MOROCCO

For many years developers based in Spain, both homegrown and foreign, invested heavily in the Kingdom of Morocco as a result of this country’s drive to promote a second home market, all under the umbrella of Plan Azur 2010, an ambitious government sponsored infrastructures programme to facilitate this.

At first, some of these developers financed themselves in the traditional way, that with construction and project finance from a bank back in Spain, even if the collateral for the loans were in a different country.

The major developers had, in those boom years, no difficulties in obtaining funding, basically because they had other assets in Spain to back it up.

However, the problem arose with the smaller and foreign developers operating from Spain. These had little or, no assets making the granting of loans difficult, especially for construction in a different land.

To build in Morocco, these developers had to do it through a Moroccan subsidiary, an S.A.R.L, but in many cases, these companies were merely a vehicle for their day to day with the bulk of the activities were in Spain, and as we shall see later, most of their banking, which has become key in this Moroccan angle.

The mechanics to receive client’s deposits for off plan property in Morocco was simple, most simply came to Spain. This, despite that Morocco’s exchange control regulations quite clearly says that all funds to invest in property in their country had to be channelled through it. If these procedures are not followed, in the eventual case of a future sale of the property, the vendor would find it impossible to repatriate funds to their countries of origin.

Unfortunately, there is NO proof in most cases, and with most developers of this type, that funds were received in Morocco. In fact, in my opinion, the little funds that managed to get there was just enough to pay salaries, taxes and suppliers, and not necessarily to officially declare client’s investments.

Another curious angle is how foreign buyers used their Spanish based lawyers to channel payments to the developer. This would have been fine if the lawyer had sent the transfer to Morocco, but somehow, these transfer almost all ended up in the developer’s account in… Spain. Here we have a doubled edged scenario of a well-intentioned lawyer following the developer’s disposal instructions of funds when they should have known that this was not the right procedure.

To be continued

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