The developer’s directors can be held liable

It is possible to ask the court to order the directors, jointly and severally, to compensate the homeowners’ association for the loss and damage suffered in the communal and private areas of the building.

Sometimes we give a case up for lost before we have even started.

Let us look at the situation. Suppose that we cannot sue the architects, quantity surveyors, insurers and so on for damage to a building or residential development, because the legal time limits under the LOE have passed.

All we have left is the developer and seller of the flats, but we know it has no assets. What is more, the company has not filed for insolvency, either because it has no money to do so or because its directors have abandoned it and left it dormant.

You should not give up on suing a developer-seller just because it is inactive or has no registered assets. You need to dig a little deeper and fire the last bullet, which is to carry out a search at the Companies Register (Registro Mercantil), with advice from an expert economist if possible.

You need to find out the company’s position at the Companies Register, to check whether it has losses, whether it has a legal ground for dissolution and has not been dissolved, or whether it has failed to file its annual accounts… If so, we are in luck.

Why? Because if a developer-seller has been in a legal ground for dissolution since the close of its financial year, its directors are jointly and severally liable for the obligations incurred by the development company from 1 January of the following year.

And who are the directors? Almost certainly the owners of the company, who were also the owners of the plot or the building, and who later walked off with the money from the sale of the flats and commercial premises, leaving the development company an empty shell.

Therefore, if the obligation to deliver the homes fit for use and free of building defects arose after the legal ground for dissolution occurred, it is possible to ask the court to order the directors, jointly and severally, to compensate the building’s homeowners’ association for the loss and damage suffered in the communal and private areas, for the full amount budgeted to repair the damage, plus the statutory interest accruing from the date the lawsuit was filed until payment in full.

This is because the action brought is, on the one hand, the action for compensation for loss and damage caused by defective performance of the defendant company’s contractual obligations, provided for in article 1101 of the Civil Code; and, on the other, the action provided for in article 367 of the Consolidated Text of the Capital Companies Act, approved by Royal Legislative Decree 1/2010 of 2 July (TRLSC), and since no director of the company took steps to dissolve it despite there being grounds to do so, it follows that the directors are jointly and severally liable.

So, in such cases,  if the development company is sued and ordered to pay, the directors will also be ordered to pay, and they will meet the developer’s liability with their own assets.