Limitation period to claim the refund of surety insured down payments in the purchase of a house under construction in Spain

The Spanish Supreme Court has established that the limitation period to claim the return of down payments covered with surety insurance when buying a house under construction in Spain is of five years and not two

The obligation to guarantee the return of down payments in the purchase of houses under construction in Spain

The controversy over the limitation period to claim the refund of down payments made in the purchase of houses under construction in Spain starts with the protection scheme provided by Spanish Law 57/1968.

Indeed Law 57/1968 establishes the obligation of the seller to secure, with a bank guarantee or a surety insurance, the return of any down payments made by the buyer, in the purchase of a house under construction, for the event that the construction does not start, or the house can not be delivered to the buyer within the agreed term for any reason whatsoever.

The only requirement of this protection scheme is that the buyer uses the house to establish his residence, whether permanent or seasonal.

The limitation period to claim the refund of surety insured down payments in Spanish case-law

Spanish Supreme Court Judgment No. 320/2019, of June 5, has solved an important dilemma: what is the limitation period to claim the return of down payments guaranteed with surety insurance in case of breach of the seller?

Is it the period of two years provided for in art. 23 of the Spanish Insurance Contract Act for actions derived from any damage insurance?

Or is it a personal action without a special period and, therefore, governed by the statute of limitations of art. 1964 of the Spanish Civil Code, namely, five years?

Before we answer to such question, it is necessary to add a further difficulty in determining the limitation period established in art. 1964 of the Spanish Civil Code. This was fifteen years in its original version, although the article was modified by Law 42/2015, which has reduced the statute of limitations to five years. On the other hand, the 5th Transitory Provision of the latter establishes a transitional regime for existing relationships that will be analyzed further below.

In any case, returning to the main question to be elucidated (application of the statute of limitations of two years of art. 23 of the Spanish Insurance Contract Act or that of five years art. 1964 of the Spanish Civil Code), the doubts of Spanish Courts had been revealed even by the Supreme Court itself, which had two judgments that resulted in differing criteria on the issue (Judgement nº 643/2006, of July 15, considered applicable art. 23 of the Spanish Insurance Contract Act , whereas Judgment nº 3/2003, of January 17, opted for art. 1964 of the Spanish Civil Code).

The limitation period for claiming the refund of surety insured down payments in the purchase of a house is of five years

Judgment No. 320/2019, of June 5, settles the debate: the applicable limitation period is that of art. 1964 CC, i.e. five years.

The main reason that leads the Supreme Court to this conclusion is the comparison between the statute of limitations applicable when the seller offers a bank guarantee instead of a surety insurance.

In the former case, there is no doubt in Spanish law that the limitation period for the refund of such down payments is of five years.

Therefore, the Supreme Court has determined that if the buyer is offered a surety insurance, the limitation period must be the same of five years (and not that of two years established in the Spanish Insurance Contract Act), because that would discriminate the buyer provided with such an insurance and make him/her of worse condition that the buyer that has been offered a bank guarantee.

Fifteen or five years? The transitional regime

It is also interesting to note that Law 57/1968 is, at present, formally repealed, although its content has been transferred in block to Law 20/2015, which has preserved in its entirety its legal regime and has clarified some doubts that had arisen during its practical application.

In addition, despite its formal repeal, Law 57/1968 remains, as of today, temporarily applicable to the contracts of sale of housing under construction signed during its term of validity, which continue to generate a significant amount of litigation before Spanish courts.

To conclude this brief comment, reference should be made to the transitory regime provided for in Law 42/2015, in relation to the modification of the limitation period provided for in art. 1964 of the Spanish Civil Code. As we have seen, this term was fifteen years, becoming five since the entry into force of said Law, which occurred on October 7, 2015. Likewise, the 5th Transitory Provision of Law 42/2015 regulates the transitional regime applicable to existing relationships. Under said Temporary Provision, such existing relationships are governed by the new limitation period of five years from the entry into force of Law 42/2015. Therefore, claim actions to the insurer based on existing relationships will be time barred on October 7, 2020, if said limitation period has not been previously interrupted.

Photo: “Nuevos barrios II”, de Antonio. Under License (CC BY-SA 2.0)