66 | LEGAL WORDS | Stefano Lucatello What house?
If you’ve sold property that doesn’t look like it’s going to materialize, where do you go next? Stefano Lucatello deals with this question a lot – and you’ll need to answer some of your own before proceeding
The Problem:
How do I deal with a development (and a developer) that I think is likely to fail? I have sold properties in the develop- ment to a number of buyers. A large amount of property has been sold (and a lot of money paid over) but very little has been built and the developers’ reasons for not being able to start work or finish what has been started are becoming more and more difficult to understand and less and less credible to the buyers. They are now asking me what to do next. I am worried about exposing my company to liability. Many have paid a large part of the price in advance. Most have used lawyers but the lawyers have been very quiet of late.
RESPONSE T
he questions you pose are now becoming very common and we at Kobalt Law LLP are having to respond on an almost daily basis to agents posing the same questions as you do.
The starting point, it seems to me, is to ask some fundamental questions about your own activities: 1. How long have you been trading? 2. What vehicle do you trade through? 3. Do you have Professional Indemnity Insurance? 4. What kind of “advice” if any, did you give to the buyers, who bought from you?
5. Did you recommend the development
or merely sell on the basis of what you had been shown and given by the developer?
6. Did you ultimately leave it to the clients to decide whether to go ahead or not?
7. Do you have terms and conditions that the clients you sold to, signed? 8. Do these tc’s and c’s protect you in any way, if things do not go as they should do with the developer, or are you open to attack from these buyers? 9. Are you a member of an approved and recognised Association such as AIPP?
10. Did you go over to see the development for yourself, before any
Stefano Lucatello is senior partner at Kobalt Law LLP, a specialist international law fi rm based in London. He has practised international law as a solicitor for more than 25 years, specialising in foreign property, litigation law and related matters. Email:
stefanol@kobaltlaw.co.uk Telephone: +44 (0) 2077 391 700
monies were released or units sold? 11. Have you been across since then, to see what, if any, progress the developer has made?
12. If you haven’t, have you appointed an agent to represent you over there to act as your eyes and ears?
13. Have you had reliable and regular contact and reports from him? 14. What “due diligence” did you carry out before you started to market and then sell this development? 15. Who carried it out for you? 16. Have you bought on this development? 17. What commission have you received for this development, and do you still have this or have you spent it?
18. Did you enter into an escrow arrangement with the client and the developer so that the monies were held in an “escrow account” and only released when the developer had achieved certain goals along the construction process. I ask this because you say that some, but very little property has in fact been built, so has money been released for properties partially or fully completed? 19. What legal documents have been prepared and signed by the developer and the purchasers?
20. Has this documentation been reviewed by an independent lawyer? 21. Does the contract have any protection for the buyer if the developer fails in his obligations under the time limits set out in the contract? 22. What does the contract say, which benefi ts the developer?
Help! | When you’re let down, how do you regain control of the situation?
23. Does the contract provide for “Force Majeure”? That is to say that the developer, can justifi ably claim that he cannot proceed with the works, because of some reason outside his control, such as no materials, strife, civil commotion,
exceptionally bad weather, such as a tornado or hurricane etc? 24. Where are the lawyers that your clients have used? 25. Were they specialists in foreign property purchases or English lawyers? 26. If they were foreign lawyers who recommended them?
27. Do they have Professional Indemnity Insurance? 28. Why have the lawyers been “quiet of late”?
My advice is:
1. Keep in regular contact with the clients to keep them from hounding you.
2. Be honest with them as to what you have done and what you are doing to protect their money. 3. Take a trip to see the developer ASAP, perhaps visit the site for yourself without telling the developer you are arriving, so that he doesn’t stick some men and equipment on site to make it appear as if he is working. Get to see the developer on a “one-to-one” and see whether what he has said previously stacks up.
4. See if the clients can group together and consider instructing a specialist International lawyer to advise on the potential for a class action.
5. See if you can get media interest and coverage and see if that brings pressure to bear on the developer. 6. Possibly report the matter to the local police in the country concerned; set up a blog or forum where people can exchange views and opinions and information, which should be up to date.
7. Hope you don’t get sued by one or more of the buyers, in your capacity as an agent to the developer, and if you do, then join him into the action as a third party.
PROBLEM PAGE
www.opp-connect.com | APRIL 2013
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