It is estimated that around 100,000 British real estate investors paid as much as £4 billion in property development deposits for Spanish off plan properties which were never completed. Many of them have failed to obtain refunds leaving the Spanish real estate market in a mess. However, a recent ruling by the Spanish Supreme Court has cast a very different light on this issue using a law which goes back nearly 50 years.
There are now high hopes British investors who lost deposits in the Spanish property market crash of 2008 will eventually be reimbursed.
What has changed?
It would appear that some property developers and builders in Spain ignored laws which require deposits to be held in a separate account and a bank guarantee provided to customers. This effectively means that if a property development is not completed then the underlying customers will be repaid. There have been some private prosecutions from investors who have lost their deposit on incomplete property developments but the ruling from the Spanish Supreme Court certainly puts more meat on the bone.
Banks are now libel
The main development from the Spanish Supreme Court ruling is that banks holding investor deposits via their property development/builder clients are now equally liable for the refunds. This ruling is still relevant even if a specific bank guarantee covering deposits was not in place. Whether the banks will challenge this ruling remains to be seen but there are certainly strong legal grounds for compensation, including interest and legal bills, for those investors who have lost money.
When you bear in mind the billions of pounds lost in recent times together with additional interest and legal fees, we can only estimate at the potential liability which has effectively been transferred to the banking community.
Court cases
The recent ruling by the Spanish Supreme Court has created a new opportunity for the legal profession and an array of no-win no fee deals. It is estimated that the fee for successful claims will run at between 20%-25% of the final settlement. Perhaps the only fly in the ointment regarding this ruling is that claims must be fought individually and can only be brought before the courts once. So quite literally the case must be watertight before taking a claim further.
As we touched on above, while this near 50 year law should already have been offering a degree of protection to property investors many will be thankful of the Supreme Court ruling. Successful claims could take up to 10 months to finalise unless the banks appeal which could drag this timeline to around 18 months.
Conclusion
It is ironic that it has taken a recent Spanish Supreme Court ruling to effectively rubberstamp a law which has been in place for nearly 50 years. Confidence in any real estate market is vital going forward and this ruling should give a greater degree of certainty to investors, which is vital especially in the current economic climate. Some estimate that this debacle could cost the banking community up to £15 billion including interest and legal fees. On that basis, should we not be expecting the banking community to appeal the recent Supreme Court ruling?