LAW 57/68 – EXPIRY DATE

It is unlikely that many of our clients are familiar with Spanish Law, but, just in case there are one or two out there that have read about how legal cases can have a “sell by date” here, I’d better explain all this business about expiry dates that in Spanish law is called prescripción and in Common Law as “Statute of Limitations”

Under the Spanish Civil Code, a case can “prescribe” within a certain period if it’s not mentioned specifically by the law used.

Law 57/68 doesn’t mention time limits

So, something called “plazo general”, plazo in this case means deadline, is used.

The “Plazo General” has a shelf life of 15 years.

That’s all right then, still got a couple of years, I bought the “property” in 2006.

But hey, I’ve read that in 2015 (7^th October) the Spanish Civil Code Article 1964 was changed and that for these types of cases, the “expiry period” was now only going to be for five years.

So, If I paid my money through the Spanish Banking System in 2006, with this new scenario my case was null and void back in 2011.

OH NO, NO… The change in the article carries something that it’s called a régimen transitorio (that more or less translates itself…). This means to give all five years starting 7^th October 2015to to have another bite at the cherry if they haven’t done anything yet. So, your sell by date is now 7^th October 2020.

Another bite at the cherry indeed… Nobody knew anything about this law until a few years ago. That’s why I like to call it the “great unknown”

So, there you have it, Ladies and Gentlemen, just under 13 months… And I still have four more Spanish/Moroccan developers to do.

There a lot a technical stuff here and I had my doubts if I really wanted to publish it and bore people to death. But I’d rather have that than someone coming to me because they had been given wrong and alarming information.

Talking of information… If you’d like to receive more, don’t hesitate:

jorge@nottinghillinversiones.com

 

 

 

 

 

SUMMARY

• Law 57/68 was enacted to protect off plan buyers of property in Spain against the risk of the developer failing to deliver the property according to the contract.

• The law is very short and very precise. It distributes responsibility not only to the developer themselves but to their bank.

• Any developer wishing to sell off plan, required their client’s deposits to be safeguarded by a bank guarantee or specialised insurance company issued in the buyer’s name.

• A significant number of Spanish Property Developers expanded their business to Morocco in the late nineties under the umbrella of that country’s second property market push that was sponsored by their government.

• The marketing of off plan properties in Morocco was directed from Spain itself and conducted by the mainframe Spanish arm of the group. This opens a possible application of 57/68 as a viability.

• We have obtained all the legal documentation to prove that there is a link between the two companies. Something of an exclusive.

• Other legal firms have had terrible difficult difficulties in obtaining these documents and had to forego the possibility of applying this law.

• The proposed procedure has two gradients:

  • A general precedent ruling proving the existence of the link between the Spanish and Moroccan Operations (Matrix Case)

  • Use that precedent to submit individual cases in a second stage.

• All buyers are invited to participate in contributing towards the cost of this master case whether they are NHI clients or not.

• Upon a successful ruling (will take around a year) the cost of the individual personalised cases will be reduced considerably.

• We feel that the final hearing will be in under two years.

• IMPORTANT: This is a totally separate case to the one you may be involved in the Kingdom of Morocco.

BANKING DUTY OF CARE

You can see that Law 57/68 was an attempt to stop the unscrupulous developers of the day from doing what they wished with other people’s money and the “hound” who were supposed to ensure this did not happen, were the banks themselves. So, a duty of care was established, banks had to ensure that constructors issued their clients with insurance policies or bank guarantees and supervise that (bank) finance was applied correctly. There is yet another angle that this firm has discovered and that’s not widely known. The law can be applied even if you haven’t got a bank guarantee. We need to prove that funds stayed in Spain, whether that is, funds went from client/lawyer to the developer’s Spanish account. This coupled with a positive ruling in the matrix case (link between the Spanish/Moroccan companies) will compose an excellent case.

Remember that the law requires the developer to open a separate account for day to day transactions. I simply cannot see a bank supervising the comings and goings of funds from an account prior to 2008. The bank was, simply caught when necessity came during the crisis.

 

 

PREFACE BY Sr. Fernando Salmerón, Bufete Salmerón, Sevilla (Spain):

Law 57/68: Permits buyers of off-plan property to directly make a claim to all those banks (not developers) who take in buyers deposits as long as the property is not finished or in all those cases where the property is finished but the contract is resolved before a final occupation licence is issued by the local authorities and/or that the buyers have been required to complete (and the property is not of the contracted standard).

Interpretation of this law has been perfected by the Supreme Court and it’s systematically applied in cases where there is a bank guarantee (general or individual) in favour of the buyer or where there is no such document.

It’s a technical legal procedure that requires the participation of a specialised legal firm with a wide knowledge and experience of civil and banking procedures.

Fernando Salmerón, August 2019.

MOROCCO MONEY BACK THROUGH SPAIN

WHAT IS LAW 57/68

Spanish Law 57/68 has been talked about a lot recently but there is a big mystery behind this piece of legislation, it has been, and it will ever be, the great unknown.

Ley 57/68 (27^th July 1968) is very old, it goes right back to pre-democracy days and it’s even signed by General Francisco Franco, of all people. It is one of the very few laws, if there are any, that remain in place today.

It deals with deposits paid by purchasers to property developers when buying off-plan and the spirit behind it is to stop “the justified social alarm in public opinion provoked by repeated misuses even when misdemeanour is evident” so said the legislators of the day. This legal measure pretended equipping buyers with guarantees when handling over considerable sums, sometimes their lifetime’s savings, to potentially unscrupulous builders frequently delivered the finished product late, sometimes years, or not finishing it at all. It looks that things have not changed much!

The law is composed of very few articles, only seven, but has the moral superiority of legal precedent to fall behind.

Law 57/68 is a pioneer in Spain when it comes to protecting property purchaser’s rights, it established certain responsibilities for developers and builders who sold off-plan. One of these responsibilities was opening a separate bank account to receive customer deposits, keeping these apart from day to day transactions. Disposal of these funds only had one aim, the progressive funding of construction. Another interesting disposition, specially for the time was the necessity of client funds being protected by an insurance policy or a guarantee, usually from a bank. It was the responsibility of the guarantor to return funds to buyers if the completion was late or was not done at all.

Unfortunately, due to the recent financial crisis and the subsequent Spanish property market’s big bang, this veteran of the legal spectrum came back to life. It has converted itself into a law for everyday use today despite having been once repealed.

Courts and Tribunals are issuing positive verdicts on behalf of clients all over Spain now. Bank are being sentenced under the umbrella of Law 57/68 as I write (18/07/2018)

WARNING:

Up until 31^st December 2015 the law was a “free lunch” for distressed buyers. Despite the brevity of the law (seven articles) it managed develop itself magnificently under something that’s not always usual in codified law countries, precedent and case law. The Spanish Supreme Court encouraged the application of precedent giving buyers total protection in almost all cases.

NEW LAW:

However, since 1^st January 2016 this same protection, although still in place, is regulated by “The First Additional Ruling” of Law 38/1999 of 5^th November. These bye-laws (ordinances) dealt with building regulations (Law 20/2015) thus substituting the old 57/68.

These boring facts can be summarised as follows:

POSITIVE ASPECTS:

• The new regulations go further in the development of those guarantees offered by Law 57/68. Insurance and Bank Guarantees is now a MUST when it was not in the past.
• It ensures the quality of information given by property developers to their future clients when it comes to off-plan sales. In addition, the developer must issue the client with the necessary safeguards, usually a Bank Guarantee (Aval Bancario).

NOT SO POSITIVE ASPECTS:

• The Bank Guarantee does not necessary safeguards the full amount spent in the purchase of an off-plan property, it only guarantees deposits paid to the developer from the very day they obtained the building permit from the local authority. In theory this means that if there is no building licence, the law cannot be applied but in practice a building licence is nowadays always forthcoming sooner or later. Here, buyer’s deposits are only guaranteed from the day of issue of that permit, any deposits made before that will almost always be lost in the event of any irregularities. As always, people will get into unnecessary trouble if they don’t check out this simple fact.
• Care must be taken that with this new law, as a Bank Guarantee now has a “shelf life” of two years, whereby this didn’t exist before. So, if a buyer does not make their claims to the developer within two years of the start of irregularities, the bank Guarantee will be void. Surprisingly, there is no mention in the law about insurance, in other words, there is no specific validity period for these policies. It is assumed, this would be in line with Article 23 of the “Insurance Contracting Law” or, more likely, there is no validity period when we talk about “Surety/Bond Insurance” (Seguro de Caución).

MOROCCO:

For many years developers based in Spain, both homegrown and foreign, have wandered about Morocco intensively. Most of these companies funded themselves the traditional way, that is, construction or project finance from a bank even if their collateral (land, etc) was in a different country. The big boys had virtually no problem in obtaining loans, obviously because of other assets in Spain. However, the problem came with the smaller ones or foreign developers who, operating under a S.L company, most of the time had little or no assets to fall back on.

To build in Morocco these companies had to do it through a Moroccan subsidiary (S.A.R.L) but these were merely a vehicle for the day to day, the bulk was in Spain.

These developers insisted, for most of the time, that buyer’s off-plan deposits came to Spain when given Morocco’s exchange control regulations that’s unlawful. All construction funding had to come to Morocco or any off-plan buyer would have lots of difficulties in repatriating the proceeds of an eventual future sale. Unfortunately, there is no proof that ALL client deposits came to Morocco at all, in fact in my view, funds to Morocco were the bare minimum, enough to pay wages and suppliers and that is it. To complicate things even more, many foreign buyers used their lawyers to channel those funds to the developer, which is fine, but for some reason the money almost always ended up in the developers account in Spain. I don’t know if it’s a case of the lawyer being instructed to do so or simply that they should have known better.

AND WHERE DO YOU COME IN?

If you bought off-plan Moroccan Property from one of the big players things are, on paper, more straightforward, you should have had some sort of guarantee (even if the property is in a foreign country). I know, people didn’t always ask for a bank guarantee and some developers took advantage of that ignorance and just tip toed the issue, However, you advisor or lawyer should have had none of it.

I have always been astonished about the care-free, ease and non-challenge that people bought property abroad, specially during the boom years but I’m even more astonished, now the market’s recovering, that they are doing it again.

Right, look at this scenario: You bought property In Morocco from one of the smaller developers and to pay your off-plan deposits you were asked to pay it to bank X in Spain or to do it through your lawyer, again in Spain. The rest is history, the developer went bust and with you having parted with your money and with nothing to show for it.

CAN YOU RECOVER YOUR MONEY IN SPAIN UNDER 57/68?

In theory, yes… because under the law, the bank should have ensured that funds were applied properly. That is, sent to Morocco. Is there proof this was done. NO.

WHAT DO YOU NEED TO DO?

If you are an existing client, we at NHI know perfectly well how you paid your off-plan deposits. All you have to say that you’re in. If you not a client, we’ll ask you for documents.

BUT WAIT…

Just before you move forward, there a couple of minor, big, things that, beforehand, we must do on the ground in Morocco:

• Scan the Moroccan Companies House and establish the link between the Spanish S.L and the Moroccan S.A.R.L. This is never usually a problem as we know most of the developers in Morocco and know well enough where they are came and are coming from. The problem is not the legal links but getting people to fish out the information from who knows where, this is still not very clear in this part of the world. And please don’t say why not download it from the internet because I mentioned that to a registry civil servant in Morocco and he almost died from a fit laughing.
• Ensure there is build licence, remember what we said about this. Again, in my experience this is not a big deal, most foreign developers were pushed to get one quick. The problem? As above, think internet…

If you want more personalised information. Don’t hesitate:

jorge@nottinghillinversiones.com