As a result of the global crisis we are currently suffering due to Covid-19, it is understandable that doubts or problems may arise regarding property purchase contracts signed previous to the pandemic (earnest money deposits, deferred payment purchases or rents to buy) and that cannot be fulfilled or are difficult to fulfil in compliance with the conditions agreed prior to this new scenario we are facing.
Following the Declaration of the state of emergency by the Spanish Government via Royal Decree 463/2020 of March 14th, the restrictions imposed may have affected the contractual relationship between parties, which may have given rise to a change to the original circumstances, such as delays, or in some particular cases even the impossibility to fulfil the contract.
Before explaining the possible solutions with which we can deal with these situations, it should be taken into consideration that under the Spanish Legal system the principle of preservation of contractual relationships is of vital importance. That is to say that any signatory of a contract (whether buyer or seller) is required to comply with it. Whereas when unforeseeable and unexpected circumstances occur, such as the current situation of the pandemic, and under such anomalous circumstances, it is possible for the parties to agree to amend the terms of contract.
We may find ourselves facing two different scenarios depending on the type of seller, be it a private or professional one (Developer/Builder).
Purchase of a new build property from a Developer
In this case, due to the professional status of the seller, and regarding the potential buyer, in addition to the protection that current Spanish regulations establish for new build property purchasing processes, said protection would be reinforced by their status as a Consumer.
Furthermore, given the scenario in which we currently find ourselves, and that gives rise to this article (State of Emergency due to the Covid-19 Pandemic), in addition, we must also take into consideration the regulations that the Spanish Government have been developing over the past few months, in particular RD 11/2020, later amended by RD 15/2020.
According to the specific Regulation (Art. 31.1.2), in the case of new build property purchase contracts, the consumer would be entitled to rescind the contract, if it is a result of the impossibility to comply, and being a consequence of the measures adopted during the term of the state of emergency. The Law itself establishes which procedure should be followed, making it obligatory for the parties to try and reach an agreement via various proposals to each other, prior to requesting rescission of the contract due to impossibility to comply.
Purchase of properties between private parties, typical cases of second-hand property purchases
In this case, being a purchase carried out between private parties, the strategy to be applied is the assumption of force majeure governed by the rules of the Spanish Civil Code, or via the application of the of the so-called «rebus sic stantibus» clause, intended to re-establish the contractual balance of the parties based on the principle of equity.
Nonetheless, The Spanish Courts are very restrictive when applying this doctrine to so-called single-performance contracts, property purchase contracts being considered as such.
Prior to going to court, it is advisable that the parties adopt flexibility criteria to ensure feasibility of the contracts signed, amending or modifying the content, and adjusting it to the new circumstances.
As we have already explained, we are currently in an unprecedented situation due to which many contracts may be affected, and we must be equally attentive to the criteria that the Spanish Courts may adopt from now onwards, taking into consideration the specific circumstances of each contract.
At MSG LEGAL as highly experienced lawyers specialising in Property Law, we can advise and assist you by analysing the content and obligations of your purchase contract in depth.
Likewise, it is also important to analyse the conditions on which the contract was based; such as the purpose of the purchase (investment or permanent abode). Likewise, the financial situation previous to and following the crisis should be considered, and the circumstances of the seller.
Finally, at MSG LEGAL, given our experience, together with our professional commitment to each and every one of our clients, we always establish realistic objectives by analysing the particular circumstances in question, and if necessary may consider other alternatives such as; to extend the compliance period, negotiate a reduction in price, or full or partial payment of the deposit.
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.