In the matter of legal advice, purchasing an off-plan apartment and project failure: what are the purchaser’s rights and the liability of the property developer and the notary?
A purchaser may conclude a promise of sale or a reservation contract for an off-plan apartment and pay an advance on the basis that the project will be completed and the apartment delivered within an agreed period, during which the purchaser arranges payment of the balance of the price. However, the purchaser may be surprised by the expiry of that period without completion of construction, by the absence of the necessary permits, or by a discrepancy between the works carried out and the contractual specifications. This raises the question of compelling the seller to perform or of recovering the funds and obtaining compensation, as well as the extent of the notary’s liability for the transaction.
Legal analysis begins by determining the true nature of the agreement, because describing the document as a promise of sale or a reservation contract is not sufficient on its own to determine the legal regime applicable to it. If the seller is obliged to complete a property within a specified period and transfer its ownership in return for a price payable according to the progress of the works, it is necessary to examine the application of the provisions governing the sale of a property under construction, as supplemented in the Code of Obligations and Contracts by Law No. 44.00 and amended by Law No. 107.12, taking into account the date of contracting and the content of the contract.
A distinction must be drawn between the absence of a building permit at the time of contracting and the failure to obtain a habitation permit or certificate of conformity at the time of delivery. An allocation contract may not be concluded before obtaining the building permit, failing which it is void, and the law also requires the permit to be obtained before entering into the preliminary contract. A property is not legally completed merely upon the finish of the works without obtaining the habitation permit or certificate of conformity, pursuant to Article 618-15. Accordingly, it is not sufficient for the seller to assert that the documents will be obtained later; their existence and their connection to the project concerned must be verified.
Moreover, an allocation contract is not a means of keeping the purchaser bound to the project for an indefinite period. The law regulates the right to withdraw from it and fixes its validity period at six months, non-renewable, ending either with the conclusion of the preliminary contract or with withdrawal and recovery of the sums paid in advance. It is therefore necessary to examine the fate of the reservation after its period has expired, rather than treating the payment receipt alone as sufficient security for acquiring the apartment.
As for any discrepancy in the area, layout, fittings or common facilities from what was agreed, it requires comparing the contract, the specifications, and the approved plans with the works carried out. Article 618-7 obliges the seller to comply with the engineering plans, the construction completion period, and the terms of the specifications. A technical dispute calls for the use of expert assessment to determine the nature and seriousness of the breach and whether it can be remedied, because a shortcoming that can be corrected differs from a breach affecting the safety of the building or preventing its lawful delivery and ownership.
If the contract is valid and performance remains possible, the purchaser may insist on completion of the obligations and conforming delivery, and then on conclusion of the final sale once its conditions are met. If, however, performance is impossible or continuing the relationship is no longer in the purchaser’s interest owing to the seller’s breach, the purchaser may seek rescission, repayment of the advances, and compensation. Nullity is sought where the conditions for the validity of the contract are lacking. This distinction is essential because the basis for recovering funds and obtaining compensation differs according to the case, and a judicial ruling does not supply the required permits or turn a non-compliant building into a compliant one.
In the context of the sale of a property under construction, Article 618-14 entitles the purchaser to rescind the contract without paying compensation if the seller exceeds the delivery period, subject to the extension regulated by Article 618-7, and in that case awards the purchaser compensation equal to twenty per cent of the sums paid. Article 618-12 also regulates late-delivery compensation at the rate of one per cent per month of the amount paid, up to ten per cent per year, after one month has elapsed since the defaulting party received formal notice, provided that the conditions for entitlement are examined and that compensation is not automatically assumed to be cumulative.
The use of purchasers’ advance payments in the construction does not make them partners in the project or oblige them to bear its failure. Nor is such use sufficient on its own to prove fraud; the circumstances in which the funds were received, the accuracy of the information provided, and the destination of the sums must be verified. The developer remains obliged to perform its undertakings, and it cannot rely on having spent the advances on the works to justify non-delivery or a refusal to reimburse once the obligation to reimburse is established.
As for the notary, the obligation to carry out the construction and deliver the apartment does not fall on the notary merely because the contract was received by him. Rather, the notary bears liability for compliance with his professional duties. Articles 26, 27, 28 and 37 of Law No. 32.09 provide the basis for his liability for his professional errors, for statements that he knows to be contrary to the truth or that he could have known to be so, and for damage resulting from the nullity of the contract caused by his fault. They also require him to verify the documents, give advice, and explain the effects of contracting. His liability therefore rests on proof of a specific breach, damage, and a causal link between them.
The movement of funds is of particular importance in determining this liability. Article 33 of the same law prohibits the notary from using entrusted funds, even temporarily, for purposes other than those for which they were allocated, and requires him to deposit them with the Deposit and Management Fund in accordance with the legal regime. The law also prohibits the drafter of the contract from releasing instalments deposited with him in favour of the seller before obtaining from the seller a guarantee covering each instalment, subject to the legal exceptions relating to guarantees.
Accordingly, a distinction should be drawn between paying funds directly to the developer and depositing them with the notary, and it should be verified whether they remain on deposit or have been transferred, to whom, and on what basis. If it is established that the notary used them for his own account, transferred them contrary to their intended destination, or released them without complying with the legal conditions, his liability and the resulting obligation to reimburse or compensate may be examined according to the circumstances. Requiring him personally to carry out the construction, however, cannot be based merely on his status as a notary; it requires an independent undertaking established against him.
In practice, it is necessary to gather the contract and its annexes, payment receipts, transfer records and correspondence; to verify land ownership, encumbrances, permits and guarantees; then to establish the state of the project through a bailiff’s official report and expert assessment where necessary; to send formal notice to the seller specifying the breach and what is required of him; and, where appropriate, a separate formal notice to the notary requesting a statement of the sums received, their fate, the dates of their transfer, the beneficiary, and the basis for their release, so that the claim is built on specific facts and documents.
Thereafter, the appropriate action is selected—specific performance, rescission or nullity, and recovery of the sums—together with consideration of the appropriate interim measure to protect a claim to a real property right or to secure recovery of the funds, depending on the subject matter of the dispute and the conditions of each procedure. If the documents reveal indications of fraud or misappropriation of entrusted funds, criminal and disciplinary avenues are considered alongside the civil claim, while bearing in mind that a complaint alone does not guarantee recovery of the sums.
No additional advance payments should be made on the basis of new, undocumented promises, nor should payment of instalments be stopped arbitrarily without determining whether they are due. Instead, the purchaser’s position and readiness to perform once the conditions are met should be documented, because protecting the purchaser’s rights also requires avoiding anything that could be used to attribute the breach to him.
This advice remains a presentation of general legal principles. It cannot be applied uniformly to every case and does not replace consultation with qualified professionals after examining the contract, the documents, and the facts. Each case has its own particularities in terms of the date of contracting, the nature of the obligations, the permits, the guarantees, and the movement of funds. The measure appropriate in one case may not be appropriate in another. It is therefore necessary to obtain specific advice before taking any step or arranging any legal effect.
This article is general information, not legal advice. Every matter has its own facts and calls for its own assessment.
