Hi All,
Totally agree with Norbert and DTC on their posts.
This is the new contract proposal Manzanares sent out to buyers of EDA October 5, 2011. Oddly enough, right after the new law about delays in Brazil came.
Wonder what the rest of you on this thread, especially those who are not buyers think about this contract proposal. (Assumes that all purchasers received it)
I hope you are keeping well. We are addressing you with the aim of providing you with the latest news concerning your purchase in the Brazilian Development Estrela do Atlantico.
After many months of negotiations and appointments with the Directors and legal representatives of the vendor BI&DI, we are glad to inform you that we finally reached an initial agreement in regards to the regularization of the purchase of the property you were interested in acquiring in Estrella do Atlantico.
For a better understanding of the current situation, we offer you an overview of the evolution of the development.
HISTORY:
The initial stage of the Development progressed in absolute normality; both our colleagues in Brazil and in the International Head Office of Manzanares International Lawyers checked out that progress of the building works was adequate. Therefore, there was no reason to foreseen a delay out of the usual practice in real estate developments in Brazil –and thus stated and allowed in the Private Purchase Contract‑. Clients made their payments in time, complying with the payment plan stated in the Purchase Private Contract.
However, Manzanares International Lawyers staff in Brazil informed us of certain facts that evidenced a slow down on the building pace. Immediately, our Firm’s Management intervened and requested a satisfactory explanation from the Developer. Several meetings between our CEO and BI&DI’s Management took place both in Europe and Brazil, and the answer was at all times that the delays were due to ordinary issues such as strikes related to the suppliers of materials, climatologic reasons, etc.. As they stated and according to the contract, those were considered as reasons of force majeure and beyond the control of the developer.
Nevertheless, our colleagues kept monitoring the progress of the building works and they noticed a gradual and significant increase on the previous slow down. Concerned about the possibility that the project continued experiencing delays and left the project unfinished, our Firm warned BI&DI that no further of the payments received from our clients would be transferred to them until we received any type of proof showing that the new delays were clearly and sufficiently justified.
Due to our constant requests and the pressure put on them, the vendor admitted that the delay was unusual and that it was due to the general situation of economic crisis that affected the financing plans and schedules they had in place. Therefore, they had to keep building with the funds they could raise on their own without counting on credits granted by banks.
In spite of the negative news, and although the building works continued on an extremely slow pace, they informed at all times on their intention of going ahead with the project and finalizing the units and the Development.
Once the vendor admitted the delay, we were obliged to negotiate new terms of payment because, regardless their promises, no real guarantee that the project was to be finalized was offered, and our concern was keep sending them funds that could be lost. As the payment plan according to the Purchase Private Contract clearly stated that payments were due in certain dates regardless the amount of work accomplished, we insisted upon signing an annex where the new payment plan was modified and further payment was linked to completed stages of the works and not to specific dates. Such agreement was verbally approved by BI&DI and, upon their request, we drafted the terms of the new agreement.
One of our demands was that those clients that failed to accomplish any of the stage payments in time but sent their funds to Manzanares International Lawyers, would not be liable for penalties in spite of not having met the second and/or the third payment ‑even in the event their non fulfilment occurred in a time when the builder had not yet incurred any delays, or even if these delays were justified for reasons of force majeure‑.
At the time and in spite of our Brazilian Lawyers’ firm position in this respect, we understood it would be convenient to submit the matter to our Firm’s Legal Committee of Local Partners –Rio de Janeiro, Brasilia, Sao Paulo and Natal‑ with the aim of carrying out a further analysis of this Development’s situation: even though the vendor breached the contract terms by means of a significant delay on the construction, in case the buyer has not met his part of the contract terms –in this case, the stage payments were not made in time‑, both parties would be on breach of contract and the buyer would not be entitled to claim for default. Although this left our clients in an unfair position as fulfilling the contract would have forced them to risk further funds without any guarantee of return, the Law establishes that in order to claim through the Court, the plaintiff must have accomplished the contract terms. However, by doing so we faced two important risks: (i) complying the terms on the contract involved making payments in the dates stated in the Purchase Private Contract despite the uncertainty in regards to finalization of the building works, thus risking more funds; (ii) even when payments were made in time, a Judge could well decide that all delays were due to force majeur, thus losing the case and either forcing our clients to complete on the purchase or pay the vendor extra funds for damage.
Following the verbal agreements made with BI&DI and upon their request, we issued a number of drafts for such annex, always under the agreement that the funds received by Manzanares were withheld in trust regime and therefore considered as payments actually made to the vendor. After 18 months of negotiations, meetings, phone calls, drafts made, modified, sent and returned, etc. –and each one of them required the final approval of both our and their management‑, we have managed to reach an initial agreement in this regard.
NEGOTIATION:
The main items we based on our position throughout the long months of negotiations were the following:
1. Protecting the rights of our clients: we intended providing the funds to the vendor gradually but only when proof of progress was submitted; the vendor would then receive funds so he could continue the project but we would prevent that he took further funds and ceased progress on the building works.
2. Reducing the financial risk: it was preferably to be on breach of contract –your rights for return of funds are the same whether you are on breach or not as the Judge would make the final decision‑ rather than making any additional payments without receiving technical evidence that might prove progress in the building works.
3. We committed that any funds received from our clients for stage payments would be blocked in favour of the vendor until he provided proof of progress on the project. In this sense, the vendor accepted that Manzanares, through its clients escrow bank account, might act as trustee of the funds, and the vendor would consider these funds as duly paid ‑and therefore, no breach of contract would be incurred and no penalty would be applied‑, although the funds would only be released to the vendor once the relevant building stage was accomplished.
In your case the payments made, blocked and pending would be as follows:
- First Instalment paid: 23.308,03 Euros
- Second Instalment paid: 23.308,03 Euros
- Third Instalment blocked: 23.308,03 Euros
- Completion payment pending: 23.308,03 Euros
Please note that, in relation to the funds retained by Manzanares that they accepted as funds received, we have been warned by BI&DI that although they are not legally blocked in their favour, in the event we intend to release them in any other sense besides making the related payments and following their instructions, they would claim breach of contract by the buyers’ side and take immediate legal action against both the client as Buyer and against Manzanares as temporary depositary of the funds.
Therefore, our aim is signing an annex that would officially normalize the retained payments, stating that they would be released in several payments that would be linked to percentages of work completed (85%, 90%, 95% and final payment on 100%).
4. Likewise, those clients that did not meet the stage payments within the deadlines stated in the contract, would not pay any penalty for late payment pursuant to the Purchase Private Contract signed between the parties as a new payment plan of the pending instalments would be in force since the signing of the annex.
As you can observe in the items above, the objective of the negotiations is avoiding payment of further funds without any guarantee of continuity on the building progress and also avoiding having to face any penalties for not doing so, however ensuring that this suggested new payment plan is legally approved and legally binding by means of a new agreement –the mentioned annex‑ stated in writing and signed between the parties which might regularize the legal situation of the purchase.
As a result of months of tough negotiations, several meetings held, etc. we finally agreed with BI&DI’s legal team a draft that we can provide to our clients for their perusal, and that would normalize the situation of both the vendor –no penalties for delay as, in any case, they would be prepared to prove force majeure in the event of a trial‑ and for our clients –not meeting the payments to the vendor within the timeframe scheduled in the contract‑.
ADDENDUM:
After several weeks of final reviews and intense discussion over the terms that would be included and the form given, the mentioned annex or Addendum to be signed would include the following terms:
○ Pending amounts for the 2nd and 3rd payments will be done on three instalments when building works reach 85%-90%-95% of the works respectively.
○ Completion Date: January 2012
○ Written proof of works’ progress by means of an official certificate issued by a qualified HSBC Technician.
○ Final payment will be done as per the PURCHASE PRIVATE CONTRACT.
○ No penalties will be claimed from both sides for the delays incurred in delivery and payments respectively.
○ In case the new completion date is not met, BI&DI would be liable for a monthly penalty of 2 minimum salaries per month of delay (R$ 540 x 2, that is, R$ 1.080,00 per month) to be discounted from the final price.
○ In case of late payment, the purchaser would be liable for a penalty equal to the one described above.
Please find attached the final text for your perusal.
At this stage, the building works already reached 85%, and proof of this has been duly provided by the attached Certificate. Also, please find attached the most recent pictures received so you can check the status of the Development.
OPTIONS:
Over the past weeks we held many conversations with the vendor about the options available. In the course of those conversations, the query on whether signing a new contract or Addendum is compulsory was raised. The answer to this question is simply and categorically No; however, after a deep analysis and study of the advantages and disadvantages, from our point of view signing such Addendum would be beneficial for our clients.
Please see below the two options available at the moment and some of the related pros and cons:
1) Signing the Addendum.
Advantages:
· You would become the owner of the property initially reserved and secure the investment already made.
· By being the property owner, you can finally obtain a profit by selling or renting the dwelling.
· Before making further payments, you would receive proof of building progress through a certificate issued by a qualified technician.
· In case of breach of the terms on the Addendum, you have the right to execute your claim for penalties as per the new agreement.
· No penalties will be charged for lack/late payment.
· No risk of paying further funds without receiving any proof of progress.
Disadvantages:
· You would renounce to claim penalties for delay to the vendor –as in any case the vendor’s position is not paying any penalties regardless you are up to date with your payments or not‑.
· Completion extended until January 2012
Legal Work. Fees and Costs Involved:
Manzanares International Lawyers activity and fees would be as follows:
· Draft and Exchange of Contracts related to signing the Addendum in Brazil: 800,00 Euros.
· Review of the different certificates issued by the HSBC technician indicating percentage of work accomplished: 200,00 Euros (charged as a lump sum and not individually for each certificate).
· Holding funds on our Escrow Bank Account and Management of transfer of funds to Brazil: 200,00 Euros.
· Signing of the Title Deeds in Brazil as quoted originally: 609,65 Euros.
· Out of Pocket Costs for activities related to the Addendum: representation, searches, negotiation meetings, travel expenses, postal expenses, etc.: 100,00 Euros.
Total: 1.909,65 Euros
(*) Please bear in mind that the delay on delivery of the Development also increased the time that your file has been opened and attended in respect to the initial payment plan and provision of legal fees paid. In this case, the deferral fee has not been requested or charged, but any extra work carried out on your behalf must be quoted and charged separately as it is not included within the normal conveyance service.
2) Start legal action against BI&DI
The grounding for this case would be the fact that BI&DI is bounded to deliver a property to the buyer within a certain deadline ‑plus the grace period stated in the contract signed‑ and they failed to do so, that is, BI&DI is on breach of contract for late delivery.
Advantages:
· You would have chances of recovering the funds paid or part of them
Disadvantages:
· Length of the process
· Court and legal fees
· BI&DI would also claim late payment from buyer’s side
· Uncertainty on the result –even in case the sentence is favourable to you, we must bear in mind that for receiving the funds claimed we would depend on the solvency of the vendor at the date of the Judge sentence.
Potential scenarios:
1 Client takes legal action at this stage claiming late delivery.
The grounding of the claim will be basically the breach of the developer’s main contractual obligation which is building the development within the deadline stated in the PURCHASE PRIVATE CONTRACT. Our request will be the refund of the amount paid –updated according to the Brazilian indexes‑, interest and penalties according to Brazilian Legislation and material damages. In order to minimize the risks of such court case we would also request that the Judge instructs the proper measures to secure the result in case of a positive outcome. We must bear in mind that the Developer will allege force majeure to justify the delay.
Time estimate for this process: Between 2 and 5 years
2 Developer claims completion of the purchase.
Since the building works are currently accomplished on an 85%, the Developer would officially request that the buyer completes the purchase of the property. He could also claim penalties for late payment in the event he can prove the force majeur.
Legal Work. Fees and Costs Involved
· Legal assistance at court.
· Legal correspondence with the court / opposite party.
· Updating clients regarding the progress of the court case.
· Fees and Expenses:
- According to OAB, Ordem dos Advogados do Brasil, the legal fee for this service is a minimum of 10%, maximum a 20% of the claimed amount. Final percentage to be confirmed at a later stage.
- Court fees calculated on the value of the matter in controversy (0,96% approx.)
- Legal searches: Estimated 500,00 €uros
- Accountancy: 0,5% of the claimed amount with a minimum of R$ 465,00
- Technical report: Amount to be confirmed at a later stage. Most likely these costs can be divided between all clients.
NEXT STEP:
Although we are aware that the provided options all have downsides and legal action does not seem to lead to guaranteed results, we hope that this communication gives you a clearer idea of the current situation, the Developer’s position and the options available to you at this stage.
I look forward to receiving your comments on the report provided in this e-mail
Thank you very much for your kind attention, best regards,
Adolfo Silva
Abogado - Lawyer
Manzanares International Lawyers - Head Office
Regards Rangers