Developer’s Misconduct in Property Sales
We decided to write this article due to a negative experience we recently had with a developer in Torrevieja, Alicante. This company, which is actively building in the area, made it impossible to close a sale on behalf of a Norwegian client. This client was interested in purchasing a property for €365,000.
When the client contacted our firm, they had already paid a deposit of €10,000. From the outset, we advised against this. No amount should be paid without clearly specifying the purpose and conditions governing the sale. However, our client made the payment solely as a reservation, without any other details.
Contract Review: A Problematic Document
Our client contacted us to review the contract the real estate agency, authorized by the developer, was asking him to sign.
The first thing that caught our attention was the contract’s title: “Purchase Promise.” This was neither an earnest money contract nor a typical sale agreement, but rather a purchase promise. However, the contract’s content resembled that of a sale contract, which concerned us since these are entirely different contracts.
The purchase promise contract is regulated by Article 1451 of our Civil Code, which states that “a promise to sell or buy, when there is agreement on the item and the price, gives the contracting parties the right to demand reciprocal fulfillment of the contract.”
In the text, we added that the main aspects of this purchase commitment should be specified, such as identification of the item, price, and delivery date. These are the most relevant aspects.
In the contract’s content, the main points, such as the identification of the item and price, along with any other relevant details, should be included.
The purchase promise is used as a transitional document when it is not possible or desired to formalize a sale or earnest money contract at that time. Its binding nature is undeniable for both parties, who can demand compliance with the promise by later signing the corresponding sale contract.
It is important to note that the law provides that failure to comply with this purchase promise grants the parties the right to demand its fulfillment, as stipulated in the Civil Code regarding obligations and contracts. This is a key point we will address further.
Non-Existent Promise Actually Concealing a Sale
The contract clauses make it evident that this is a sale and not a purchase promise, as all the necessary elements of a sale contract are present. However, the developer, to avoid commitments, presents it as a purchase promise.
The contract includes an agreement on the price, the date of signing the deed, and the conditions governing the sale, which clearly indicate that it is a sale contract. Nevertheless, the developer seeks to reserve as many rights as possible abusively by disguising the contract as a purchase promise. This allows them to retain the right to cancel the operation without compensation and without granting the payments made the status of earnest money.
By calling this contract a purchase promise, they eliminate the possibility that the amounts paid in advance would be considered earnest money. This means that, in the event of the seller’s breach, they would only be obliged to return the money received, but not double the amount, as would happen in an earnest money contract. Moreover, in this contract, the seller’s breach does not grant the buyer the right to demand the completion of the sale, only the return of the money paid.
As we will see later, the imbalance between the rights and obligations of the parties was so significant that, despite the proposed amendments by the developer, the contract was not signed.
Abusive Contract Clauses
As we mentioned, in this simulated purchase promise document, the developer stipulates that, in the event of a breach, their only obligation is to return the money paid. However, if the buyer defaults, the penalty would be the loss of the deposit or a requirement to complete the payment, along with 8% interest.
Disadvantages for the Buyer
This clearly shows the disadvantage to the buyer, who is not granted the right to demand completion of the sale. Their only option is to recover the money paid.
Absence of Earnest Money Status for the Amounts Paid
The abusive nature of this contract is also evident in that the developer does not consider the amounts paid as earnest money. If the developer defaults, the buyer only has the right to recover the funds paid but not double the amounts, as would occur if these were earnest money.
If it were truly a purchase promise, the buyer could demand contract fulfillment. However, in this case, everything is left at the discretion of the developer, who, if they decide not to continue, simply returns the funds without further obligation.
Additionally, the developer fulfills its part by only returning the money paid, not double, confirming that this is not an earnest money contract.
Unbalanced Contract and Lack of Rights for the Buyer
As we can see, this contract does not adhere to a genuine purchase promise, as it does not grant the buyer any enforceable rights and cannot be considered an earnest money contract, as it only provides for the return of the funds paid in advance without any additional compensation.
If that weren’t enough, a special termination clause is established, whereby the buyer’s failure to execute the deed results in the forfeiture of the funds paid, in this case, no less than €156,000, while the developer incurs no penalty beyond returning the funds if they breach.
Needless to say, despite our law firm’s attempts, ultimately, and despite our efforts, we were unable to amend these abusive clauses, which is why we advised our client not to sign the contract.
Construction Completion Date and Abusive Clauses
Finally, the contract established a tentative completion date for the construction. This term, “tentative,” is not only inappropriate but also implies a lack of commitment on the developer’s part. We requested its modification, insisting that the date should be binding, not merely indicative.
The developer agreed and set December 2024 as the completion date in a new draft. However, as we mentioned earlier, the refusal to modify other clauses rendered this amendment meaningless.
As stated earlier, the developer reserved all possible rights in their favor.
Among these, there was a particularly unacceptable clause we demanded to be removed, and we are not exaggerating when we say it was an absurdity. Although the maximum date for executing the deed was set for January 30, 2025, a clause stated that if that date was not met due to causes beyond the developer’s control, there would be no consequences.
Moreover, if the delay extended beyond December 31, 2025, the buyer would be responsible for paying the IBI tax and community fees from that date, as if the deed had already been executed.
This clause is, as we said, an absurdity. While it might appear to be a drafting error, we believe the confusion was intentional. It was a way to have the buyer accept a delay in signing the deed until December 31, 2025. We firmly opposed this, as it implied accepting a one-year delay in signing the deed. Additionally, we could not accept wording that allowed justifying the delay for reasons beyond the developer’s control.
If a delay occurred, it should be penalized immediately. It was unacceptable to assess whether the developer was responsible for the delay.
Failure to Fulfill Legal Obligations in the Contract
In the mentioned contract, the developer argued that, since it was a purchase promise, there was no need to secure the funds paid. This approach contradicted legal requirements. The lack of a security was justified by claiming that Law 57/1968, of July 27, did not apply in this case. However, after negotiations with our law firm, the clause was amended to include a guarantee to ensure the refund of the funds.
Although this guarantee was secured, the rest of the abusive conditions were not amended. This rendered the contract unviable. Despite the inclusion of the guarantee, the contract could not be signed due to the clauses that remained unchanged.
As a result, the contract was not signed. The client wanted to acquire the property, but the developer’s refusal to acknowledge the buyer’s rights prevented the purchase.
The client witnessed all the efforts made to proceed with the contract. However, in the end, it was not possible to complete the purchase.
Carlos Baño Lawyers
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