After years of legal wrangling and setbacks, British homebuyers who were caught cold by the Spanish property market crash are finally beginning to recoup the millions they paid for holiday homes that were never built.

A ruling in Spain’s supreme court in December 2015 opened the way for an estimated 130,000 Britons to claim directly from the banks rather than property developers, who promptly declared themselves bankrupt.

It has been estimated British buyers are owed £5.3bn in deposits and stage payments on properties purchased off-plan, most of which were never completed. In total, approximately 500,000 people were affected, including about 300,000 Spaniards.

Before the ruling, only those with bank guarantees – about 5% of people affected – could claim directly from the banks. The supreme court then ruled that regardless of whether they had guarantees, the banks had an obligation to safeguard buyers’ money. The average case takes 12-15 months to complete so it is only now that the banks are starting to pay out.

“Many people are so fed up they can’t face the idea of going to court again,” says Luis Cuervo, CEO of Spanish Legal Reclaims, which is handling hundreds of cases. “What they need to understand is that they now have a good chance of recovering the money. It’s not property developers we’re up against now, it’s banks – and they have the money to pay.

“People who took developers to court were badly advised because they all just went bankrupt. They spent more money, won the case but got nothing. Only a minority who had bank guarantees went to court and won.”

Cases must be filed within 15 years of the expected completion date of the property. Claimants must provide evidence of a contract with the developer, payments made into the developer’s account and the fact that the property was never delivered.

Until the bubble burst in 2008, the property boom had seen Spain building more homes than the UK, Germany and France combined. Many of these were holiday homes on the Costas, but tens of thousands were built in urbanisations on the outskirts of many Spanish towns. During the boom Spaniards were buying first and second homes off-plan. Spain is now littered with half-built, largely uninhabited housing developments.

One such development was Trampolin Hills in Murcia, south-east Spain. The proposed resort with 2,573 homes was never built, but buyers had invested €53.5m (£46m) in the project, although the principal bank involved provided guarantees for only a fraction of the proposed homes.

Guadalupe Sánchez, a lawyer at GM Legal Experts in Alicante, whose firm has handled thousands of cases, accuses the banks of stalling on the agreements, alleging that the longer they delayed the more people would fall outside the 15-year timeframe.

She says the banks that took over the savings banks that collapsed in the crash don’t know how much potential debt they incurred during the takeover.

Claimants must beware the high cost of fees charged by Spanish legal firms. Cases are generally fought on a no-win, no-fee basis, and in the case of Spanish Legal Reclaims, the fee is 30%-35% of the claim. However, any compensation award is likely to include a large amount of accrued interest, so claimants may not end up out of pocket. Banks usually appeal against the first decision so it’s important to ensure the no-win, no-fee contract covers the entire process. Some judges will award legal costs, typically 10% of the claim plus a further 5% if the case goes to appeal.

A decade of costly legal battles

• In 2002, Anne, a retired NHS worker from London, and her husband decided to buy a two-bedroom apartment near Marbella. They paid a deposit, then a series of stage payments of about €220,000. The purchase price was €305,000.

When the property was delivered it was not built according to the original plan. She took the developer to court and lost in 2007, but won on appeal in 2010. The developer appealed and so she went to the supreme court in 2014 and won, at which point the developer declared itself bankrupt. Anne had spent £30,000 in fees. Since the ruling she has recovered €180,000 from her bank after paying legal fees.

• In 2003, Mary, a former retail manager from Durham, made an initial payment on an apartment at a golfing development in Almería, south-east Spain. By 2005, she had paid €51,000 on a final purchase price of €130,000. She later discovered the property was registered as a tourist apartment, which meant she would have to rent it out part of the year, although she planned to retire and live there full-time.

She won a court case in 2008, but the developer went bankrupt. A few weeks ago she won €9,000 in a claim against one bank. She is going back to court in a few weeks to continue her claims against several other banks for a further €38,000.

How to claim

If you think you are eligible you should first seek independent and impartial legal advice. To proceed you will need the following:
• A signed contract between the client and the developer.
• Proof of payment into the property developer’s bank account. In many cases, the client will have transferred money to their lawyer rather than directly to the property developer’s bank. In such cases, your lawyer has to locate the developer’s lawyer to get proof it received the funds.
• Judgments – if you have previously tried to take the developer to court, it is important to let your lawyer know.
• Other supporting documents for the property, such as paperwork or email exchanges, should be shared with your legal adviser to give them the best chance of reclaiming your cash. The deadline for claims is 7 October 2020.