionable  hardly inspires confidence, and does a grave disservice to the progress being made.  

As for regaining trust, well the proof will be in the willingness to put in place  a better regulated SYSTEM ( both Banking and conveyancing) that minimises purchaser risk, together with a legal system that guards against abuse and applies good law in a fair timely and consistent manner.

  History has sadly demonstrated that Banks' behaviour and practice has been ( and continues to be) questionable, therefore it's understandable that any reform of law is now viewed through a microscope!

Dear Holsilverlining,

This ammendment doesn't affect to off-plan purchases done before 1st january 2016. But, certainly, is a step back in the defense of buyers.

Under Law 57/1968, our Courts are forcing banks that failed guaranteeing the amounts they received for the builders to cover  these amounts plus interest, as there was a breach of that obbligation.

Now, the protection for buyers comes only for the moneys paid after building licence is granted, as only since this moment there's a legal obbligation to guarantee amounts.

Well, the solution as someone pointed is at easy as not paying unless you get a guarantee.

In fact, this is what our Firm ALWAYS has done. We never paid without a guarantee.

So that, we were highly unpopular amogst promoters and agents, as we were "too strict". And most of the buyers put the conveyancing in hands of Firms that opened 20 or 30 offices all along Spanish Costas. 

Nor of our conveyancing clients had problems with their property or recovering their money, as everyone had guarantees enough.

And now, we work for clients that were previously advised by these big conveyancing Firms that, I must agree, acted negligently.

I think the legal profession has a really tight regulation on these matters, but a denounce from the client is needed to proceed against negligent solicitors. And it seems nobody wants to put these denounces before the Association Bars.

Dear grumpy121,

I partially agree you.

It's true there were Firms (these ones I mentioned before, that opened 20 or 30 offices all along the Costas) that acted negligently and were part of the system. In fact, most of people went to these Firms directed to them by the agents or the promoters themselves.

Well, you can imagine that the independence of these Firms was not such, and they didn't put pressure to promoters or agents to get guarantees.

As I mentioned before, we had some conveyancing (not much) in the "happy days", but at the end, we became unpopular amongst promoters and agents because we were very strict ("too strict", they said) requiring guarantees before any payment, and we did not get much of that kind of work as nobody sent us clients. But nor of our clients had problems under our advise.

So, it's true many of the conveyancing lawyers were part of the system. But is unfair to put all the lawyers "in the same basket".

Regardless all that, and without quiting any merit to Keith Rules, who made a big effort in favour of purchasers, we must say it's untrue that he found the law "in the first place" and that "no Spanish solicitor could find" that law.

We were aware of Law 57/1968 and proposed many clients to go ahead on a claim against the Bank. But we were very clear and honest with them: there had been previous attempts rejected by the Courts (believe me there were many sues before "Higuericas case", but most of them rejected by Courts).

So, many of our clients were really reticent to spend their money in a new claim with an uncertain result.

But we began claiming at the same time as people in Higuericas.

Now, we can all be very proud and happy, as everyone claiming the bank has put his "grain of sand" to build the actually solid protection buyers are being provided by Courts.

So, we must all thank Keith Rules for being so brave and leading a big group of people against CAM in Higuericas and get the first big success of this "war". But wars are made of battles, and we can't forget that tere's many people fighting in favour of buyers.

And, of course, it's unfair to blame all lawyers because of the negligence of many others, because you can believe there are honest and good lawyers in Spain. 

Dear ads,

I agree with you that the point is a matter of consumers' protection.

In fact, and to be honest, we must say that we had the right Laws and, even, the right enforcement mechanisms, but that, unfortunately, we had the wrong people on charge.

If everyone had done their work properly, we should have had no problems, but:

1) Regional governments failed to control the guarantees providing. Law 57/1968 stated high fines to promoters breaching this obbligation, but the authority never paid attetion to this, and nobody was inspected and/or fined.

2)Banks failed to put monies received in a separate account and to require the builders to prove the existance of guarantees covering those monies. And they permited the use of those amounts for purposes different to building.

3) Some solicitors failed to require guarantees for the payments done by their clients.

Everyone was so busy earning lots of money that they forgot the important things, as protecting the client and making the system safe. There were plenty of greedy polititians, public servers, bankers and solicitors.

Fortunately, Courts are now putting things in the right place. Thanks to those who didn't lose their faith in Justice and their solicitors, that are doing a really good job. We can mention, for example, GM, DWF, Abolex, CostaLuz or ourselves.

At the end, the lesson learned is that buyers must look for goog independent legal advise (not the lawyers pointed by the sellers, that you can guess will not be very independent).

Banks will always be powerful, and polititians will try to work in their favour. And the only defense against that is getting a strong position from the very beginning.

Enforcement against badpractice or negligence will not happen if you don't have someone putting pressure on it.

Imagine that, after so many rulings against the banks involved in Santa Ana del Monte, Las Higuericas or Trampolin Hills, nor of them have been prosecuted under disciplinary banking rules.

Why would anybody think of buying off plan when you can take you're pick of the 25,000 unsold empty properties throughout the costa,s .

25,000?

More like 2,500,00!

How on earth would a buyer know if the developer has been granted a building license? More abuse...

As far as people buyong new off plan properties, providing they have good independant legal advice, I don't see what the major issues is here

I have just gone through 2 off plan purchases with clients, one in Lo Pagan and another at Vistabella, on both occasions the lawyers first check was to see if the building licences were in place, BEFORE any payments were made and they ask for the clients to pay the lawyer the staged payments, which they exchange for the BG's

Also the reason that people atre buying off plan is because they want ultra modern, clean lines and much higher specification properties

I wouldn't count my chickens until your buyers have the keys in their hands...

That's a pretty naive statement from (i'm assuming) a real estate professional.