In 2008, property lending dried up in Spain, as elsewhere, and many people had purchased properties “off-plan” in good faith, but could not complete their transactions. The Spanish law is prevailingly protective for those investors. According to the 57/1968 Act, the developer has to provide to the purchaser who advances monies with a “bank guarantee”, bond or insurance, which operates as a “safety net”. If the developer does not complete in time or does not deliver at all, the purchaser can enforce this bond against the bank and retrieve its money.

Law 57/1968 is a pre-constitutional law that was widely held as ‘revolutionary’ at the time. Unfortunately, it has been recently reformed, as of January 2016, to restrict consumers’ rights.

The problem

The so called safety net provided by the law has functioned very well along those years, to the benefit of purchasers, but does have some holes.

Indeed, when the developer did not comply with his duty to provide a guarantee, and the property is not there, the purchaser remains helpless.

To solve this problem, some lawyers followed the route to sue the bank where the money had been deposited by the developer. The first cases were heard around 2010 and in 2015 have reached to the Spanish Supreme Court.

Spain has a civil law system, which means that Courts do not abide by precedent but by statutes. Notwithstanding, two coincident Supreme Court rulings are regarded as “source of law” (or “jurisprudence”) and all Courts have to stick to the same, when they have a case in hand.

The ruling – legal overview

In December 21, 2015, the Spanish Supreme Court issued a ruling on the issue: following article 2 of Law 57/68 it is the exclusive obligation of a developer to place all the anticipated funds received by off-plan purchasers in a special account that the developer must open ad hoc. It is also an obligation on the developer to hand a bank guarantee to the purchaser. If the developer did not comply with those obligations, the lender (bank) where those funds were paid into by the purchaser is directly responsible to refund the money to the purchaser. The rationale of this is that, according to the Supreme Court, the bank had a “surveillance duty” to check that the developer (that had received its financing) complied with its legal obligations.

Purchasers who did not obtain a guarantee from the Spanish developer, have now an opportunity to recover the funds they anticipated. They can sue the bank where the money was paid into, assuming that this bank knew that they were purchasers. This claim has a limitation period of 15 years in terms of article 1.964 of the Spanish Civil Code. There is no need to sue the developer as a prerequisite, as the bank is jointly and severally liable for the breach.

It is expected that this pivotal judgement could trigger massive litigation against the banks. The experience with other similar issues, shows us that banks tend to settle this claims to avoid paying legal expenses.