The Coronavirus (COVID-19) has clearly had a huge impact on all areas of daily life, with the state of alarm decreed by the Spanish government and similar decisions in other countries leading to drastic restrictions and limitations, with severe social and financial consequences.
The state of alarm has caused many doubts and uncertainties, especially for people caught in the middle of a property transaction. Many individuals had signed contracts to buy or sell a home and are now unsure what they can do. C&D Solicitors wish to help throw some light on the legal standing for people in this situation.
What does Spanish law say about the fulfilment of contracts?
Under Spanish law, the clauses agreed in a contract have the force of law and the parties involved are required to fulfil them. When dealing with potential breaches of contract, the Spanish Supreme Court has established that the party in breach must argue their reasons and prove that every attempt has been made to fulfil the contract.
If it is at all possible to amend or adapt the contract, the parties must seek to modify it to solve the problem caused by the state of alarm and corona crisis. In other words, every attempt must be made to reach an agreement to allow the transaction to go ahead.
Which sales could be affected by the state of alarm?
Conveyance contracts which may be affected are those that required either of the parties to fulfil a requirement or condition agreed in the contract which has been affected by these months of paralysis.
With activities halted and movement restricted, it is very possible that some of these requirements (such as obtention of permits, mortgages, NIE numbers for foreign buyers; or visits to the notary office to sign paperwork) have to be delayed, or either of the parties could be admitted to hospital or in quarantine, making it impossible to fulfil the contract within the deadline.
What can be done in this situation?
The first thing is to see if the private contract contains any clauses to govern these situations. As mentioned above, every attempt should be made to adapt, amend or extend the contract to allow it to go ahead. In most situations, the issue is simply a matter of time due to the state of alarm. If one of the parties refuses to grant an extension, in most cases there would be no legal grounds to terminate the contract and/or claim damages.
Can the buyer terminate the contract due to the COVID-19 crisis?
Withdrawing from a conveyance contract due to a sudden drop in house prices and in the face of an economic crisis is a complex issue. In order to terminate, the buyer would have to prove that the current economic crisis, resulting in a deep and prolonged economic recession, could generate a severe disruption or change in circumstances leading to the execution of the contract. Spanish courts have been rejecting the possibility of terminating a sales or purchase contract based on this circumstance, but this possibility shouldn’t be ruled out and individual factors should be analysed.
If there’s no chance of amending or extending the contract and a termination is impossible, the buyer will have to weigh up the pros and cons and decide whether to go ahead with the purchase or, depending on the conditions of the contract if it has already been signed, pull out and lose their deposit (generally 10% of the purchase price). The vendor meanwhile will have to consider whether they are willing to lose the sale, bearing in mind that property prices are bound to fall due to the recession caused by the coronavirus and new buyers may be harder to find.
Sales processes which started prior to the COVID-19 crisis can lead to complex situations, which should be analysed individually and always with the advice of lawyer. This is not the time to make decisions without appropriate legal knowledge, and rushing is never a good idea. For competent advice on how to proceed, contact:
C&D SOLICITORS S.L.P.
Calle La Noria s/n, Edif. Recreo II, 1-15
29793 Torróx-Costa (Málaga), Spain
(Entrance at back of building)
0034 - 952 532 582
Monday, Tuesday, Thursday: 09:30 - 18:30
Wednesday, Friday: 09:30 - 15:30