Developer Contract Breach: Act Quickly

After several years of prosperity during which multiple real estate deals were closed on a daily basis, the current economic situation has started to affect the Costa Rican market.

Not only has there been a considerable decrease in real estate deals, but also the availability of reasonable loans has become limited and complicated.

This situation has caused investors to back out of “done deals” and made it much more difficult for developers to fulfill their obligations.

It is no secret that when a project is running smoothly, once the buyer makes a down payment or any further payments, this money is not usually invested directly in the specific lot or unit, but instead goes to a common fund used to cover expenses for the development of the entire project.

Furthermore, a substantial portion of the funds needed to complete a project comes from loans.

Now that financial entities are 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 come to a complete halt. This situation has left many investors and buyers with nothing more than a piece of paper stating that a certain amount of money was paid and that completion and delivery of what they paid for is due on a date that may have already passed. It is not uncommon to find projects not completed by the contractual deadline – in some cases with construction not even started or only in initial stages. Of course, this worries buyers and threatens investments, sometimes lifetime savings.

To make matters worse, cases exist in which contracts signed with the developer and drafted by the developer’s attorneys were not reviewed by objective counsel for the buyer. Such contracts may offer extensive protection only for the developer, and may be written in language so vague that a situation of breach by the developer is almost impossible.

In other cases, contracts are signed with a company acting as a seller, not with the registered owner of the land. This may make the situation seem like a lost cause, as the legal link between the seller, the owner of the property and the land may be impossible to establish, rendering the contract void and unenforceable.

Notwithstanding all of the above, a solution to these types of cases – recovery of deposits made or enforcement of the developer’s contractual obligations – is often possible with a little patience and a lot of legal skill. In fact, many people facing this type of situation go through hoops they don’t need to and often waste valuable time continuing with direct discussions with developers in breach of contract instead of turning the tables in their favor and rectifying what is wrong.

Our legal system provides several remedies that can be very effective in convincing developers to fulfill their commitments or to settle the situation so that their business is not affected more than it already is. In many cases, something as simple as putting a lien on the project can jeopardize the developer’s chances of closing other deals or obtaining financing, thus dramatically improving the odds of reaching a satisfactory settlement. At other times, more drastic legal action is required. Though results cannot be guaranteed, people with strong enough cases who fight for their rights and their money may be pleasantly surprised.

To know whether or not you have a strong case, you should consult an attorney with experience in this kind of litigation and request a diagnosis. This may include a National Registry search of the history of ownership of the property, as well as corporate searches of all previous owners of the land to establish links between them.

An in-depth analysis of the contract and all related correspondence and communications should also be performed. Finally, the attorney should inform you of the different options available and provide an estimate of his or her fees.

Although potentially high legal costs may be frustrating – especially if you consider yourself the victim – under the law, you would be entitled to recover these costs, or at least a significant part of them.

One last piece of advice: It is important to act quickly when a contractual breach has been detected, especially considering the current financial crisis, as the land could quickly change hands, making recovery much more complicated.

For more legal advice, contact Lang & Asociados at 2204-7871 or visit www.langcr.com.