A warning to Buyers and Sellers of Property in Spain

WARNING TO PROPERTY SELLERS ON THE COSTA BLANCA!

Are some cash-strapped estate agents manipulating the Spanish law by using clients’ deposits for their cash-flow?

Spanish Law clearly states that in the business of property sales, any reservations or deposits paid over in good faith by would-be buyers, is the absolute property and responsibility of the vendor, particularly non-refundable reservations.

How can it be anything else? The asset to be eventually transferred belongs to the vendor(s) and not in any way to the Estate Agent.

To agree otherwise is tantamount to giving Power of Attorney over your property to the agent!

Typically, on a property sale at an agreed sum of say €300,000, the Buyer is required to pay over a €3,000 non-refundable reservation fee to the vendor as surety for the vendor reserving the property for the buyer for a period of 3 weeks.

After this time the buyer, if serious will have had his lawyer prepare his papers in order for him to make a further payment of 10% of the purchase price and exchange contracts with the Vendor.

It is common practice for this 10% to be paid to the vendor’s lawyers who in turn will place it in their clients account alternatively there is no bar on it being paid directly to the Vendor who must in all aspects be responsible for it.

Should the buyer discontinue the purchase on his own account or fail to proceed to exchange of contract within a reasonable time, the Vendor is entitled to keep the Reservation Fee (€3,000) and offset his similar legal preparation costs and to go some small way towards the loss of any alternative buyer who could have purchased the property during the 3 week period. It also serves to help in recovery of any other outlay of funds for example, purchasing packing materials, etc.

Most decent agencies respect this law and do not seek to circumnavigate it.

Unfortunately, there is a new breed of agents who seek to not only hang on to this reservation fee but in other cases also try to keep the 10% deposit!

Fortunately these agents are in the minority but are nonetheless growing in number.

Using the values given above, this means that a €3,000 Reservation fee constitutes 20% of the agents’ fees for completing the sale, without actually completing it.

This is not an insignificant proportion of those fees to be literally paid in advance!

By some of these agents this is being employed as insurance for their loss of profits and not as surety for the seller should things go wrong and if they don’t then well and good they have 20% payment up front!

You (The vendor) will be told by the agent that their clients are very nervous of paying over such a sum of €3,000 to the Vendor or his lawyer and that they (the agent – supposedly representing you too) cannot pay this over without their consent!

How on earth can a donors’ consent or lack of it be applied to a non-returnable Deposit/Reservation unless it is pre-conditional and if it is, then it is valueless in terms of its definition?

So what is the purpose of this Reservation Fee and what use is it to the Vendor?

The simple answer is under these ‘manufactured rules’ it is of no use whatsoever to the vendor and even if he/she does everything correctly and in accordance with the law they will still not receive any compensation from a buyer who reneges on the deal because according to the agent he can refuse the payment to go forward.

The Spanish Law does permit for a vendor who wants to vary these terms to do so but why would they want to?

Again the answer is simple.

The agent will tell you that if you do not agree to this variation they will not sell your property!

This in contract law terms is “Duress”. {Definitively speaking “Economic Duress”}.

See: - Pao On –v- Lau Yiu Long (1979).

Under International Contract Law, such activity would be a ‘breach of contract’ and damages awardable to the vendor for the breach.

Some agents do not discuss this ‘self-manufactured rule’ with you when you sign up with them be it on an exclusive or non-exclusive basis and leave it ‘unsaid’ until a buyer arrives on the scene.

Now, you the vendor are happy to have a sale but the screw is about to be turned on you because the agent is now going to tell you ‘his rule’ for dealing with Reservation Fees and possibly the 10% Deposit if you have not previously asked the question and know the answer!

These rules are “Post-Contractual” and cannot be legally applied to the deal between the Buyer and Vendor.

Should a contract fail because the agent frustrates the terms in this manner then that agent is answerable in law for any such activity and the vendor can claim for substantial damages.

The writer recently received a non-solicited approached by an Agent setting up in the area for the first time. This agent called several times to set up a meeting which would also serve as an opportunity to take photographs of the property.

On the day in question in was inadvisable to take external photographs due to a low lying mist and so just the internal photographs were taken with a promise to return a few days later to take the external photos.

Before leaving the representative of this company presented a contract to sign which was in Spanish and English.

The writer began to read the ‘small print’ and the representative became pensive!

The writer found that in no less than three separate paragraphs it stated that they the agents would hold both the Reservation Deposit and the 10% Deposit!

The writer refused to sign the agreement and then the representative suggested that they both crossed out and counter-signed the contentious clauses. Once this was done the writer took a photo copy and watched the agents jaw drop!

{A copy of this contract is available for inspection at the writers’ home}.

Of course he never returned to take the rest of the photos!

Another agency that also made an unsolicited call to view and market the property was asked by email what their approach was to holding deposits/reservations.

They arrived to make preparation for what they advised the writer was very aggressive marketing. The only aggression the writer experienced was in these agents’ attempts to force the asking price down to a level which for them would virtually guarantee a very fast sale from a grossly undervalued property.

When presented with a contract to sign I asked about the information I had requested on the holding of Reservations/Deposits to which they stated that they had already replied to my email – which they had indeed - not done.

I saw an ambiguous clause in the agreement which I pointed out to them was open to multiple interpretations. There was a clause which attempted to deal with contract cancellation but was not at all clear in how the liability would be determined except to say that they the agents would be rewarded in all circumstances. Pointedly it also spoke of monies being ‘Deducted from Deposits’.

You cannot deduct from a deposit if you are not holding it – you can only claim for a payment. To deduct is physically impossible if you are not holding it.

The meeting came to an end when I refused to sign with this term included.

Mercifully not all agents here behave like that but the demarcation line is not straight and sometimes reveals identities you will find to be surprising and disappointing!

The writer believes that it is now time for a “code of Conduct” to be enforced on Estate Agents who seek to circumnavigated the law as it stands.

When studying Law, the writer learned that contracts are for making and contracts are for breaking and the quality of a contract will always be determined by the intent good or bad of the person for whom it is drafted.

Some agents will tell you one thing on the telephone but decline to confirm it in writing. This should ring alarm bells for any vendor who wishes to do business with that agent.

As stated earlier (and thank goodness) there are plenty of good and straight forward agents in the area who vendors can rely on to assist them in selling their home and who will protect their interests just as much as they will the buyers.

I happily invite all such agents to demonstrate this by emailing me with their company logo and signature. {Clive.Walley@hotmail.com}

Not only will I be pleased to advertise them freely and recommend them highly to would be vendors but I will also be happy to do business with them myself.

I did not write this article with the purpose of upsetting Estate Agents in general but with the purpose of highlighting those who are doing their industry a disservice and upsetting and offending clients.

The writer advises all vendors to become more pro-active in their relationship with agents. They should ask the agent for a clear and unambiguous contract at the beginning particularly in respect of payment of reservation fees/deposits and if they are not happy with the agent holding these deposits – tell them.

If they insist that Tom, Dick and Harry do the same it is because they cannot justify their position on their own and know it and are trying to convince you that it is the norm by including unidentified others in the same activity.

There are plenty of good agents around who will not put you through this. Remember, to make money they need a good selection of properties. No properties to sell, equals no income and certainly no profit.

You can also print out your own “Conditions of Sale” in which you state the price and the payment procedures. In respect of the latter you need to write down that: -

1. The non-refundable reservation fee (€3000 or thereabouts) is to be paid to your bank account or your lawyer’s client account.

2. That the exchange of contract should take place no later than 3 weeks after the reservation fee has been paid and a further 10% of the agreed sale price paid over to you or your lawyer’s client account.

3. Completion should be within a reasonable period but not to exceed ……………(here you put in your own time frame).

4. If the buyer fails to proceed to exchange of contracts in a timely manner through no fault of yours, the non-refundable reservation fee is yours to offset against your costs.

5. Get the agent to sign one copy of your terms and Conditions.

Always remember this money can never legally belong to the agent whatever he tells you – your lawyer will support you fully with that.

Good Luck and here’s wishing you success with your sale!

Clive Walley

Author

14th September 2015

 

P.S you can of course sell it privately if you wish and offer a discount to the buyer for the agent’s fees you will not have to pay.

If you are looking to buy a property on the Spanish Costa Brava Coastline that is being offered at a heavily discounted price and sold by the vendor, you might find what you are looking for at: -

www.buyavillainspain.co.uk

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11.09 | 19:03

Thank you for your opinion. However, the UK is far from being oppressed by the EU. We are one of the leaders not followers.

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18.06 | 14:34

What a load of rubbish, who wants to be controlled by any devil ,the English have proved over history that they will not be oppressed

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18.01 | 13:35

Dear Kathleen, Thank you for visiting the website and posting your comment in support of our cause. Please, if you can find time, write to your UK MP. Thanks

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18.01 | 13:20

This proposal is in my opinion a clear breach of EU law.

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