Peninsula threatening to seize UK assets and force purchasers to complete on Medina Elvira golf in Granada

My developer is threatening to take drastic action against all purchasers who cannot complete, and I felt this has to be posted on the public forms on this site to ensure it gets the maximum coverage possible. If this is becomming standard practice in Spain then many purchasers need to be aware of the seriousness of not completing on their property purchase. I have posted this to the developer and completion forums and apologise for cross posting, but feel it is relevant to both forums

I would appreciate any comments regarding the legality of this threat - Can they really do this? There is nothing in the purchase contract to say they can, only that the deposit will be lost in the event of non-completion. Is there a consumer-protection body or organisation in Spain that could help a purchaser such as me faced with this situation?

This is a copy of an email I received from Gaspar Lino, the managing director of Peninsula Project Management today regarding my property completion in Medina Elvira 23 in Granada:

Dear Lurker:

I certainly need to see the contract that you signed but in general I can mention to yu some true legal statements which can play in your favour here:

1..Breach of contract ( delay, lack of quality, lack fof advertised facilities, lack of Bank Guarantees) by developer means you are not obligued to fulfil the contrat under agreed terms. Once one fail the contract balance is broken, so he can not demand a strict fulfilmentby you ( Genera Principle of Contract Law)

2. Sudden, unexpected circumnstances, not caused by your fault and objective require a revision of the contract obligations: Again: he cannnot force you to complete. Out of principle of  contract good faith.

3. If you contracted on the assumption that a mortgage for the finance of a determined euro amount will be in place and that is becoming unpossible due to credit crunch and devaluation of pound verus euro: the contract is becoming unpossible. Nobody is obligued to what is impossible.

I cannot think of more legal defense right now... but there are!

Figth hard, you have got rights by your side.

Thanks very much for the replies on this, it's very much appreciated

Ok so from the advice I had from this post and my cross post in the 'completion forum' it is clear that Peninsula can do this. It also seems clear that if you are not a professional investor / speculator and you are genuinely not able to complete for financial reasons, then you are protected by general consumer law and any such legal action to force you to complete would be significantly weakened

Would this be generally true?

Would it also be true that if the developer sues, then they cannot attempt to re-sell the apartment during this process? They would then be liable for their loans on the apartment during this time

Would it also be true that even if they won a case, the purchaser could take it to appeal and potentially double the time it takes to finish the legal action, increasing the developer's legal fees and debt payments before the matter was resolved?

If a developer is suing their clients for forced completion then they must have decided they cannot re-sell the apartment, even after discounting it by the amount of the deposit they have retained and any further margin that remains in the resale value of the property - otherwise they would just resell the apartment and keep the deposit money

It also seems likely they are under pressure from the bank to pay off the debts on the unsold properties

Are any developers in this position starting to keep unsold units and rent them out? This seems to be a valid option and to my mind would be more financially rewarding to the developer than persuing a client who cannot afford to complete through the courts and possibly through an appeal for months and months during which they cannot rent or try to resell the property and have to maintain the loan payments on them. I believe a lot of UK developers are doing this to avoid bankruptcy

I just can't see the point right now of a developer declaring war and going to court, unless their client is filthy rich and just decided they didn't want the apartment anymore. It simply doesn't add up to me as a good business decision

Any thoughts on this would be much appreciated

Hi Lurker,

I had replied in another thread of the forum, anyway I will copy & paste:

"Ok so from the advice it is clear that Peninsula can do this. " Yes, technically it is possible. A different question is wether they would proceed or not, taking into account the costs and the time.

 "It also seems clear that if you are not a professional investor / speculator and you are genuinely not able to complete for financial reasons, then you are protected by general consumer law and any such legal action to force you to complete would be significantly weakened". This is arguable; under general Spanish contract law - consumers' law does not provide for such clause specifically -  there is a legal concept called "rebus sic stantibus clause", which has been produced by the courts but which is not laid down in any specific provision which outlines the cases where this is applicable. Such rebus sic stantibus clause works as an implicit condition to the contract and provides for the MODIFICATION - NOT cancellation - of the contract when the basis for the contract have changed dramatically and unexpectedly, out of proportion, and this change gives rise to an absolute unbalance of the respective obligations of the parties, which is detrimental to one of them, and there is no other way to sort out the situation. 

The main problem when using this legal action is that - as said above - there is no legal provision which establishes clearly the cases and the courts mean that its use is absolutely exceptional; please bear in mind that this rebus sic stantibus line was started after the Spanish civil war when there was a huge devaluation of the Spanish peseta, and the courts allowed that the prices on the contracts signed BEFORE the war were adapted to the current situation AFTER the war. Since then, the courts have applied this very very restrictively, therefore its applicability cannot be taken for granted. For these reasons, I would recommend you to be very cautious if the only defence is just this, as there are no clear lines and there is a high risk. As an alternative I would prefer a friendly agreement better than playing this card.

"Would it also be true that if the developer sues, then they cannot attempt to re-sell the apartment during this process? They would then be liable for their loans on the apartment during this time". Well, in principle if the contract is not formally cancelled the developer cannot sell it; if the developer opts for the "forced compliance" at court , he cannot sell in the meantime either, and anyway he will be obliged to pay the mortgage quotes whilst the court process is ongoing; however, the other side of the coin is that the developer is entitled to get compensation for the damages as well, so that the purchaser might be obliged to pay not only the price, but also all the missing mortgage quotes since the breach of contract.  In other words: if you loose the developer's credit could be the outstanding price plus the costs including interest and also the mortgage quotes. Finally, we cannot exclude that the Developer tries seizures as "provisory measures"...

"Would it also be true that even if they won a case, the purchaser could take it to appeal and potentially double the time it takes to finish the legal action, increasing the developer's legal fees and debt payments before the matter was resolved?" Good point. The time average depends on how overloaded the court is, so that in general terms an ordinary process may take 8 months -1 year; and the appeal might take 6 months or more, depending on the fact that proofs are to be done in second instance or not... The fact is that under Spanish law the appeal does not paralize the possibility of forcing the so-called "provisory execution". An example: A sues B for 30.000, and gets an award of 20.000,00 € in the first instance; B appeals; A can request the courts to start provisory execution against A for 20.000 €... However, in my opinion, this is applicable only to the execution process IN SPAIN, as the special process to execute the rulings abroad is subject to confirmation of the ruling as definitive...and this does not happen whilst the appeal is ongoing. Please take into account that the developer may request at court seizures as provisory measures...

"Are any developers in this position starting to keep unsold units and rent them out?" Yes, many are negotiating rental agreements with option to purchase, and option to purchase agreements to sell unsold units. it depends on how wealthy the developer is and how advanced the building process is.   

I hope the above clarifies the issue.

Yours sincerely,

Lurker

I doubt if they could come after your UK assets as spanish lenders will not take a charge on ones UK property as they have no way of carrying out the charge should they need to, if it is possible it is highly unlikey that it would be pursued due to cost and time etc.

wishing you luck

Well as it happens I have reached an agreement with my developer and am now waiting for my completion to go ahead. Not due to the legal threats they issued but due to having no good legal grounds for dissolving the contract so realistically I have to take it on the chin and complete my side of the contract. The financial and housing situation will not last forever and I will eventually be happy that I didn't lose my deposit money or get dragged through the courts one way or another, it will just be difficult for me in the year ahead, as it will for my developer

Thanks for the advice anyway

Best of luck with the purchase Lurker I hope it works out.

sun and a pool it will be worth it in the long haul