Developers' Breach

WHEN DEVELOPERS BREACH THEIR CONTRACTUAL COMMITMENTS, IS THERE HOPE?

After several years of prosperity, during which a multiplicity of real estate deals were closed on a daily basis, the economical situation affected such market in Costa Rica. Not only there has been a considerable decrease in real estate deals, but also the availability of reasonable loans for such purposes is currently very limited and complicated.

The above mentioned situation has caused not only investors to back down on deals they had taken for granted, but it has also made it much more difficult for developers to comply with their obligations. It is no secret that when a project is running smoothly, once the buyer makes a down payment, or any further payments, such money is most probably not invested directly in the specific lot or unit whose transaction motivated it, but instead it goes to a common fund that is used to cover expenses for the development of the whole project. Further, there is a considerable percentage of the funds needed to complete a project which come from loans, and under the current circumstances, this situation is becoming pretty complicated.

Now that financial entities have been lending less money to buyers and developers and that credit conditions are tough, cash flow has decreased considerably causing certain projects to slow down or even to paralyze. This situation has left many investors and buyers with nothing else than a piece of paper stating that certain amount of money was paid and that completion and delivery of what they paid for was due for a date that in many cases has already passed. Also it is common to find that investors end up in a situation in which, despite the contractual obligations of the developer and that the deadlines for meeting them have already elapsed, there is no completion and no delivery when they were supposed to; and in some cases, construction has still not even started or is in a very initial stage. This certainly deeply concerns buyers and threatens investments and, many times, lifetime savings.

To make the situation even worse, in some cases the contracts that were signed with the developer were drafted by such party’s attorneys and in many opportunities did not even undergo reviews by objective counsel for the buyer and contain language that offers extensive protection only for the developer. Sometimes, language used is so vague that a situation of breach by the developer is almost impossible to exist.

In many other cases, contracts are signed with a company acting as a seller but the actual registered owner for the land is another entity. This might make the situation seem like a lost case as the legal link between the seller, the owner of the property and the land itself might seem impossible to establish, turning the contract void and unenforceable.

Notwithstanding all of the above, a solution to this type of cases, the recovery of the deposits made or the forced compliance with the developer’s contractual obligations is many times possible, and all it requires is a little patience and a lot of legal skill.  As a matter of fact, many individuals facing this type of situations are putting up with something they are not really in need or obligated to stand and in many cases are wasting valuable time continuing with direct discussions with the breaching developers instead of turning the table in their favor and rectifying what is wrong.

Our legal system provides several remedies that could be very effective in convincing developers about their need to either comply with their commitments or in compelling them to settle the situation so that their whole business is not affected more than it already is. In many cases, something as simple as putting a lien on the project might jeopardize the possibility of closing other deals or even to obtain financing, dramatically improving the odds of reaching a satisfactory settlement in situations that at some point looked pretty desperate. Some other times, the required legal actions need to be more powerful, but at the end of the day, if the case is strong enough, it is worth giving the fight. Even though results cannot be guaranteed, people who fight for their rights and their money might be positively surprised.

Many people experiencing this type of situations want to know if they have a strong case or not. The first step to answer this question would be to approach an attorney with experience in this kind of litigation, and to request such individual to provide a diagnosis. Such diagnosis must include, among other things and depending on each case, a search at the Public Registry of the history of ownership of the property. It must also include corporate searches of all owners of the land to establish links between them. A deep analysis of the contract and all related correspondence and communications must also be performed by the counselor. Finally, the attorney must cover the different options available and a quotation of his/her services. In this type of cases, one must bear in mind that all actions must be focused on gradually putting pressure on the developer, but at the same time everything must be done considering the possibility of the developer not settling and having to litigate all the way until the case gets resolved by a Judge.

Something else to be kept in mind is that the investor might feel disappointed when realizing that costs might be high, especially considering that he is the “victim”; however, under the law, one would be entitled to recover the costs, or at least an important part of them.

In conclusion, if you are going through a situation like the ones we have just described, our recommendation is to seek legal advice. Very differently from what you could think, your case might have very good chances of being successful and your investment might not be lost.  It is important, though, to act quickly when a situation of breach has been detected, especially bearing in mind that under such premises the land that might respond for your investment may quickly change hands making the possibility of recovery much more complicated.

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