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When a developer is in breach of contract

image of When a developer is in breach of contract

We have answered this question from our practical experience in trying to assist a great many British citizens in this particular predicament.

The law does not provide rules for breach of contract which are different according to whether or not the seller is a developer; the applicable law is to be found in the Law for Contracts and Obligations. However, a developer  is subject to certain obligations such as guarantee for the building works, which differ in length according to whether it is structural or, say, the electricity or water canalization.

Certain matters must be verified first.

Is the developer justified in his breach? Many purchasers pay their installments to legal persons or individuals who are in no way referred to in the contract. The seller then says he has never received them. Perhaps the purchaser was asked to do so over the telephone or by email (inadmissable in a Bulgarian court).We even had a case where this was done by a local Estate Agent in a pub in Northern Ireland - and the payment details written on a beer mat. To be valid and comply with a contract, payments must be made to the seller or the person otherwise named in the contract.

Is the claim lodged in time? First, it is necessary to check if the purchaser has signed a document saying that he gives an extension of time. This is often done in response to a request from the developer and an offer of a discount. Has the local authority (called the municipality here) ordered work on all buildings to stop because of bad weather? If so , the developer should have notified the purchaser, giving rise to an extension of time.  Claims under penalties need to be lodged within 3 years from the date the right to penalty arises. If the contract gives certain milestones (e.g. on finishing foundations, on rough construction – so-called act 15) and the milestone has passed, then you need to look to the penalties clause.  Unfortunately, payments are not always linked to milestones, in which case other criteria must be used. When the construction has been finished, if the seller does not give notice for an appointment for transfer of the property by deed before a notary, then an application may be made to the court by the purchaser to have the preliminary contract made final, which has the same legal effect.

Companies cannot disappear, though their personnel and officers may be difficult to locate. In Bulgaria, the usual procedure is to transfer the assets out of the company that the developer used to make the contract into another company -where he reaps the benefits directly or indirectly. There are rules in the case of insolvency whereby assets transferred after the date the insolvency is decided as having begun, but these only help in those circumstances. There is no rule here that allows following the assets, or shared liability, with a company controlled by the same persons.

Another trick is for developers to make contracts with other companies owned by them or by others on their behalf, sometimes as builder and sometimes where  goods are supplied or services rendered – and large debts are run up. When the insolvency comes, these companies are creditors, and may well be secured creditors, having priority, if a charge has been taken at on the assets.

Before commencing any action, a check should be made in the Registry Agency records for the company, to see if it is already in insolvency. Checks can also be made in the courts for outstanding claims and judgments.  Although there is a requirement for filing accounts, these will usually be too out of date to be of any assistance.

The claim procedure to be followed  is that a recorded delivery letter is sent, followed by a notary invitation, both to the address given in the Registry Agency as the current registered office (or to the person registered as the representative of a foreign company in Bulgaria), setting out the grounds of claim and asking for it to be remedied. If not successful, a claim must be started, preceded by the payment of 4% of the value of the claim to the court as its fee. Lawyers also need to be able to give a receipt for fees charged, as the purchaser will wish to recover these if successful. Before issuing the writ (here called a MOLBA), the lawyer should search to see if the developer has any other property, preferably without a charge on it. If he has, then the court may be asked to put a “freezing order” on it; but then a writ must be issued within a set time limit.

Where finalization of the preliminary contract is sought, the claim is made to the court after expiry of the time allowed in the notary invitation.

Image courtesy of "Hand And House" / FreeDigitalPhotos.net

duncan's picture

Advising mostly UK and Irish clients on building contracts and litigation, company law incl. for owners associations, commercial contracts, probate and administration

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