The law is there to protect off-plan property buyers and their deposits.
It’s very short and precise, in black and white
If a developer wanted to sell off-plan they had to obey certain rules
It’s applicable to Morocco when there is a Spanish developer involved.
Developers should have asked their clients to transfer the money to Morocco and NOT to Spain.
They breached the law.
How can we prove it? – Didn’t I sign my contract with developer x?
We must prove to the court that the Maroc side was the Spanish one masquerading as a “Moroccan” developer.
“A verdict for all verdicts” – What’s this? – We call it a “Matrix” – A sentence confirming all the “masquerading” that’s all.
How can you do this? – We’ve got the documents… Took long enough!
What happens if we win? – We create a precedent and THEN we’ll put your individual case through.
Who pays you at the end of the day? – The “unfortunate” bank – What happened in reality is that developers unconsciously passed the “buck” to their bankers, pity for them, under the law they (the bank) should have blown the whistle and insisted the money went to Morocco. Did the money go to Morocco? – We don’t know but it doesn’t look like it, otherwise…
Can I join that “matrix” case that you’re talking about? – If your money went to Spain and not to Morocco, it’s up to you. You don’t have to.
Don’t forget… There are TWO cases, one that will give us very good guarantees if we win and there is your individual case.
Why don’t I just wait until you win that case and then jump in? – Because it will be more expensive then.
And the Moroccan case we are all embarked on?
This goes on, business as usual. You will still get regular updates as up to now. This is SEPARATE AND PARALLEL.
Again… You don’t have to.
Second – Receiving the sums advanced by purchasers through a Bank or Savings Bank, which must be deposited in a Special Account, with separation from any other funds belonging to the promoter, which may only contain funds deposited for the construction of dwellings. For the opening of these accounts or deposits the Banking institution or Savings bank, under its responsibility, will demand the guarantee to which the previous condition refers.
(For the law to be applicable)
Monies for off-plan house purchased MUST be credited to a Bank account (or Savings Bank). In Spain these are/were called “Cajas de Ahorros”
This account MUST be separate from that used for the day to day of the developer.
The funds deposited in the special account MUST be used to finance construction.
(The interpretation we are pushing forward which is backed by the law): The Bank MUST insist that these funds are spent on construction and only construction)
NOTES TO BACK UP OUR CASE:
Did the developer’s Spanish bankers supervise the above?
Was, the developer’s Spanish bankers aware that these funds were destined for Morocco where the only way you can register an investment from abroad is by channelling funds through their banking system.
Why did the developer in, some cases instructed, Moroccan Real Estate investors to remit funds to a bank outside the country?
Was the developer properly advised in Morocco about the nature of their investment laws?
Why did Spanish lawyers (who should have known better) transfer their clients funds to the developer’s bank in… Spain.
Did the developer know that in order that their buyers could repatriate funds in future the only way to do so is by individually declaring the investment in Morocco?
Were any funds transferred by the developer done so in bulk or under individual names? If the former took place, the developer and the client’s lawyers were jeopardising any future prospect to repatriate funds.
The case is against individual banks and NOT against the Spanish arm of the operation of the different developers involved. Under the clauses of the law, banks are obliged to reimburse ALL funds channelled through its books plus interest at 6% per annuum.
Article One – The legal and natural persons who promote the construction of homes, that are not of official protection, designed as a home for domicile or family residence with a permanent character or a seasonal residence, accidental or incidental and which seek to obtain deliveries of purchasers money before starting or during construction, must meet the following conditions: First – To ensure the return of the payments made plus six percent annual interest, by means of Contract of Insurance granted with an Insurance Entity inscribed and authorized in the Record of the General Sub-department of Insurers or by means of a Bank Guarantee issued by an Entity inscribed in the Record of Banks and Bankers or Savings Banks, if the construction does not commence or complete for any reason by the agreed deadline. Second – Receiving the sums advanced by purchasers through a Bank or Savings Bank, which must be deposited in a Special Account, with separation from any other funds belonging to the promoter, which may only contain funds deposited for the construction of dwellings. For the opening of these accounts or deposits the Banking institution or Savings bank, under its responsibility, will demand the guarantee to which the previous condition refers.
Article Two – Contracts for the sale of the homes, referred to in the first article of this Law, which involve the payment of deposit funds to the Promoter must be expressly state: a) The transferor is obliged to refund to the assignee of the sums received on account plus the six percent annual interest if construction is not commenced or completed within the agreed timeframe to be determined in the contract or if the Certificate of Habitability (Licence of First Occupation) is not granted. b) Reference to the guarantee or insurance contract specified in the first condition of the previous article, with indication of the name of the guarantor or insurer. c) Name of the Banking Institution or Savings Bank and details of the account where the deposit funds will be held as a result of the celebrated contract.
At the time of issuing the contract the grantor will issue to the grantee the above mentioned Guarantee Document which must cover all amounts paid towards the total price.
Article Three – Upon expiration of the period allowed if the construction and delivery of the dwelling has not taken place, the assignee may choose between the dissolution of the contract with repayment of the amounts paid in advance, plus the six percent annual interest, or give the assignor extended time and this period must be stated in an annex to the contract awarded, specifying the new period with the date of completion of construction and delivery of housing. In insurance contract or an endorsement attached to the authentic evidence which did not credit the initiation of construction or delivery of housing will be enforceable for the purposes provided in Title XV of Book II of the Civil Procedure Act to require the insurer or guarantor delivery quantities to the assignee’s right, in accordance with the provisions of this Act
Article Four – Once the Certificate of Occupancy is issued by the Provincial Delegation of the Ministry of Housing and given by the promoter of the housing to the buyer the rights guaranteed by the insurer or guarantor will be cancelled. Article Five – It is a prerequisite that any propaganda and publicity material issued by the promoter for the sale of housing containing information on the levying of amounts on account prior to the initiation of construction or during construction must meet the requirements of this Act, and make explicit reference to the guarantor, as well as the Bank or Savings Bank Special Account in which they will deposit the amounts advanced. The above mentioned must be specified in the text of the advertising that takes place.
Article Six – Failure by the promoter to comply with the provisions of this Act will result in being fined per violation, which will be imposed under the rules laid down in LEY 49, 30th July 1959, subject to the jurisdiction of the Courts of Justice. Failure of the developer to return to the purchaser all sums advanced, will result in violation of the provisions of Article I of this Act and shall consist of misconduct or crime punishable under articles 587, number three, and 535 of the current Penal Code, respectively, and will result in the imposition of the penalties of section 528 in its maximum degree.
Article Seven – The rights that the present Law grants to the grantees will be of an indisputable nature. FINAL PROVISIONS First – The Government is authorized to make a proposal to the Minister of Housing, and by decree, to identify the bodies of official character that are able provide sufficient guarantees and are exempt from the application of these rules. Second – It authorizes the Ministers of Justice and Housing to dictate the supplementary provisions as they deem necessary for the development of this Law, which took effect the day following its publication in the Boletin Oficial del Estado. ADDITIONAL PROVISION The Government is authorized to make by decree, and within six months against the entry into force of this Act, adapt the same principles that may be of application to the communities and housing associations.
The procedure is divided in two stages:
A potential favourable ruling on the link between the S.A.R.L and the S.L (A general matrix ruling)
Individual case by case (Each client individually).
What is a Matrix Ruling: (In this particular case) It is a case won by the accusers at the first instance court that will create a precedent, Law 57/68 is one of those pieces of Spanish legislation that admits precedent. Spain is a civil law country and not Common Law, as for example the UK. However, in some instances the civil code admits precedent which in Spanish is called “jurisdicción” (jurisdiction has a different meaning under, say, English Law). What are we trying to achieve with this? – Very simply… We are trying to prove that the S.A.R.L (Morocco) and the S.L (Spain) companies are one and the same. If that ruling comes through, it will be taken into consideration by a judge when the time comes to take to court each individual case. According to my legal sources, if this is established there is an 80 to 90 percent chance that the defendant will win each individual case. The Matrix case will take less than a year to come through.
Armed with precedent, each individual client will take “their” bank to court in order to claim the deposits originally transferred and to win a compensation package. This is the second stage.
For the Matrix Case there is no need to send any personal documents, we will only require a signed mandate form and a Power of Attorney. Both documents we will prepare.
For each individual case: If you are an existing NHI client, we will have all the information on how you paid the developer. Eventually, you will need to notarise and apostille the following documents:
Sales Contract (French Version Only)
Proof of Payment (Very Important)
Power of Attorney (Spanish Version Only)
Copies of Passports (No need to Notarise nor Apostille this)
Spain was one of the hardest hit countries during these years and specially it’s house market. Although the country was not officially “rescued” by the EU, a lot of money had to be injected into the banking sector, namely what were called “Cajas de Ahorros” or Savings Banks. These were usually public or semi-public sector institutions with a marked regional implantation and whose spirit was in theory to serve the public, in the sense of promoting social campaigns, and developing their, usually, rural environment.
Because of the consequences of the financial crisis, and the resulting and repeated failings of developers to deliver, the formerly forgotten law was revived with hundreds of people benefiting from it.
To be continued
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.
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 (27th 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)
Up until 31st 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.
However, since 1st January 2016 this same protection, although still in place, is regulated by “The First Additional Ruling” of Law 38/1999 of 5th 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:
- 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).
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.
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: