In the practical experience of this Law Firm in Malaga and Nerja, one of the main reasons why a property purchase transaction ends up being frustrated is due to the refusal of bank financing for the sale and purchase of property, requested by the buyer, without which he cannot afford to pay the purchase price.

This is due to the fact that the vast majority of property sales in Malaga and Spain are carried out with bank financing, and it is therefore essential that the buyer be granted such financing in order to be able to purchase the property. This financing therefore becomes an essential element in the real estate market.

In addition, in periods of rising interest rates, it is often impossible for the buyer of a home or any other type of real estate asset to obtain financing, which leads to the contractual ineffectiveness of the sale and purchase transaction. Among the problems in the sale and purchase of housing is the refusal of bank financing, which results in the buyer’s failure to pay the price, or delay in payment.

Failure to pay the purchase price results in the termination of the conveyancing contract

The refusal of bank financing for the sale and purchase of property can result in the non-payment of the purchase price by the buyer. In a sale and purchase transaction of a house or real estate, the main obligation of the buyer in a sale and purchase contract is to pay the agreed price, while the seller, in the event of the buyer’s failure to pay the price, can demand full performance of the contract from the buyer, or terminate the contract and demand the corresponding compensation for damages caused by the buyer‘s non-performance.

Failure to pay the purchase price can lead to the termination of the purchase contract, or not, depending on how the contract was drawn up. It is essential to have a lawyer who is an expert in sales and purchases to advise you properly on the sales and purchase contract you are going to sign in order to avoid problems. The Law Firm Pérez Parras Economistas y Abogados, located in Malaga and Nerja, has lawyers who are experts in property sales (homes, premises, car parks, buildings, etc). The refusal of bank financing can lead to undesirable situations in a property sale and purchase transaction for the buyer and/or seller if they have not been contractually foreseen.

That the seller can terminate the property purchase contract in Malaga if the buyer is unable to pay the agreed purchase price is evident, since such a situation implies an essential breach that entails the frustration of the contract, as the payment of the price is the main performance in a sale of a property. Thus, if in the past our Spanish Supreme Court required for the termination of the contract that there be a deliberately rebellious will to perform, or interpreted that the frustration of the purchase contract did not occur when the cause that gave rise to the non-performance was not attributable to the parties, more recently our High Court considers that when there is an obstacle that absolutely, definitively and irreformably prevents performance, then the purchase contract can be terminated. And this would be the case when the buyer is unable or unwilling to pay the agreed purchase price.

In short, the spanish Supreme Court understands that when the entity of the unfulfilled obligation is serious, that is to say, the non-fulfilment is serious, the contract can be terminated. However, contractual termination is not possible when the non-performance is merely complementary to the main obligation, since the non-performance is not sufficiently serious with respect to the performance agreed in the contract to justify the termination of the contractual relationship.

More recently, the Spanish Supreme Court has interpreted that what is relevant is not so much the entity – the seriousness – of the non-performance, but the consequences that the non-performance of the buyer generates in the seller, and vice versa. In other words, what is important in order to be able to terminate the conveyancing contract is that the non-performance of the buyer or the seller is essential and detrimental to the purpose pursued by the contract of sale of property. This last interpretation of the Spanish Supreme Court is important, as this approach allows for the termination of the purchase contract not only because the non-performance of the buyer or seller is in relation to the main performance of the purchase contract (such as paying a price to receive a property), but also in cases where the non-performance is of an accessory or merely complementary nature, if the purchase contract considers it an essential cause that is being breached, it allows for the termination of the property purchase contract. To put a typical example of the purchase and sale operations in which we act as lawyers for the buyer or seller in Malaga, in Nerja or Andalusia, the buyer is usually interested in buying a property which he can in turn market and rent out as a holiday rental. As lawyers, we take special care in drafting the contract in this sense, so that the buyer can terminate the contract of sale and not be harmed if the property does not meet the requirements to be exploited as a tourist property. And this is the current approach of the Supreme Court, which allows the termination of the contract even when an accessory or complementary provision is not fulfilled, such as the fact that the property that is the object of the sale and purchase can be marketed as a holiday rental property.

Knowing in detail the legal characteristics of the property you are going to buy or sell, and preparing a professional purchase contract that brings together all your interests is essential to be able to carry out the transaction safely, taking into account the possible unforeseen events that may arise. In the Pérez Parras Economists and Lawyers Firm we have extensive experience in the purchase and sale of properties for our national and foreign clients, and we can advise you to make your purchase in Malaga, Nerja or Andalusia with all security and professionalism.

But it should not be forgotten that, for example, in order for the seller to be able to terminate the asset purchase contract, he must have fulfilled his own obligations. For example, the developer must have provided a bank guarantee, in accordance with Law 38/1999, of 5 November, on Building Regulations, so that if the buyer does not pay the price or does not pay the amounts advanced, the seller can terminate the contract, because if the bank guarantee required by law is not provided by the seller, it would be justified for the buyer to stop paying the agreed purchase price, and may even be able to terminate the purchase contract.

There are, therefore, many issues to take into account when buying or selling a property in Malaga (Andalusia, Spain), and therefore it is highly recommended to have lawyers who are experts in buying or selling a property in Malaga (Andalusia, Spain).

If there is a refusal of bank financing for the sale and purchase of property, can the delay in payment of the price also be a cause for termination of the purchase contract?

The refusal of bank financing for the sale and purchase of property can also lead to a delay in the payment of the purchase price by the buyer. But can such a delay in the payment of the purchase price also be a cause for termination of the purchase contract? The answer is that it depends.

The drafting of a contract for the purchase of real estate (housing, parking, building, turnkey, etc.) is essential to ensure that it is in accordance with the interests of both buyer and seller. The delay in payment can be configured in different ways, and with different legal effects. At Pérez Parras Economists and Lawyers, in Malaga and Nerja, we can advise you on your purchase and sale transaction so that it can be carried out with guarantees. The refusal of bank financing can lead to situations such as late payment by the buyer, or partial or incomplete payment, with undesirable situations in a property purchase transaction for the buyer and/or seller if they have not been contractually foreseen.

If the property purchase contract in Malaga has been designed in such a way that the timely and punctual payment of the purchase price is essential and this was made clear in the asset purchase contract as a condition of termination, it would have this effect. But if, on the other hand, the punctual and timely payment of the purchase price was not agreed as essential, the termination of the purchase contract due to a delay in the price if it is the purchase of a property intended for the buyer’s habitual residence (which also entails an important additional social component, because a fundamental right to housing and to personal and family privacy is exercised), and not a mere acquisition of another asset of the buyer, the contractual termination of the purchase contract would be disproportionate and drastic, to the detriment of the buyer.

In general, and unlike the case in which the buyer does not obtain the bank financing to be able to complete the purchase of the property, the delay in the payment of the purchase price of the property constitutes only a temporary, non-essential breach, which is also rectifiable (it is not definitive), unless, again, payment within a certain period of time has been configured as an essential condition.

In conclusion, only in those exceptional cases in which the punctual payment of the purchase price has been stipulated in the contract as essential as a resolutive condition, it would have such an effect. Otherwise, even if late payment is expressly stipulated as a (non-essential) resolutory condition, Article 1504 of the spanish Civil Code stipulates that the buyer may pay and prevent the termination of the contract after the expiry of the term as long as he has not been required to do so by a court or notary. And if the buyer is requested by court or notary to pay the purchase price, the seller does not have to wait any longer. The delay in payment by the buyer will entail as a penalty the accrual of interest, due to the legal insecurity generated by the seller regarding his right to payment.

And if you are the seller and the buyer has not paid you the purchase price within the stipulated period, and this period was not configured in the contract as essential, you must be very aware, therefore, that in order to terminate the purchase contract that you have thus established as a resolutive condition, you must require the buyer to make the payment, warning him that if he does not do so, you will proceed to terminate the contract. Therefore, it is not sufficient to sue the buyer directly in court to request the termination of the contract, but you must have previously requested the buyer in a formal manner, i.e., in court or through a notary, and a registered fax or any other written means of notification is not sufficient.

What if the buyer makes a partial payment of the purchase price because he has gotten a refusal of bank financing for the sale and purchase of the property? Can I terminate the purchase contract in case of partial payment?

The refusal of bank financing for the sale and purchase purchase of property can result in the buyer making a partial payment of the total purchase price. Well, the ideal way to avoid problems, in accordance with the Spanish Civil Code, is to establish as a resolutive condition with which the contract can be terminated even when the non-payment made by the buyer has been partial, of a small part of the price, if this is in the interest of the seller. Otherwise, and if it had not been established in this way in the contract, seeking the contractual termination of the purchase contract by the seller could be considered abusive when the seller has collected most of the price, and still wants to terminate the contract for non-payment of a small amount.

The purchase contract can be configured in such a way that the partial payment, incomplete on time, of the purchase price by the buyer can even lead to the cancellation of the purchase contract, if that is the interest of the seller. The lawyers at Pérez Parras Economists and Lawyers firm have extensive experience in sales and purchases in Malaga, Nerja and Andalusia, for national and international clients, and will advise you on how to buy or sell your property with guarantees.

The termination of the contract will mean that the seller must return the sums paid by the buyer, for the asset purchase price, unless a penalty clause has been agreed in favour of the seller whereby he may retain the sums he has collected, and the buyer must return the property, if it has been delivered to him. And if the property acquired by the buyer has already been sold to a third party in good faith, the buyer will not be obliged to return the property to the seller as a result of the contractual termination of the sale contract, but the buyer will be obliged to compensate the seller in this case for the damages caused to the latter. If the resolutory condition has also been registered in the spanish Land Registry, then such termination will affect third parties who have rights or charges on the property registered after the registration of the resolutory clause. In this regard, the recent spanish Supreme Court ruling clearly states:

The termination of the property purchase contract implies that the seller returns the amounts paid by the buyer, and that the buyer returns the purchased home to the seller. The effects on possible third party buyers will depend on the registration of the purchase contract in the Land Registry. The lawyers at Pérez Parras Economists and Lawyers Firm will advise you in your property purchase in Malaga, in Nerja and Andalusia, so that everything goes according to your interests.

Furthermore, the advantage of having registered the resolutory condition in the spanish Land Registry is that, if there has been no opposition to the notarial or judicial request by the buyer, the termination of the purchase contract will be automatic, with the ownership of the property being directly re-registered in the name of the seller in the Land Registry, with the sole condition that the amounts collected have been deposited (article 175. 6.a of the Mortgage Regulation), without the need to go through the courts to do so, although, of course, the corresponding legal action must be taken in the event that the seller needs to recover possession of the property from the buyer.

The possibility of withdrawal due to refusal of bank financing for the sale and purchase of property

With the refusal of bank financing for the purchase of real estate, if the asset purchase contract is linked to obtaining a loan or bank financing, the contract may be withdrawn if the credit institution refuses to grant the financing requested by the buyer. And it is not required that the refusal of the financing be due to a specific or just cause, but it is sufficient that it is justified that the refusal of the requested bank financing has taken place. This situation is applicable not only to the contract of propoprty sale in Malaga, but also to the earnest money contract in Málaga or Nerja, or the reservation contract in Málaga or Nerja, etc.

However, in order for the buyer to be able to withdraw from the sale and purchase if he does not obtain the bank financing, the following requirements must be met:

1. It must be stipulated in the property purchase contract in Málaga and Nerja, or in the earnest money contract in Málaga and Nerja, or in the reservation contract in Malaga and Nerja that the conveyancing in Malaga and Nerja is to be made by requesting third-party financing from a bank or credit institution, and that if this financing is not obtained, it must be expressly stated that the real estate transaction may be withdrawn.
2. The third-party financing must come from a credit institution. And it is not generally required that all possible banks have been approached. It is not even required that a second bank could have provided the financing, unless it is expressly agreed when and how the power to terminate the purchase contract will operate.
3. A time limit must be set for notifying and justifying that the requested financing has been refused. If no specific time limit is set, it is nevertheless understood that within a reasonable period of time it will be possible to give such notice and justify the refusal of the financing that was to be requested.
4. The bank’s refusal to grant the financing to the buyer, within the agreed period of time, must be accredited. And no specific formality is required to prove this, the written notification from the buyer to the seller is sufficient, communicating the refusal of the lender, attaching the letter or e-mail sent by the bank to the buyer to confirm the refusal of the financing.
5. The lender’s refusal to grant the buyer the requested financing cannot be due to the buyer’s negligence. Examples of buyer negligence could be that the buyer does not provide the lender with the requested information or documentation to consider granting the financing, or that the buyer has simply not applied for the financing.

In the case of refusal of bank financing in the purchase and sale of real estate in Malaga and/or Nerja, if the buyer withdraws from the real estate, the seller must return in full the price that the buyer has paid to date, for whatever reason, including the deposit, the reservation, etc. And the buyer must leave the seller in the same situation in which he would have found himself if the contract of sale had not been concluded, so that if the property has already been transferred to the buyer, the latter must return it to the seller, without prejudice to third parties in good faith who have registered their rights in the spanish Land Registry, in accordance with Spanish mortgage law.

The seller damaged by the rescission of the purchase contract, because the buyer has not obtained the bank financing requested for the purchase, can claim from the buyer all the expenses incurred in the purchase up to the moment, even being able to claim the expenses of the Real Estate Agency involved in the purchase operation. In the Perez Parras Economists and Lawyers Firm we can advise you in detail, so that you can carry out the purchase and sale of your property in Malaga, Nerja or Andalusia in the safest and most professional way.

If you want to buy a property, business premises, building or parking, or sell a property in Malaga, and you want to avoid problems following the purchase of a property in Malaga, in the Law Firm Pérez Parras Economists and Lawyers in Málaga we are expert lawyers in the purchase and sale of properties in Malaga and Nerja, with a team of lawyers and economists bilingual English / Spanish who can advise you to avoid surprises in the purchase of your property. We have offices in the centre of Malaga and Nerja. Do not hesitate to contact us and ask us for a quote to accompany you in the process of buying or selling your property. We will prepare and review your earnest money contract after ensuring that the purchase you wish to make is viable and secure, without hidden charges of any kind, and we will help you and deal with all the taxes associated with your property purchase and sale operation in Málaga, optimising for example the IRPF to pay if the property comes from an inheritance, advising you until the end of your purchase, or sale of the property, including the tax declaration, whether you are resident or taxed as a non-resident, and any other procedure with the Administration or Land Registry. You should also know that with the purchase of your property worth at least 500,000 euros in Spain we can help you to process your Golden Visa Investor Residence Permit for you and your family members. Equally, if you have any difficulties following the sale or purchase of a property, please do not hesitate to contact us so that we can advise you and defend you in or out of court if necessary. If you are a highly qualified professional in Malaga and wish to purchase your property in Malaga, we will also advise you in every step of the purchase process, ensuring that the property you wish to buy and the investment you wish to make will not cause you any problems, protecting your interests, organising your taxes and taxation as a highly qualified professional, so that you can develop your professional career and settle your life and your future in Malaga or Nerja with all the guarantees of the best legal advice.