If You Want Fairness, Get it in Black and White

Wednesday, June 16, 2010

Dear Reader,

I’ve had a handful of inquiries recently here in Panama, from readers who were unhappy with their condos as delivered by the developer.

Sometimes with pre-construction property, closing is behind schedule due to construction delays. Perhaps the view isn’t quite what the glossy sales brochure indicated. Maybe you didn’t get the marble flooring and Italian kitchen the salesperson promised; instead, the kitchen is a standard off-the-shelf model, and the floor tiles are cheap ceramic.

When this happens, the problem that buyers face is twofold. One is that the items that were so important to them were not explicitly in the contract…and the other is that they’re in a country where “having it down in black and white” is indispensable.

Unfortunately, there’s not much they can do, aside from contacting an attorney, and hoping for some flexibility from the developer.

The good news is that if you’re considering buying a property overseas but haven’t taken the plunge yet, this letter could save you a lot of time, money, and stress.

If you’re dissatisfied with a pre-construction property back home, you might refuse to make your final payment, or part of it, until the developer compensated you in some way. And if it went to court, you’d plead for fairness (“I didn’t complete the sale, because the developer didn’t deliver the kitchen I expected”). That’s because most of the US and Canada have a “common law” legal system. Most of Latin America however, uses civil law; and it’s very different.

Common law is warm, grey, and fuzzy. You get to argue your case based on the concept of “fairness”. Civil law is clear-cut, black and white. You’re either right or you’re wrong. You didn’t complete your terms of the contract? You’re in default...regardless of what you expected at delivery time.

And the likelihood is you wouldn’t even get to court. Most contracts in Latin America that I’ve seen—and I’ve seen hundreds—allow the developer to keep your condo and the monies you’ve paid to date, if you are in default. (Brazil is one of the exceptions; here, the developer is obliged to give you back some of the money you’ve already paid—but he still keeps the condo.) The developer won’t have to go to court—he’ll just notify you that you’re in default, and give you a time period to pay.

In most contracts I’ve seen, the developer covers himself for construction delays resulting from delayed permitting, labor problems, or weather…but most standard contracts don’t contain specific details on exactly what kitchen, view, or flooring you’ll get.

That’s why you need a good in-country attorney, who can go through your contract clause by clause, and explain it to you clearly. Then you should figure out what you won’t compromise on. If you can’t live without the marble flooring or the hand-made kitchen, make it part of the contract.

And pay close attention to penalty clauses. Ask for penalties if the developer fails to deliver what he’s promising, within a reasonable timeframe (you’ll always have delays), or to standard. That way, he’s clearly at fault if he doesn’t.

Always consider the “what-if” scenarios. Ask yourself: if I backed out at any stage, or couldn’t close, what then? If you can foresee such an event, then spell out your contingencies in the contract.

Make your contract watertight before you sign on the dotted line and commit yourself to buying.

Remember, buying an overseas property can be the best move you’ll make. Just make sure you study your contract carefully so the whole process goes smoothly from signing to closing.

Margaret Summerfield

P.S. I referred the buyers in Panama with closing issues to the attorney we work with, Rainelda Mata-Kelly. Rainelda can also help you with your Panama sales contract before you buy. Contact her here: (JavaScript must be enabled to view this email address).

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due diligence