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The Spanish Lawyer Online

Antonio Flores’ Blog

Thoughts about laws and regulations which affect foreigners in Spain

Coronavirus Crisis: How Does it Affect Rental and Mortgages Loans in Spain?

March 26th, 2020

Hand drawn vector illustration of Wuhan corona virus, covid-19. Closed hanging sign with virus.

The COVID-19 or “Corona Virus” has brought about new situations of potential legal conflict that we could have not even imagined before. With shops closing temporarily, airlines and hotels coming to a complete standstill and the curfew affecting the mobility of people, the fulfilment of thousands of contracts is now in question by reasons well beyond the particular circumstances of the intervening parties.

So can the parties pull out, suspend, adapt or terminate contracts of continuous performance? Royal Decree 8/2020 of the 17th of March 25 has not dealt with the consequences of the Corona outbreak, save for a moratorium on mortgage loans for those classed as vulnerable.

This said, let’s see what the various situations any renter or property owner can find themselves in.

Rental Agreements

The Government has not addressed these contracts (as of 25/3/2019) and therefore, principles of civil law must be applied. There are two:

  • Fuerza Mayor or Force Majeure. It’s French for “superior force”. The long and short of it is that if some expected event of such caliber takes place that prevents the parties from performing an obligation, the performance of that obligation is excused.Articles 1105, 1182, 1184 and 1258 of the Spanish Civil Code state that “Acts of God and Force Majeure liberate debtors from fulfilling their obligations due to superior force”.
  • Rebus sic stantibus et aliquid novo non emergentibus is the legal doctrine allowing for a contract or a treaty to become inapplicable because of a fundamental change of circumstances. This is similar to force majeure but touches on fairly distinct considerations:
    1. There is incident of such magnitude that alters the bases of the contract
    2. Such incident frustrates the “commercial sense” of the contract and
    3. Breaks the balance of a contract and produces damage to one party due to supervening circumstances that could have not been contemplated in the contract or are alien to normal contractual risk analysis.

The consequence of applying these principles would be that contract gets “frozen” in time, suspended of its effects for the parties.

The downside to any impending legal conflict is the time and expense of a Court procedure, unless parties to a contract can reach individual agreements in the wake of what is an unprecedented situation.

Mortgage Loans

The moratorium offered by the Government will only apply to borrowers that are deemed to be in a situation of vulnerability, and this will happen only if (all) of the following occur:

  • The property must be the main dwelling.
  • To be unemployed or if self-employed, to have lost at least 40% of the sales.
  • The combined income of the family should not exceed €1,600 (3 times the IPREM).
  • And only if the loan repayment is over 35% of the net income.

The documents and procedures the state will require are family book, tax certificate confirming the reduction of activity, property deeds and once this has been reviewed by the bank, it needs to go to be ratified before a Notary Public.

For mortgage loans not contemplated by the Royal Decree 8/2020 of the 17th of March 25, the above noted civil law principles on rental contracts could be applied here too.

Are you in any of these situations? Contact us, we can help.

Uncategorized , , , , , , ,

Coronavirus Crisis: How are legal deadlines affected?

March 17th, 2020

Coronavirus Crisis: Deadlines on Ongoing Legal and Administrative Procedures further to Spain’s State of Alarm (Royal Decree 463/2020) BelegalBLogCoronaVirus

The decree approved by the government on Saturday has immediately locked down the country, limiting the movement of citizens across the entire territory. Besides the mandatory measures implemented by the Government, the standstill the country has come to will impact contracts, Court deadlines, tax applications, administrative matters, residency applications etc.

Let us see what the most important legal implications:

  1. Courts: Court deadlines are delayed, and specific terms provided for in the procedural laws for all jurisdictional orders are suspended and interrupted. Time periods will resume as and when the royal decree ceases to be in effect or, as the case may be, any extension thereto.
  2. Statute of Limitations: any time limitations to bring a case against within the criminal or civil courts will be stayed, as above.
  3. Government Taxes or any Administrative Matter of any nature: If you have a tax deadline or need to submit a writ or allegation in any administrative procedure, do not worry: all deadlines or terms are interrupted until this royal decree ceases to be in effect. Notwithstanding the immediate suspension, it will be possible to submit applications on any aspect of administrative law provided the procedures can be done online even if all deadlines are, by operation of law, are extended.
  4. Immigration Matters: As above (C), all deadlines will be interrupted. This includes applying for residency renewals, fingerprint appointments, collection of residency cards, tourist visa deadlines (if someone is in Spain and needs to leave within a specific period, they will not be in violation of Spanish immigration laws) etc.
  5. Private Contracts: Ongoing private contracts or agreements are not dealt with by the Royal Decree; however, the principle of “force majeure” or superior force can and must be applied by parties to a private contract when, in the event of an extraordinary event or circumstance beyond the control of the parties (plague), it prevents one or both parties from fulfilling their obligations under the contract. In practice, most force majeure clauses do not excuse a party’s non-performance entirely, but only suspend it for the duration of the force majeur. Our advice here is for parties to renegotiate terms and conditions of the agreement, adapting to the exceptional Coronavirus situation where they are working together and not against each other with a view to find constructive solutions that suit both parties.

 

Legal Practise, Litigation

Spanish Limited Companies: the “must know” for owners

March 15th, 2020

BelegalBlogCorporateSetting up a Spanish Limited Company is a relatively straightforward process. In fact, many investors who are looking to start a business will immediately think of the colloquially known as “S.L. company”, formed via a notarial deed of company incorporation. And for many too, that’s about as knowledgeable as they get with these type of business structures.

Below is a list of “must knows” for any S.L. owner or director:

S.L.s are not devised for one-man bands: The Spanish Hacienda, whilst accepting that an S.L. is a legitimate form of conducting business, will not accept those that lack an infrastructure to carry out the commercial or professional activity -whether human or material resources (staff, office etc.)- e.g. people who work from home. These companies are described as “dummy” or “shell” companies and operating through them could be challenged by the Tax Office. This is the case too with services where the company could not exist without the founder: think of medical doctors, dentists, singers, elite sportsmen and women etc.

S.L.s cannot be “closed down”: I typically hear of people talk about closing a company down when debts become insurmountable. A company can only be closed if there are no debts; if there are, the director is obliged to file for bankruptcy within two months after it becomes insolvent, at the Courts.

High vs low share capital: Unless you are looking to show financial credibility with your potential clients or lenders, shareholders and directors should go for a lower share capital; the lower this figure is the less they will be personally responsible for. But this has downsides too: if a company has a net worth below 50% of the share capital, it is technically insolvent, being a legal ground for forcible wind up.

An S.L. is not a personal piggy bank: Company money and personal money are separate, no matter how much we try to try to stretch it; logic and common sense must prevail here. Here are some tips of what is deductible and what not: shopping list (if consumed by the business), clothes (only if they have a logo or anagram of the S.L.), vehicles and petrol linked to the S.L., business meals (up to 1% of the net income of the S.L.). Not deductible are holidays, new home kitchen, kids schools, etc.

Companies, Corporate Law , , ,

Chaos ensues with new laws on Spanish mortgage loans

June 18th, 2019

BankLogoPicThe recently enacted Real Estate Credit Act 5/2019 has not left anyone indifferent; from those who applaud a reinforced protection for consumers -traditionally seen as the losers in the lender-borrower equation- to the more selfish who predict a sharp decline in real estate transactions due to the obvious hassle of formalizing an even more complex procedure.

A quick glance to last days’ national news headlines show little sympathy for a law seemingly written up to prevent bank abuses in the last boom-crisis cycle:

“El Mundo”: New Mortgage Law: Notaries in a mess, tougher lending criteria and… property sales dropping?

“El Economista”: The New Mortgage Law will make it more difficult for younger borrowers.

“Idealista”: Mortgage law madness: last-minute rush of banks and notaries to avoid a slowdown in sales.

“El Español”: First cock up with the new Mortgage Law: banks and notaries fail to synchronize their electronic register.

But what’s the deal with this law and why are so many reporters up in arms? The answer is not straightforward: whilst most recognize the underlying bona fide mission of protecting consumers, intensified credit checks on borrowers and the intricate pre-contractual stage of new loan agreements can only be deterrents for new business.

To qualify for a loan, any borrower will have to visit a Notary office 10 days prior to closing on the purchase sale to undergo a test; in it, the Notary public will have to evaluate the borrower and his understanding of the document he/she will be signing in 10 days’ time. More so, the Notary is to provide the borrower with two keys documents forwarded by the bank: the “FEIN”, which is the European Standardized Information Card and the “FiAE”, a standardized Warnings Card that includes mortgage parameters (opening commission, early maturity due to non-payment and what expenses are applied in this case) and a few other fairly elaborate items and mathematical formulas.

Not easy? Now think of a foreign buyer that speaks no Spanish, with a notary that equally does not understand foreign languages, and you have a deal breaker. Not to mention the unassumable 10-day wait period for busy investors and the yet-to-be defined role of lawyers here: advisers or just translators? Time will tell

Mortgages , , , ,

New Employment Law to Clock Working Hours

May 14th, 2019

pexels-photo-1661004

As of yesterday 12th of May 2019, a new law is in place in Spain to track the number of hours their employees work. The purpose of the law is to clamp down on the widespread practice of unpaid overtime which some estimates put it 3.5 million hours. Not complying may mean fines of between 626 euros to 6,250 euros.

The habit of clocking in and out of work place is however antiquated, and puts workers under the spotlight in particular where going out for breakfast (a very Spanish tradition) or smoke a cigarette, or more “labour” things such as sales representatives’ daily itineraries where employees are given flexibility and whose work performance is rated by numbers in turnover, not hours (not to mention employees’ that work from home).

The work hours’ records must be kept for at least four years and be available to employees, their representatives, and the Labour and Social Security Inspectorate.

Already various App developers have created specific platforms to monitor employees’ registration, inclusive of controversial geolocation apps to pinpoint employees’ whereabouts through their company mobile phones, all of which should be fully notified and agreed with the employee.

Companies

Unregulated Isle of Man Companies To Face Trial In Spain

April 30th, 2019

The View From Douglas Head, Isle Of Man..jpg

(Photo by Jim Linwood)

For financial and insurance companies based in the Crown Dependencies (Isle of Man, Guernsey and Jersey), the advent of the long-awaited Brexit will have no impact whatsoever as these territories are not part of the European Union (EU) and are not included within the scope of the UK’s membership of the EU.

Because but for those very companies, whether “brexiteers” or “remainers”, operating within the EU was never a problem despite not being licensed, authorized or regulated. But how so?

If we take the example of Spain, the likes of Old Mutual International, RL 360º or Generali have operated with infinite impunity for years, selling all manner of unregulated single- premium life insurance policies or, rather fancifully described, investment-linked assurance schemes (“ILAS”) through equally unregulated brokers.

It is believed that British expats in Spain have tens of millions deposited in a vast array of financial and investment products that these insurance platforms peddled for years, in exchange for substantial fees for managers and brokers. Many of these victims have lost substantially, and some have nothing to show for it. In these crown dependencies, the word “consumer” has no space.

Fortunately, Spain thinks differently and in the first of its kind, a case for civil fraud against Old Mutual International Isle of Man is going to trial in Marbella, on the 20/5/2019. Not even the best lawyers money could buy has saved this company from being closer to having its best-preserved secret aired publicly: that they were illegally selling insurance in Spain, for years, with absolutely impunity.

If the Court of First Instance rules that Old Mutual did indeed operate in Spain unregulated, hundreds -thousands perhaps- could follow suit and trigger yet another scandal in the already dubious Isle of Man, where insurance represents 14% of the economy (and financial services more than 32%).

To be updated on this case you can call or email us and of course, feel free to attend the public trial should you wish.

Litigation , , ,

Corporate expenses and cheeky tax paying: deductible vs. non-deductible

March 19th, 2019

Less than a week has passed since we learnt that Emilio Cuatrecasas, owner of the largest fiscal advisory firm in Spain, just hired former Deputy Prime Minister Soraya Saenz de Santa María. In 2015, Mr. Cuatrecasas pleaded guilty to 8 counts of tax fraud in exchange for a rather lenient 2-year suspended imprisonment -suspended- conviction agreed with both the Prosecutor and the State Lshutterstock_777564574awyer, the latter working on direct instructions of Mrs. Saenz de Santa María, when the PP party was in power.

What’s interesting of this case -besides the fairly obvious connection between Mr. Cuatrecasas’ favourable Court ruling and the hiring of the instigator of such advantageous outcome- is the nature of the tax fraud: deducting personal outlays as company expenses. In this case, it was done in a grand scale where, for example, servants hired for his personal residences or his privately used yacht, electrical appliances, decoration and generally, maintenance of his personal assets, were all introduced in the company balance sheet as deductible expenses. In the end, Mr. Cuatrecasas had to pay over 3 mm Euros plus 1 mm Euro in interest to avoid doing jail time.

Spain is no different from any other country when it comes to tax deductible expenses. But what are they? Broadly speaking, they are those deemed helpful and appropriate for a business, as well as necessary and reasonable. More specifically, this what the law says:

Deductible expenses: employes salaries and social security, rentals (office or part of a home used to work from) and associated expenses, equipment and supplies, repair and maintenance, stationery, external advisors, VAT (where it is not claimed) and uniforms not susceptible of private use, to name a few. Vehicles not exclusively used for business purposes will be deductible on prorate, with a maximum of 50% (save for cargo, transport and similarly used vehicles which will be 100%). Travel expenses, meals (maximum of 1% of turnover) or Christmas presents can be deducted if they are associated with business and this can be proven when required.

Non-deductible expenses: Director’s salaries, dividends, fines, services provided by providers based in a tax haven, guard dogs, clothes (including lawyer’s suits), parfums, beauty treatments, sunglasses or mobile phones (where it is no possible to show that they are exclusively used for a business purpose), weddings, weekly “Mercadona” personal shopping and many other non-expenses habitually picked up by tax inspectors.

Finally, deductible expenses must be provable by means of regular or simplified invoices, as mere receipts will not be valid.

Corporate Law, Tax Law , ,

Mortgage loan taxes: Spanish Supreme Court appeals its own ruling

October 26th, 2018

shutterstock_745024030

In an unprecedented decision, the Supreme Court has “frozen” a judgement passed by themselves…48 hours before.

This unusual situation originated in a ruling of the 16th of October that determined that the bank is the only party with an interest in getting the loan certified by a notary, a prerogative that will allow them -as lenders- to initiate foreclosure proceedings if the borrower defaults on payments. The importance of this ruling lies with the fact that hundreds of thousands of borrowers could be eligible for a refund. 

The members of the Third Chamber of the Administrative Section of the Supreme Court added that because the lender is awarded this privilege, they should be paying all associated costs. It makes all the sense in the world, if you think about it. Or not, when the decision directly refers to who will pay approximately 8 billion Euros in mortgage taxes, or an average of 3,000 Euros per loan.

The complication with this is that the same Court, but the Civil Law Section of the Supreme Court this time, had confirmed earlier (28/2/2018) that taxes on loans were to be paid by the borrower and to reach such decision, they quoted the “consistent and constant” Administrative Section jurisprudence on the subject matter in dispute.

Jurisprudence, or case law, we know evolves with society and cultural advances, adjusting to usages, traditions and customs. It can take years, when not tens of years, to change. With the tax on mortgages though it has done a U-turn in 7 months, which is inexplicable unless we accept that most senior judges are backing the banks whilst a minority stand by the consumers, or perhaps the other way around.

Be what may, the Court’s Press Office issued a statement confirming that decision will be reached by 31 senior judges of the Administrative Division of the Supreme Court, on the 5th of November 2018. In the ruling they will decide who is to pay the taxes and if the banks, whether clients should claim the refund from the lender or from their regional tax agency, which could then in turn claim it from the lender.

Mortgages, Property , , , ,

Spanish short-term rentals to be scrutinized by Owners Communities too

September 28th, 2018

shutterstock_4310665The Government of Spain wants to give neighbours vetting powers over short-term rental apartments. If the proposed law changes are finally passed, the quorum required in Communities of Owners general meetings to prohibit holiday rental activities will be reduced substantially.

Currently, the required quorum to vet short-term or touristic lets is unanimity; this wants to be changed for a minimum of 3/5 of the voting rights.

The law also wants to define what is a “season or holiday let” as opposed to a “short-term or touristic let”: some of the proponents want to establish a minimum of 45 days for a rental contract to be classified as a holiday let, below which they will be classified as short-term rentals.

This legislative ammendment could deeply impact property investment trends by creating clearly segregated short-term rental buildings or areas, separate from those neighbourhoods that choose to stick to exclusive residential use (by banning letting use).

Real estate agencies selecting properties for clients, and lawyers acting for them in the conveyancing process, would have to ensure what the specifications of each neighbourhood are in respect to potential statutory prohibitions to do short-term rentals.

We are eagerly awaiting further news on this proposed law change.

 

Property , , , ,

Community of Owners to Fine Property Owners

September 15th, 2018

shutterstock_739051237Some days ago, a worried property owner wrote to us with a query relating to his “Community of Owners”, along with a photo of a resolution recently adopted by the President of the said community, in the municipality of Benahavis.

The text read as follows:

  1. The President is then allowed to set fines between €30 and €600, depending on the important and seriousness of the matter, when breaching the above articles, regardless if any damage made has been restored: these amounts will be deposited into the Community’s bank account.

  2. Penalties must be notified in writing to the owners committing the infraction, describing the specific infraction and penalty imposed, which will be charged directly to the owner.

  3. The HOA (Homes Owners Association) reserves its right to take legal action against owners in violation.

After rubbing my eyes in disbelief, I hastily checked up our main source of legislative updates (www.vlex.es) in case I had missed this implausible new legal change that would give nasty and corrupt Presidents and Administrators jurisdiction to suppress dissidence within the community of owners; there was none of it, thankfully.

So, it the above prerogative lawful? Absolutely not. The Juridical Regime of the Public Administration Act 30/1992 grants the State the monopoly of imposing pecuniary penalties or similar fines, without exception, following a due adversarial administrative procedure. This is not to say that a Community of owners may not, following the appropriate procedure to adopt community resolutions, agree on a fixed surcharge for late payment of fees or even impede non-payers the use of communal elements (pools for instance). But never the prerogative to -arbitrarily- sanction specific conducts by its members.

A congress held in 2010 by an association of community administrators to debate Horizonal Property Law matters resolved that “it is not possible to fine owners for breaching internal regulations, even if this resolution is written into the Statutes or voted by a majority”.

Presidents and Administrators who despite the above insist on coercing owners into paying fines could face criminal action.

Property , , ,