When buying a property, ever again occur situations which require special contractual formulations. Generally they are useful and some of them even indispensable. And yet they require special attention from the contract partners. One of these components of the contract is the “cláusula resolutoria”, which in the broadest sense means “cancellation clause”.
The clause describes under which conditions a counterpart has the right to cancel a concluded contract unilaterally or to reverse the transaction.
In practice, it looks like this: the offer of real estate in Majorca is large, but it frequently happens that there is nothing appropriate among the properties which are ready for occupation. So the seeker decides to buy from a developer a property which is not yet finished. The building permission is already present and it does make sense to conclude a notarial sales contract, which refers to the finished property. The buyer already pays a reasonable part at the notary and in return he will be entered in the land registry as the owner. In order that this first payment is really reasonable, it should approximate the following value: Land value with development costs + costs of the building permission including architect's fee for planning application and design plan + value of the construction at the time of payment. By now the buyer is already registered as the owner, but the final transfer of ownership takes place after the full payment of the agreed purchase price.
Now there is a risk for both parties and the contract must be edited to ensure that this risk may not lead to a financial loss.
For the buyer of the property the risk is that the developer or the building contractor might not be able to finish the construction or, under certain circumstances, might not want to finish it. Therefore the buyer adds a “cláusula resolutoria” which is formulated such, that in this case he can terminate the contract with the developer to let finish the construction from another contractor. If the contract was edited correctly, the buyer should have paid just what was already on the property and will not suffer any (or just manageable) financial loss - inconveniences apart.
For the seller, so the construction company or the building contractor, the risk is that the buyer will not finish paying the house – because he might not be able or because he might not want to. So he also covers himself against a claim by the “cancellation clause”. By loss of value due to construction defects that clause naturally does not come into effect and if no agreement is reached, one must go to court.
In both cases described, this clause is a useful and reasonable solution and should not require any further explanation. Why then do I call them “sensitive” clauses? Well, they are integral part of the notarial contract and are therefore also recorded in the Land Registry. The experience of many years of practice has led me to deal with this subject.
The main problem is, as described in an article elsewhere in this blog (Why isn't my property registered in the Land Registry?), in the popular belief that certain things get regulated by themselves. But they do not.
In the case described here, more often than not the construction is finished. The buyer makes his purchase price payments on time, moves into his home and ready.
Everything fine, but the “cláusula resolutoria” still remains in the Land Registry and will stay there until the filing of a deletion certificate.
If the developer is working properly and/or if the buyer has a professional help at his side, a lawyer and/or a good broker, then the final payment will be made only against the issue of this deletion document.
However, in practice I come repeatedly across not deleted clauses when homeowners approach me after years to offer their Majorca property for sale. If things go well, the construction company still exists and the homeowner has kept the payment receipts - the problem will be solved quickly.
It becomes problematic when the development company no longer exists and there is no legal successor. In practice this happened last year.
The deletion certificate can only be issued by the beneficiary of the clause, thus the developer - or by a court. In the above case remained only the second option, because the German property developer was insolvent for years already. So seeking the proofs of payment and hiring a lawyer. He will take legal action at the local court for the cancellation of the “cláusula resolutoria” and if within the required period there is no objection brought before the court, the judge can also issue the deletion certificate and the entry in the land register is cleared. The duration of this action is up to one year and several thousand euros (avoidable) costs.
The clause describes under which conditions a counterpart has the right to cancel a concluded contract unilaterally or to reverse the transaction.
In practice, it looks like this: the offer of real estate in Majorca is large, but it frequently happens that there is nothing appropriate among the properties which are ready for occupation. So the seeker decides to buy from a developer a property which is not yet finished. The building permission is already present and it does make sense to conclude a notarial sales contract, which refers to the finished property. The buyer already pays a reasonable part at the notary and in return he will be entered in the land registry as the owner. In order that this first payment is really reasonable, it should approximate the following value: Land value with development costs + costs of the building permission including architect's fee for planning application and design plan + value of the construction at the time of payment. By now the buyer is already registered as the owner, but the final transfer of ownership takes place after the full payment of the agreed purchase price.
Now there is a risk for both parties and the contract must be edited to ensure that this risk may not lead to a financial loss.
For the buyer of the property the risk is that the developer or the building contractor might not be able to finish the construction or, under certain circumstances, might not want to finish it. Therefore the buyer adds a “cláusula resolutoria” which is formulated such, that in this case he can terminate the contract with the developer to let finish the construction from another contractor. If the contract was edited correctly, the buyer should have paid just what was already on the property and will not suffer any (or just manageable) financial loss - inconveniences apart.
For the seller, so the construction company or the building contractor, the risk is that the buyer will not finish paying the house – because he might not be able or because he might not want to. So he also covers himself against a claim by the “cancellation clause”. By loss of value due to construction defects that clause naturally does not come into effect and if no agreement is reached, one must go to court.
In both cases described, this clause is a useful and reasonable solution and should not require any further explanation. Why then do I call them “sensitive” clauses? Well, they are integral part of the notarial contract and are therefore also recorded in the Land Registry. The experience of many years of practice has led me to deal with this subject.
The main problem is, as described in an article elsewhere in this blog (Why isn't my property registered in the Land Registry?), in the popular belief that certain things get regulated by themselves. But they do not.
In the case described here, more often than not the construction is finished. The buyer makes his purchase price payments on time, moves into his home and ready.
Everything fine, but the “cláusula resolutoria” still remains in the Land Registry and will stay there until the filing of a deletion certificate.
If the developer is working properly and/or if the buyer has a professional help at his side, a lawyer and/or a good broker, then the final payment will be made only against the issue of this deletion document.
However, in practice I come repeatedly across not deleted clauses when homeowners approach me after years to offer their Majorca property for sale. If things go well, the construction company still exists and the homeowner has kept the payment receipts - the problem will be solved quickly.
It becomes problematic when the development company no longer exists and there is no legal successor. In practice this happened last year.
The deletion certificate can only be issued by the beneficiary of the clause, thus the developer - or by a court. In the above case remained only the second option, because the German property developer was insolvent for years already. So seeking the proofs of payment and hiring a lawyer. He will take legal action at the local court for the cancellation of the “cláusula resolutoria” and if within the required period there is no objection brought before the court, the judge can also issue the deletion certificate and the entry in the land register is cleared. The duration of this action is up to one year and several thousand euros (avoidable) costs.
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