Thursday, December 06, 2007

Clauses in real estate contracts confirmed as abusive

After the 8th Circuit Judge rendered an initial May 31, 2007, decision in the Duque vs Neto S.A. case in favor of the buyer of a condo (see Tough times for sellers of Panama City skycrapers?), the Third Superior Tribunal confirmed the decision on appeal.

The Tribunal only considered as non-abusive a clause which allows the developer to charge 1% of the price until the registration of the sale, which leaves as abusive clauses:
  • A 5% unilateral increase in the purchase price if the seller deems that building materials have increased in price,
  • The seller to withhold all previous downpayments if it unilaterally considers that the buyer is in default of agreement obligations,
  • The seller to unilaterally decide not to build and simply return all downpayments without interest and with the seller waiving all claims for said action,
  • All disputes to be subject to arbitration excluding the consumer protection courts.

The defendants Neto, S.A., are entitled to file a cassation action before the Supreme Court. Although precedent is not fully binding on other judges and this case does not declare void clauses in other contracts, it provides powerful arguments to those buyers suing developers with contracts that have similar clauses.

This consumer protection case serves only those buyers - foreign or locals - who have a single home in Panama. Those who are buying several properties for resale are not protected by the concept of abusive clauses. Needless to say, the expense of having a contract in Spanish translated into the buyer's language goes a long way towards avoiding running into an abusive clause.

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