Please note that the information provided in this article is of a general interest nature and intended as a basic outline only. It is not intended as any substitute for detailed legal or other professional advice specific to the reader’s circumstances. Nothing contained in this article should be seen or taken as the writer or publisher providing legal or financial advice.
Most information services about the process of purchasing a property in Spain – or pretty much anywhere else in the free World - have one abiding theme. Their mantra is clear - make sure that you retain an independent professional advisor - most often a lawyer – from the start of your purchase process.
If you take on board no other advice, please heed this basic pearl of wisdom.
Why then do so many clients come to us after they have signed a Private Purchase Contract (PPC) saying: “I know it was wrong and we should have listened but we…”, “ I know you are going to shout at me but” or ”I am the MD of my own business and I should have known better but”
” I/we took the advice of the lawyer recommended to me/us by the estate or sales agent who was selling us the property.”
What harm could be done?
You arrive in Spain to look at some properties. You don’t speak much Spanish, it’s all culturally and linguistically alien so what do you inevitably do.
John, the estate, promoter’s or the developer’s agent, has made a great impression on you – he’s very likeable - and has shown you a variety of plans, model villages and artists impressions of several fabulous “off plan” property. He really seems to know what you are looking for.
John hails from – delete as appropriate - North West/North East/South East/Cornwall/Wales/Scotland and he knows your home town. He’s from the UK and you and he have one thing in common – you are both in a strange land and unlike you he was not all at sea!
He said he knew a lawyer who could help you with the purchase paperwork. Did you want him to arrange an appointment? His is the only familiar face that you have met in your two day stay, so why wouldn’t you take his advice?
What could be wrong in that? Well everything really.
Human nature being what it is – the sales agent has just shown you the “key” to the golden door. He is the wizard, who is helping you to realise your dream of owning a “Place in the Sun”! But let’s be clear he’s a salesman – and whilst I know several scrupulously honest property sales people - the clue is in their title. They are seeking to make a sale. They are trying to encourage you to purchase a property from their company and not from their competition.
Consequently, any party that they introduce you to – in relation to the act of making your purchase - is there to achieve one thing - to support their sale and not look after your purchase.
You know Spain quite well, you’ve been coming here on holiday for more than five/ten/fifteen years, you have some favourite restaurants and you know the name of the guy who stacks the sun beds on the beach. You really like this place – its part of the reason why you have decided to buy here. But how on earth would you find a lawyer to help you in making your purchase? Wandering the High Street, knocking on doors?
This is not xenophobia – but who would you trust when it comes to directing you to a professional to look after your interests. After all everyone says it’s just like the UK and the legal system is virtually the same – isn’t it? Oh this is all too confusing let’s get John’s contact to help get the purchase sorted out.
Fast forward to a date 18 months after you signed your PPC where are you now? You have chased the lawyers by e-mail ten times in the last month for an update but nothing substantive has been received by way of a reply.
“Your” lawyer Juan Antonio – John’s contact - has now left the firm and the lawyer who has replaced him knows nothing of your purchase – and has sent a curt e-mail misspelling your surname suggesting that you are becoming something of a nuisance.
John left the estate agency six months after you signed the PPC to pursue an offer to join former colleagues in Thailand, or was it Cambodia or Vietnam - wherever ,it’s nowhere near “your” Urbanisation called “Arena y Mar”. But he wasn’t much cop in assisting your enquiry and had already moved onto other clients and other urbanisations.
You have compared notes with other purchasers at the same Urbanisation and there are rumours that the developer is in financial difficulty or was it that there were licensing issues with the local Town Hall – You cannot recall.
By now you may well be able to answer the following questions: Have you lost faith in your current legal advisors? From whom are you now receiving advice in respect of your Spanish purchase? How do you know that what you are receiving is Best Advice? If the answers are – respectively – “Yes”, “No-one” and “We don’t” then you are clearly in trouble!
Shouldn’t you expect more? Shouldn’t the advice you receive be untainted by any obvious conflict of interests?
The English Law Society’s Solicitors' Code of Conduct 2007 Rules 3.01(02) identifies a “Conflict of Interest where (a) you [the Solicitor] owe, or your firm owes, separate duties to act in the best interests of two or more clients in relation to the same or related matters, and those duties conflict, or there is a significant risk that those duties may conflict; or (b) your duty to act in the best interests of any client in relation to a matter conflicts, or there is a significant risk that it may conflict, with your own interests in relation to that or a related matter.
That’s not much help – no, I thought as much….
How about an example – in context – and in Plain English? As an alternative to seeking to define the concept perhaps it would be better to clearly spell out where it may potentially exists. OK here goes…. a Conflict of Interest will exist where a loyalty is owed to the introducer of a client which is greater than the loyalty required to act in the client’s best interests.
Better… but where is this going?
Juan Antonio’s firm has handled many transactions for John’s estate agency so he is unlikely to piss him off by recommending that you don’t buy the property because its built on land that is not designated for such a large number of apartments – for example. Do you know why? Because he won’t receive further referrals from John – thereby affecting his income!
This is critical in good economic times its even more important when, as now, the economic future looks a little rocky.
The estate agent lawyer conflict of interests is the most obvious. There are clearly others. The lawyer whose cousin is the architect, promoter, developer promoter or developer’s financier is equally suspect. “Blood is thicker than water”. No where is this truer than in the developing markets of Southern Europe.
This can be tricky to spot – and this is not a fool proof solution - but start by looking at your lawyer’s surnames. It is usual that a Spaniards full surname is a combination of the surnames of both parents. Whilst nothing can be drawn from the mere coincidence of a “Nunez” or a “Gomez” appearing in your lawyer’s surname it can act as a useful guide if the boss of the promoter or development company - who you may meet or turn up from some basic groundwork - happens to have the same or even both names in his surname!
It would be wrong of me to cast all our Spanish developer colleagues in the same light but in my experience market rumour and demonstrable fact are often related. My aim here is to minimise the risks for you and to highlight what can be done to increase your own security.
Aside from the obvious and blatant conflicts, more insidious Conflicts of Interests may not be immediately apparent when instructing “your” lawyer.
To flush out their true colours you may – regrettably - need to wait until you have a real problem with the developer, some dealings concerning the lack of bank guarantees, a contentious licensing issue, a serious snagging issue or an incorrect noting on your PPC of plot or apartment number.
Only when the chips are really down will you see your advisor’s mettle and where his true loyalties lie. Are they with you or elsewhere?
So what happens if you have lost confidence in your current lawyer? You can always consider transferring to another lawyer who seems much more on the ball, above the conflicts of interest and much more proactive. But can Juan Antonio’s firm stop you transferring your case? They seem so disinterested in you and your purchase – but will they cut up rough when it comes to moving the file?
It is usual that you paid 50% of the legal fees due to the lawyer who is handling the purchase at the signing of the PPC. This usually means that the remaining 50% of fees will be due to the lawyer who completes your purchase for you. It is unusual for a previous lawyer to put up a fight particularly where you sack them for losing your confidence or faith in their abilities. However from a professional point of view your new lawyer will need to be assured that your former lawyer has been properly sacked.
Following your completion of a simple “authority” which will be prepared for you, your former lawyer is obliged to pass over your files to your new lawyer.
How to ensure that you are not the victim of Conflicts of Interests prior and post the signing of the PPC? It may also be advisable to keep an eye on this during the period of the build out as circumstances can change, particularly if you are required to pay sums by way of stage payments.
Ten Point Checklist:
- A simple conflicts check with your new advisor should suffice. Ask the question: Have you or any other lawyers within your firm ever represented or been referred buying clients by the agency/promoter/developer/developer’s financier?
- Ask for a translation of PPC in your mother tongue and an explanation of terms – preferably in writing.
- Ask whether any of the terms of the PPC can be negotiated?
- Are all the particular “deals” offered by the sales agent specified in detail in PPC? These may include additional equipment over and above the usual Specification, particular wall or floor finishes, a furniture pack, sports club membership, the terms of any rental guarantee or for the payment of your mortgage.
- Ask your lawyer – and make sure you or he receives - the original bank guarantees bearing the developer’s and bank’s signature. Ask your lawyer to check and advise in writing when, and if, the Bank Guarantees expire. Does the Bank Guarantee need to be renewed at any point either because it will expire before completion of the building or because of further stage payments by you?
- Double check plot/apartment numbers as stated on the PPC.
- Check to see whether your deposit due to be paid under the PPC is refundable. If so, in what events or circumstances will it be repaid? What if the property doesn’t receive full building and pre-completion licenses? If the deposit is refundable what rate of interest will be payable in such circumstances? Of course, it may be many years before a refund is paid and the developer will have had the use of your money for all that time.
- Check to see which is the receiving party of your deposit? Is it the sales agent, for example? If so, check that your lawyer obtains confirmation from the developer that they have your funds or at least they are in control of your funds.
- Following your signature of the PPC check that your lawyer has – and shows you that he has the original copy - of the PPC bearing the developer’s original signature.
- Take photocopies of all important documents and keeps them handy at home.
In March 2008, PropertyShowrooms reported that Spain was named as Brit’s favourite location, as it attracted more than a quarter of the people who bought a foreign property in 2007. Further, research by A Place in the Sun Magazine found that it was Britons' favourite foreign property market for the second consecutive year.
If you are planning to be one of this growing number, please think very carefully before appointing a lawyer – or other advisor - to look after your best interest. And check that “their” interests are the same as “your” interests!
As clients are so often bemused as to whom they should appoint we set up The Rights Group (TRG) in Spain several years ago. TRG’s primary role – at no additional cost – is to solve this problem. We assist clients to select those independent professional advisors who will best represent your interests when buying a property in Spain. We have done the “donkey work” so you don’t have to!