Breaking Legal Contracts – State of Alarm

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Many people are concerned about breaking legal contracts at the current time. Or not fulfilling obligations under them due to problems relating to the lockdown or State of Alarm in Spain.

The Law on Breaking Legal Contracts

• Under Spanish Law ( article 1256 Civil Code) contracts are definite and compulsory. Parties cannot break them unless they have a legal reason.
• The Contract can be terminated if one of the parties breaches the contract and does not fulfil their obligations.
• However, the Supreme Tribunal has established that not all breaches of contracts are sufficient to terminate a contract.

What is sufficient to break a contract?

There are some conditions required:

• The breach of contact must be essential. It means it must be a grave and serious breach of contract. Therefore, a small delay won´t be enough to terminate a contract. A seller cannot say the contract is terminated because you did not have the money available to purchase on the set date.
• The breach of contract has to be related to an important obligation of the contact. It means that the breach of contract must affect a main obligation of the contract and not a secondary obligation.
• If both parties breach the contract you cannot terminate the contract. It means, you must prove you wanted to complete but the other part did not wish to.

Force Majeure or State of Alarm

A different situation is the force majeure or state of alarm. In this situation, conditions and consequences are different.

• During the state of alarm terms and obligations are suspended. Therefore, you cannot breach the contract for delays during this period and you cannot claim interest for delaying completion.
• If the delay causes definitive damage and the contract loses its original aim, then it is considered that the contract never existed. Thus both parties must give back what they received, without any loss to them.

Property Purchases and Sales

It is not possible in Spain to complete a property purchase and sale except in front of a Notary and they are only open currently if it is an urgent issue.

Generally with regard to a property purchase or sale these can be delayed, so it is not an urgent issue.

Also when just starting the transaction a contract can still be agreed, but it may have a longer completion date than usual given the uncertainty. So proceeding with purchases and sales is not a problem. We are continuing to get enquiries.

Completions that we had been getting close to completion can be postponed as explained above. This as long as the State of Alarm or Force Majeure exists. The deadline in a contract can be extended by an exchange of emails and mutual agreement.

Breaking legal contracts when the State of Alarm ends

When the State of Alarm ends we will move forward to completing purchases and sales. If you wish to drop out of a purchase or a sale currently, you are not able to. As you cannot breach the contract at a time when everything is suspended,as explained above.

You have to wait until the State of Alarm is lifted. However if you then advise that you wish to cancel after the State of Alarm is lifted, you may lose your deposit. Unless the other party is also in agreement that everything is off.

You also may be liable for full breach of contract and still be required to complete. Although it is possible that you may be able to prove that your circumstances were so affected (for example financially) that you could not complete the transaction. But please be aware it is not an easy thing to do, to cancel the transaction after a contract has been signed.

It is important to seek legal advice on this matter, as it is vital to get it right. Please contact us if you are thinking of breaking a legal contract or someone is doing it to you.