In this article we will deal with one of the generalised issues when formalising property purchase contracts. The possible unfair or so-called ‘abusive’ clauses that new owners can encounter when acquiring a new-build property.
Due to many foreign citizens being unaware of their rights and obligations when purchasing a property, together with the need to have a thorough understanding of Spanish regulations that the purchase of a property is subject to, it is advisable that a Spanish lawyer expert in the field of Property Law represents you from the very beginning of the negotiations with the Property Developer.
Frequently, in the general conditions of purchase contracts we come across unfair or ‘abusive’ clauses, namely those explicitly defined in Spanish regulations, that have not been negotiated individually, and that are detrimental to the purchasing party or consumer, causing damage or an important disparity to the purchasing party.
Spanish regulations, in particular the General Law on Consumer Protection (LGDCU), protects the consumer against these kind of irregularities in property purchase contracts. It protects the purchasing party or consumer, granting them the following rights:
- Administrative sanctions. (LGDCU, Art. 32) If the selling party breaches a contract with these kind of clauses, under the regulations in force it shall be considered an infringement and may give rise to a penalty
- Contract integration. (LGDCU, Art. 8) All information provided in both the advertising and the offer is claimable by the purchasing party, even if it is not expressly stated in the contract
- Annulment of unfair clauses. If the contract contains unfair clauses they will be declared null and void even if they have been signed and accepted by the purchasing party
- Contract interpretation. In the event of doubt regarding the interpretation of any of the clauses, the law stipulates that the interpretation most favourable to the consumer will prevail
Here we will set out a list of clauses or stipulations, that under both the law in force and the existent corresponding case law, have been classified as unfair or ABUSIVE for impairing the rights of purchasing parties or consumers:
- Non- inclusion of completion dates clauses, or those subject to the discretion of the selling party or property developer. In the purchase contract the completion or handover date should be explicitly stated
- Clauses unduly transferring costs to the purchasing party which correspond to the selling party:
- Document processing and handling fees which as required by law, correspond to the selling party, such as Planning Permission, Registry of Horizontal Property and Registry of the Association of Property Owners, mortgages that finance the construction, Building Control or ‘First Occupation Certificate’, Building, Installations and Construction Work Tax, and insurance premiums
- Other expenses such as Capital Gains Tax, Public Deeds costs, and any expenses derived from the provision of basic facilities to the property
- Clauses allowing the selling party to unilaterally modify terms of contract:
- Clauses allowing the selling party to modify the plans:
For any modification to be valid the motives should be explicitly stated in the contract, and in the case that such a modification results in reduction of quality, a proportional reduction of price should be foreseen, or in case that such a modification has serious consequences, the possibility for the purchasing party to terminate the contract should be foreseen
- Clauses allowing the selling party to unilaterally modify the price of the property
- Those clauses that allow the selling party to unilaterally waive the contract
- Clauses limiting the responsibility of the selling party:
- Those that limit liability for defects in the surface area: When the price is stipulated by unit of measurement (price per square meter of the property), in the case of reduced surface, the purchasing party can opt for a proportional reduction of the price or termination of contract; and, when the price is stipulated as ‘flat-rate’ there can neither be an increase nor a reduction of the price
- Those that limit liability for quality defects: Any information provided in the advertising of the property shall be claimable by the purchasing party, even if is not explicitly stipulated in the contract
- Those that limit liability for construction defects: joint and several liability of the property developer and any third parties (architects, builders, subcontractors…), should be a requirement
- Clauses that oblige the purchasing party to renounce his or her rights:
- Subjection to incorrect Judges and Courts
- Renouncement to choose a Notary
- Renouncement to insurance or bank guarantees, this is a requirement for Property developers under Law 20/2015. This is in order to guarantee the reimbursement of down payments provided by the purchasing party, and assure they are provided with the details of the special bank account set-up for the purpose of the purchasing process
- Clauses that oblige the purchasing party to acquire complementary goods, services or extras not requested by them. This includes any increase in price for services, extras, financing, surcharges…
- Clauses obliging the purchasing party to subrogation of the original mortgage, or to pay the cancellation costs. The purchasing party may decide whether or not to accept mortgage subrogation, and shall never be obliged to pay the cancellation costs
- Clauses that impose disproportionate penalties in the event of breach of contract by the purchasing party. Those that anticipate the property developer shall retain all down payments made by purchasing party where the latter decides not to conclude the contract, without contemplating compensation for an equivalent amount if the property developer decides to renounce
At MSG LEGAL, as an expert Property Law firm, in the scope of our conveyancing service we offer a comprehensive advisory service throughout the purchase of both new build and second hand properties. We will protect your interests from the very beginning of the negotiations right through to the finalisation of the purchase process, to protect you (among other aspects) from any unfair or ‘abusive’ clauses that the property acquisition contract may contain.
Please note the information provided in this article is of general interest only and is not to be construed or intended as substitute for professional legal advice.