Properties and unpaid community fees

Many potential buyers know, or are informed by their lawyers, that you need to ask for a certificate to show that there are no debts attached to the property when buying a resale, to avoid getting landed with a bill for a backlog of owed community fees when they move in. This is the common practice on the Costa del Sol. But what about when you buy a brand new property from a developer?

As you can imagine if you buy a property regardless or whether it is owned by an individual or a company (in this case a developer) once the title deeds are signed, the vendor can wash their hands of any community debts that are owed and the new owner lands up with an unexpected bill. In the case of newly built properties, this was never an issue in the past as properties sold within a short time and most were sold during the building phase, so the issue never arose.

The financial crisis we are still in though changes the situation somewhat though. Many communities of residents have to deal with mounting debts in newer urbanisations as many might have bought during the construction phase with the idea of never reaching completion as they intended to ‘flip-it’ prior to completion or shortly after. So not only have some communities been struggling with owners unable or unwilling to pay their share of the community fees but now on newer projects, communities have to deal with developers not paying their share on the properties they (the developer) are still trying to sell.

In the worst case it is possible that developers debts could run into millions of euros in the province of Malaga. What’s more the debts build up month after month. There are cases where developers have not paid their part of the community for unsold properties, garages, storerooms or commercial premises for as long as two years.

As you can imaging during the property boom this was not an issue as the developer knew that within a few months they would sell the property, so paying the community fees, which pay for the gardens, etc…, was no hardship. Now though the situation is different.

In the province of Malaga, according to the Association of Builders and Developers (ACP), there is an unsold stock of 25,000 new properties. Unfortunately there is no information available to say how many are or are not up to date on their community payments. What we can expect though is that like many individuals, communities fees are the first thing people stop paying when they run into cash flow problems, with the idea to make up the payments when things improve. Would a developer/promoter be any different?

Unfortunately in a few cases, some communities are on the verge of bankruptcy and cannot pay even for the basic utilities (water and electricity) for the communal spaces. Of course this is not the rule of thumb. In most cases the issue has only arisen with development companies that were set up during the height of the boom. The larger firms might be behind on some payments, but tend to reach an agreement with the community to arrange payments. Small firms that simply close down and disappear.

So what are the communities doing about this? Well like individuals who are not paying their fees, the community can only turn to the courts for a solution, where a verdict can take approximately six month and further year to before the money is paid. If the developer is going or has gone into administration the monies owed might never get paid as they have to normally get behind a queue of banks and suppliers are also owed monies.

Even in the scenario where the developer has gone bankrupt and the unsold assets have been repossessed by the bank the same issue may arise as the banks may not be any more willing to pay out additional fees.

In the worst cases owners who were already paying high community fees might suddenly have to pay out even more to keep the community running.

Remember this is a very rare occurrence, but it better to be forewarned when buying in new developments.

Regards
Andrew Belles

One Response to “Properties and unpaid community fees”

  1. tjohnson says:

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