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We have recently been asked by a few clients about how they can get their cash back if they are not interested in the purchase of a property, after the private contract has been signed.

Before signing any contract you should have your lawyer look at it and make sure that you understand the legal implications regarding the document that you are signing. You should be aware of the possible penalties that you will have to pay if you decide to pull out of the deal or if you pay any instalments later than on the due date.  By law building companies have insurance or bank guarantees for the amounts that the buyer pays during the building process until the buyer signs the title of deeds at the notary office.

If the company goes bankrupt, where will the money come from?  The insurance company is the answer; therefore it is really important that your solicitor asks the building company for a copy of the guarantees from the builder.

The general rule is that even when the builder breaks the contract, the buyer will have to go to court to recover his money. This process will be costly and there is no guarantee that the ‘losers’ will pay all costs.  You could end up paying out the amount of the deposit in legal fees.

Your lawyer’s first recommendation will probably be not to go to court if at all possible.  Court action is the last resort.  Firstly you will probably be advised that your lawyer send a letter to the vendor.  To make this kind of notification valid in a court action a “burofax”, or “requerimiento notarial” is needed.  A burofax is a letter that is sent via the post office and the contents are verified by having a copy stamped at the post office before it being sent, not a cheap option, but the best under the circumstances.  The letter will have to be signed for on receipt and you will be informed of who received the letter and when or whether it was not received/accepted.  This form of letter is admissible in court and the reason why it should be used.   A “requerimiento notarial” is a document prepared by your lawyer and taken to the notary who will notify the vendor of the motives for the buyer dissolving the private sales purchase contract.  If the vendor is in another town then the notary public will send the notification to the Notary public in the town where the vendor resides, as it is the Notary public who personally makes the notification.

Before going to court it is advisable to make sure that the person/company that you are suing is solvent and can pay back the money that they owe you.  When going to court, there are various proceedings which are used and the actual recovery procedure depends on the amount owed and how the debt has arisen. The summary proceeding can take about six months but an ordinary or verbal proceeding can take from eighteen months to three years.  The court decision can be appealed and this may mean an extra two years.  After the judicial decision has been made it then has to be enforced and this means that an executive procedure is undertaken.  If the judgement has been appealed it is possible to ask for the enforcement prior to the final judicial decision.

Arbitration can be a cheaper and quicker procedure instead of going to court; some buildings companies have in their purchase contracts that possibility.

The private sales purchase contract should contain the clauses which regulate the relations between the buyer and the vendor.  In the case of dispute, it is important to have the original signed private sales purchase contract and a copy of the payments made, as it will be necessary to accredit the conditions of the sale and the reasons as we see them as to how the contract has been breached by the vendors.

If the reasons for the dissolution of the contract is not attributable to the vendor then according to the article 1504 of the Civil Code and 59 of the Regulations of the Mortgage Law, (and there should be a clause in the contract indicating this law) it states that if the buyer should pull out of the sale then the vendor has the right to keep the deposit, but if the vendor pulls out then the buyer has the right to the return of the deposit and an identical amount as compensation.  The parties concerned can have an agreement in which the deposit can either be returned completely or partially.

Always remember: If in doubt ask your lawyer!