Tag Archives: Morocco Deposit Return

INTERPRETATION OF THE LAW (OUR CLAIM)

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.

TECHNICAL POINT

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.

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

Le Jardin de Fleur (Saïdia) III

Recent article appeared in Diarmaid Condon’s celebrated site: http://www.diarmaidcondon.com
Diarmaid Condon is Ireland’s foremost Independent Property Consultant and journalist. He has been in the industry since 1995 and, in that time, has been a strong advocate for improved legal protection in the sector.

Newsletter Mar 2007 Web-1.jpgProperty Logic – Moroccan Developer

This piece of advice on the Moroccan market was very kindly written by Jorge Garcia Larios who is a property expert based in Melilla, a Spanish enclave in Morocco. It deals with the topic of developers that are experiencing financial difficulties but still maintain assets in the Kingdom of Morocco. The assets in question are usually in the form of land as most developers of unbuilt projects, at this stage, have little or no money.

One such developer is/was Property Logic Maroc S.A.R.L a subsidiary of Property Logic (Spain) based near Marbella in the Costa del Sol. The company’s flagship development, called Le Jardin de Fleur, was to be composed of Tourist Apartments and Villas over various plots of land at the Macro Resort “Mediterrania-Saïdia”

Property Logic stopped building some time ago and have ever since been seeking finance to continue the works. The result of this sequence of events has left scores of derelict shells of what were to be luxury apartments and villas full of rats and weeds. It appears to be totally beyond repair at this stage.

To give Property Logic some credit, by comparison to other developers in the region they have been reasonable at keeping up communications with their clients. Unfortunately most of these communications refer to the possibility of raising further funding to complete the project. This funding has always been ‘just around the corner’ but it has never materialised. The willingness to communicate is, however, more than has been shown by other developers in difficulty in coastal Morocco.

From 2004 to 2007, like many other areas, off plan purchases in tourist regions of Morocco experienced a huge boom. Many people came in contact with Property Logic’s high visibility marketing campaigns and it consequently attracted a lot of purchasers. The developer even persuaded some UK based Premier League footballers to invest in the resort. This obviously played very well in UK and Irish media outlets, succeeding in attracting even more buyers. Unfortunately nobody who bought has had deposits refunded, which amount to around 40% of the original property sales price.

Property Logic Payment Structure

Clients reserved their properties with a token deposit which was followed by around 20% of the total cost. Over what was to be the initial construction stage a further 20% was requested at which stage came the signing of a private contract loosely translated from French as “a promise to sell”. Under Moroccan Property Law all these contracts have now expired and, as they were written to favour the developer, they are not robust enough to offer their holders any protection in law. Essentially, the beneficiary names don’t appear officially anywhere in Morocco. There is no legal reference to them so the Moroccan authorities know nothing about them, despite their having parted with significant amounts of money and now having nothing to show for it.

What can clients do?

There are essentially two things you can do. Be passive or be active.

The First Option – Do Nothing and hope Property Logic delivers

The passive route is to wait and hope that Property Logic obtains long promised funding. This is highly unlikely but the building licence has now also expired so the developer would now need to re-apply for a new one. Property Logic also has a good deal of creditors with liens on the company assets who will need to be dealt with before any building is contemplated. To clear the creditor list Property Logic will require the ‘main levé’ from its creditors (literally translated as ‘hands up’ or ‘surrender’ from French. This is a legal document enabling the developer to clear the creditor list. It involves all creditors signing away their legal rights. No strong creditors will do this unless they are happy with the negotiated settlement. Those without rights will be left out in the shuffle, relying totally on Property Logic’s goodwill.

Another matter of concern is that it has been mooted that the company is not held in high esteem by Moroccan Authorities. It is widely considered that the Moroccan government is anxious to see the back of the company and others like them. This makes the possibility of obtaining a new build licence very slim indeed.

Second Option – Become a Creditor of Property Logic

The second and more active option open to clients is that, if they are not already official creditors they should consider very seriously becoming one. Why should a client go to the bother of doing this? As stated previously, contracts with Property Logic are now pretty much worthless. It is almost inevitable that Property Logic will eventually drop out of the equation and whoever takes over will no choice but to deal with the creditor list. Those who are not officially listed as creditors will simply be forgotten about. It’s not an ideal scenario for many clients as it involves reliving the nightmare of the investment and it is obviously going to involve extra expense.

We will deal with the process of becoming a creditor of Property Logic (or any other developer for that matter) in a later article.

Jorge Larios can be contacted at saidia@gmx.es.

Goodwill

Foreign buyers in Morocco react very timidly when they face a problem with their developer and their lost dream and investment. It’s also interesting how the different nationalities react. By far the least aggressive are British and Irish buyers who trust goodwill and think that by appealing to fairness they are going to get joy. Nothing furthest from the truth I am afraid. How many cancellation letters have been issued? And how many refunds have been made?

Experts say that one of the main components in explaining why rich countries are rich and poor ones poor is culture and I would agree. A famed Moroccan proverb says that “A Christian is a cow to be milked” and precisely this is one of the reasons why the country have been unable to consolidate their share on International Property Demand that promised considerably at first.

To cut a long story short and in a nutshell the only way people are going to get their money back from these sometimes unscrupulous developers whether foreign or Moroccan is to get a judge to force them to do so.

There are two types of potential cases against a developer:

1. If a developer has not yet gone bankrupt they can be sued for breach of contract and can be done due non delivery within a reasonable time or for poor finishing.

2. With bankrupted developers the only possibility is to place a lien (preventive embargo) on the assets of the company before they are unwound or confiscated. The private contracts are not robust enough to secure the owner protection if this is the case. These are the kind of developers that are eternally looking for finance to finish off building works but they may be sitting on a time bomb that threaten to destroy them and what’s worse, their clients.

In my experience many buyers are very reluctant to take a developer to court and I would understand this. They have already spent a lot of money in return for nothing; they don’t trust lawyers who are in many cases accused of scaremongering for their own gains; or maybe that taking people to court in their own countries is a very drastic act and something you would do in the last resort. But the most relevant is that they still believe in the goodwill on the part of the developer. Forget it.