Court threat for Brits who back out of ‘home in the sun’ deals

Real-estate_devBritons who have had second thoughts about buying holiday homes in Spain are being pursued in the Spanish courts by the developers – despite a clause in their contract allowing them to back out of the deal.

Our firm is acting for a number of British buyers who have been threatened with legal action. Hard-pressed Spanish developers who have been left with a stock of unsold properties on their hands are now trying to take court action to override the terms of their contracts and force buyers to complete the sale.

During the property boom, Spanish developers were so confident of selling their homes that they included a clause in the contract allowing purchasers to pull out provided they forfeited their deposit. In fact, having a sale fall through was good news for developers – the property would usually be sold to the next person in the queue and they received an extra lump sum.

Given the current economic climate, the weak pound and the oversupply of properties in certain areas of Spain, some British buyers who had invested in a property off-plan have had second thoughts and resigned themselves to losing their deposit. However, now the property market has collapsed, developers have changed their strategy. Some are trying to use a clause in Spanish law to allow them to override the terms of their contracts and force purchasers to complete.

The developers claim that section 1124 of the Spanish Civil Code gives them the right to choose between enforcing the obligations under a contract or allowing it to be terminated – in this case, letting buyers back out and pay the penalty. It is difficult to predict the tone the Spanish courts will take until the first judgments start to come through.

The individual circumstances of each case need to be considered – such as whether there has been any breach of contract from the developer, for example late completion, and whether the purchaser is a private individual or an investor – someone buying more than three properties.

The developers’ approach contradicts the contracts they signed only a few years ago and is against the principles of contractual obligations. Some are even threatening purchasers with legal action in the UK, but omitting to say that they cannot do this until a final judgment has been obtained in Spain. At the current pace of Spanish justice and allowing for an appeal, this could take two to four years, by which time the developer could have gone into administration. It would also be very costly for them to pursue cases outside of Spain.

I do not want to imply that all threats from developers should be considered a bluff and that completion should be rejected at all cost. Each case is different. In some cases there will be insufficient legal grounds to fight the case and it may be better to complete and in others, to dispute any claims. Anyone in this situation should consult a qualified Spanish lawyer who can advise on the best course of action.