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The Spanish Lawyer Online

Antonio Flores’ Blog

Thoughts about laws and regulations which affect foreigners in Spain

Are Powers of Attorney granted by UK Notaries Public Valid in Spain?

December 5th, 2016

The effects of Brexit appear to have reached some Spanish government offices, shutterstock_450860425
inclusive of Courts of law. The Directorate General of Registrars and Notaries (DGRN), a regulatory body equivalent to the UK Notaries Society, has recently issued a startling ruling (14 Sept. 2016) rejecting the validity of all Powers of Attorney (PoA) granted by a qualified United Kingdom “Notary Public”, on grounds that the authority and competence of these British professionals is not equivalent to that of their Spanish peers.

The ruling went as far as unbelievably stating that only UK-qualified “notaries-at-law” or “lawyer notaries” could validly issue powers of attorney, negating this prerogative to plain “notaries public”.

As was expected and with immediate effect, the erratic decision sent shock waves throughout the network of thousands of professionals, directly or indirectly, involved with expat legal work. And for a reason: hundreds of Court cases could be dismissed (one of Lawbird Legal Services’ case among many), thousands of property transactions could be voided (on the upside, along with their mortgage loans) whenever such PoAs were used and overall, legal chaos.

Alerted by this misguided ruling, the Notaries Society, based in Ipswich, issued the following statement:

  1. A Notary is a qualified lawyer whose work is recognized internationally, unlike the work of Solicitors. The primary function of a Notary therefore, is the preparation of documents and the authentication of clients’ identities and signatures principally for use abroad.
  2. Some Notaries are also “Scriveners”, who mostly operate in London.
  3. “Notaries-at-law” or “lawyer notaries” do not exist as a separate profession.

Hundreds of Spanish Notaries and Registrars, fully aware that their regulator´s historical cock up would certain bring embarrassment to their reputation but more importantly, cause incalculable financial damage, have taken an unusual step: completely ignore this binding ruling and fully accept the Powers of Attorney correctly granted by UK Notaries Public.

And as if to soften the blow, the International Law Registrars Council has issued a non-binding report where it is confirmed that documents signed by UK Notaries Public, who are appointed by the Archbishop of Canterbury and are regulated by laws as ancient as the Ecclesiastical Licenses Act 1533, an Act of the Parliament of England.

Legal Practise, Property , , , , ,

Is it Legal to Use the Same Lawyer for Conveyancing, Divorce etc.?

November 7th, 2016

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This question often arises in our office when parties to a legal matter decide to use the same lawyer. Typically, one will encounter property conveyancing transactions or rental agreements, company formations by several investors, mutually agreed divorce settlements etc.

In some jurisdictions, the law considers that parties to a legal process are generally adversarial –in other words, it’s one party and the legal representative versus everyone else involved in the transaction- and therefore, each party has to be represented separately.

In England, the Solicitors Regulation Authority (SRA) has stated that acting for both buyer and seller on a transfer of land for value is ‘indicative’ of a potential conflict of interest.

The Code of Conduct for Lawyers in the European Union states that lawyers may not advise, represent or act on behalf of two or more clients in the same matter if there is a conflict, or a significant risk of a conflict, between the interests of those clients.

In Spain -barring any conflict of interest- the Lawyers’ Deontological Code does allow one lawyer to act for two parties, under the following terms:

Art. 13.4: The Lawyer cannot act for two parties with conflicting interests. In case of conflict of interest between parties represented by the same lawyer, the latter will cease to act for both unless expressly authorized by both parties to act for one.

Notwithstanding, the Lawyer can act on behalf of all parties as a mediator or in the preparation and drafting of contractual documents, having in such case to observe a strict and exquisite impartiality. 

This applies to the law firm but also to member lawyers that work in or are associated to the law firm (Art. 13.7). These lawyers will not be considered, individually, as independent representatives of each client but as one single representative and will fall under the scope of article 13.4 above.

In summary, Spanish laws do allow parties to engage the same lawyer in a `mediator´ role, as explained above.

Legal Practise , ,

Jail Terms for Dishonest Real Estate Agents

October 18th, 2016

Tshutterstock_105509726wo Court rulings have each confirmed that real estate agents should serve a minimum of 2 years in prison for defrauding both buyers and sellers in at least two property deals. The punishment meted out to these professionals relates to the dishonest -albeit not common- habit of structuring their commission payment, in addition to what % they formally agree on with either party, on the difference between what the buyer pays and what the seller receives…without telling either party what these amounts were.

The Courts, on finding the estate agents guilty on counts of criminal fraud, concluded the following:

  • Both buyer and seller were unaware of the real terms of the deal, having the estate agent effectively obtained the consent of both parties on different prices to those reciprocally agreed with either party, causing loss to both.
  • The dual agreements are not a reflection of the real facts, the price for the buyer and the vendor are different and the “agreed commission” is not real, as it was jacked up.
  • The “buyer’s price” was not the lowest he could get away with and the “seller’s price” was not the highest the property could achieve, owing to an artificial and fabricated deal.
  • The Court refutes the defense allegation that the real estate bought and then sold the property, at a profit, on grounds that it is improper conduct for real estate brokers to act in such manner, in addition to concealing the true nature of the deal to its customers.
  • The Court neither accepts that both buyer and seller were satisfied at the time with the terms of the agreed transaction: they probably were as they did not know otherwise, owing to the disinformation and deception devised by the agent.
  • There is an aggravating circumstance in that the real estate agents, operating via an establishment opened to the public, added further credibility to their actions and facilitated the removal of objections by buyer and seller.

Similar behaviours as those described are known to have happened in the Costa del Sol but the likelihood of them resurfacing, considering that approximately 95% of all transactions included 2 real estate agents, is mostly residual.

Property, Scams , , , ,

The 11-month Rental Contract and Other Legal Urban Myths in Spain

September 7th, 2016

shutterstock_433242178Spain is not different when it comes to “legal urban myths”, statements that sound true but are legally wrong. Let’s see some of them:

  1. Administrative residency and tax residency are the same: taking out your “residencia” at the Police Station does not make you a tax resident of Spain. To be one, you need to prima facie file tax returns in this country or you are exempt from doing so, prove continuous residency via electricity bills, “empadronamiento” certificates and so on.
  2. Infidelity is a ground for divorce: as explained in the previous article, the only “ground” for divorce is to have been married for 3 months. End of.
  3. Public nakedness is a criminal offence: unlike many other countries, walking around naked per is not a statutory offense unless it is proven there is a sexual connotation. However, if you expose yourself you will be subject to heavy fines: The Supreme Court ruled in 2015 that nudity cannot be condoned for it affects the peaceful daily coexistence.
  4. 11 months is the limit for short term rentals: Never has a legal urban myth expanded so rapid and damagingly. There is no such thing as an 11-month contract that is different from say one with a 9 or 13-month term. In fact, the law in Spain states that any residential rental contract can be legally extended to 3 years by the tenant. Holiday lets do exist but they are not defined by the term, but by the use of the dwelling: sporadic, non- permanent, accidental, circumstantial are some of the words use by the Courts to differentiate short term from long term or permanent.
  5. Red cars cost more to insure: many people will not know it but the car insurance industry is colour-blind.
  6. Legal letters have to be replied to: it is often the case that parties to a legal dispute feel that one email or letter needs to be matched with a reply, thus causing endless threads of communications. From a tactical point of view too, giving out to much information to a would-be litigant can be counterproductive. To sum up, avoid the temptation of a courtesy reply unless these letters are coming from the Courts or from Government offices.

 

 

 

Legal Practise , , ,

Illegal Investments: Fiduciary Duty Claim Sticks Against Santander Bank

August 10th, 2016

shutterstock_161194061 (1)

For the first time that we are aware of, a Spanish Court has found a complaint to sufficiently allege a breach of fiduciary duty against a bank, Santander, who had opened an account to an unauthorized financial investment company and allowed it to take clients’ deposits for unregulated investments. Needless to say, clients’ money was almost all lost.

According to the Madrid Appeal Court, (…) the unauthorized firm acted illicitly by breaching is contractual terms with its clients and more importantly, the Court deemed this firm was (…) offering the public an investment service in blatant violation of mandatory regulatory laws.

The directors of the unauthorized have also been found to have acted illicitly –for the above reasons- and as a result, deemed personally responsible for the losses of clients’ savings.

And Santander, more crucially, was found to have (…) acted reprehensibly by allowing the unauthorized firm to operate freely by opening bank accounts, authorizing transfers and permitting other typical banking transactions reserved to authorized firms.

The Court invoked article 7 of the annex to the Financial Markets Code of Conduct that prohibits dealings with illegal companies:

Entities will refuse any operation from non-authorized intermediaries, as well as those in which they have knowledge that the relevant legislation applicable to the former may be infringed.

Such “knowledge” was decisive in this case for the Court to rule that Santander was in breach of the above obligation and order the bank to indemnify the client for the losses sustained by the boiler room.

This events leading to this ruling happened prior to the approval of the Anti-Money Laundering Act where banks –and other obliged parties-, are obliged to obtain information as to the

purpose and expected nature of the business connection of the client and in particular, the nature of the professional and/or business activity, carrying out those measures to reasonably prove the information” (art. 5),

as well as a

continuous follow up of such business connection, inclusive of scrutiny of any dealings conducted throughout the relationship” (art. 6).

On this basis, we believe that the above “knowledge” is no longer essential and therefore banks that facilitate any person, company or otherwise to illegally operate in the financial markets could be deemed responsible for the losses sustained by their clients/victims.

For the avoidance of doubt, an unauthorized entity (or “fly-by-night operation” as described by Spanish regulators) is any such that offers investment or insurance services and is not approved by the CNMV (Financial Conduct Authority) or the DGS (Insurance Regulator).

Companies, Corporate Law, Scams , , , , ,

Communities of Owners: what’s the official language of an AGM (Annual General Meeting)?

July 28th, 2016

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This matter was raised in Court on at least four occasions and interesting rulings resolved the matter, albeit in different directions.

In La Manga (Murcia), a Community of owners was made up of 150 owners of which only 2 were Spanish. An AGM was conducted and approved in English, with the benefit of a translator for the 2 Spanish owners.

Not happy with the extensive use of Shakespeare’s language, the two Spaniards challenged the ruling in Court stating that Spanish was the official language of the country and hence, it should have prevailed. The Court of First Instance dismissed the ruling on the basis that a) the governing law on communities of owners had no particular norm on the matter and that b) the Spanish owners had had the benefit of a translator.

The Appeal Court, surprisingly, revoked the prior ruling stating that the Horizontal Property Act came under article 3.1 of the Constitution and, citing national sovereignty, concluded that the language of choice for the AGM should be prima facie Spanish, and thereafter as many translators as required by the different nationalities present at the meeting, at the Community’s expense.

Not content with the outcome, the dispute was escalated to the Supreme Court who overturned the ruling on grounds that the Appeal Court had wrongly understood the application of article 3.1 of the Constitution, which does not apply to juridical agreements conducted privately. The Supreme Court stated that “national sovereignty” has nothing to do with AGMs. Furthermore, it held that as the Horizontal Property Act does not specify the language of meetings, these can be conducted in any [language] so long as translators are available. Clearly, the Supreme Court recognized the multicultural nature of many AGMs along the Spanish Costas and rejected being influenced by notions of antiquated patriotism.

Down south, Malaga Appeal Court ruled that using English language in an AGM had not infringed any rights as the minutes were also in Spanish and at all times, a translator had been fully available.

Property , , ,

Want to Succeed in Selling Property in Spain? Measure Up!

June 17th, 2016

With the Costa del Sol property market on the rebound, many owners have now chosen to maximize the return on their bricks and mortar investments and are actively listing their properties with –literally- hundreds of new (and old) real estate agencies.shutterstock_282672608

The sequence is pretty well known: an owner approaches a real estate agency who, upon basic verification of the property paperwork, lists the property for a convened asking price.

Unfortunately but predictably, the long list of requirements set out in the famous Decree 218/2005 (necessary to put a property up for sale) is rarely met. Generally though, the information provided tends to satisfy all parties and safeguards agencies in case of unwanted inspectors turning up.

But what the Decree 218/2005 did not envisage is how to deal properties that are partly or insufficiently recorded with the land registry, a legal contingency that’s causing many deals to collapse where searches reveal those discrepancies.

In our experience, we have noted that many proprietors of detached dwellings, and occasionally town houses and semidetached units, actually own more square meters than they officially declare. In other words, there is an excess of built area which may not always be legal.

This may be due to unregistered extensions, guest houses, conservatories, porches, barbecues, terraces, walls, basements or pools, all of which have to be `normalized´ if one wishes to avoid losing a potential sale.

Currently, there are two possible scenarios: that the excess built area complies with existing regulations or that it does not. To find out, we always suggest hiring an architect or surveyor to measure up the property and compare it with the legal documentation and applicable laws and regulations. This way a vendor will be able to rectify potential inconsistencies that buyers will –nowadays- invariably detect, and object to, when carrying out searches.

Legalizing those improvements, extensions or alterations is then a matter of local laws and passing of time. If they conform to local (at times regional) laws, a retrospective planning application will suffice. But if they don’t and yet 6 years have passed since the erection of the offending construction, statute of limitations will make it immune to legal action, under certain circumstances.

The latter is case is known as they AFO (Asimilado a Fuera de Ordenacion), which is a legal term to designate those properties that while illegal, are tolerated by the Government because you can…legalize them.

More on AFO on our next column!

Property , , , ,

Supreme Court to Protect Spanish Off-Plan Property Buyers’ Without Bank Guarantees

May 18th, 2016

shutterstockUnfinishedConstruction

A couple of days ago, BBC News readers woke up to a tantalizing headline for failed Spanish property investors: “up to 100,000 UK investors in Spanish homes could get payout”. The BBC quoted a Barcelona-based law firm, Spanish Legal Reclaims (SLR), on the round figure of investors who could in line for a full refund.

A fortnight ago, we almost anticipated the BBC’s article when stating various 2015 Supreme Court rulings had confirmed its support for banking, insurance and, notably, off-plan property consumers:

Off-plan property deposits: In May 2015, and the in December 2015, the SC ruled that property developers are responsible “in any event” of down payments made by consumers on off-plan properties, provided the bank was aware of the purpose of the payments.

The ruling, along with two prior ones, addressed the issue of bank’s duty of care towards consumers, in line with the provisions of the 1968 Act on Deposit Guarantees on Off-Plan Properties.

But whilst the rulings are encouraging for anyone caught in the 2008 off-plan property debacle, not every investor will qualify.

As a rule of thumb, investors will have the right to claim from banks who failed to guarantee deposits in the following circumstances:

  1. That the bank was aware the deposits were for the purpose of building off-plan property; proving ‘awareness’ is pretty simple inasmuch as banks ought to have known that hundreds of thousands of Euros going through developer’s accounts were from property investors. There have been cases where funds were remitted to UK accounts operated by real estate or intermediary companies, a situation that complicates matters. The “Ocean View Properties” off-plan property scandal comes to mind here.
  2. That the properties we not completed or, if completed with delay, that the buyer had formally exercised his right to terminate the contract for breach of contract before the developer had obtained the license of occupancy. Banks–and Courts for that matter- are aware that many thousands who were no longer interested in completing on finished properties will file claims for the return of their deposits.
  3. That the buyer was not a property investor i.e. buying several units for reselling, in which case he/she will not be classed as a consumer under the 1968 Act.

As with most legal matters, a case-by-case analysis will be required to establish the feasibility of a legal claim.

Litigation , ,

Spanish taxes: Panama papers and the “Modelo 720”

April 17th, 2016

Following the publication of what appears to be a massive 11.5 million leaked documents from a Panama law firm, MossackPanamaPapersModelo720 Fonseca, this small Central American territory will no longer be remembered for its Canal or the country that the U.S. invaded in 1989.

It must be said, for the record, that in most modern jurisdictions it is not illegal to either have an offshore bank account, an offshore company or both. What is against the law is to be a resident of a [tax-wise] ‘normal’ country and have money, interests, shares or any other valuables hidden from the country where one pays taxes regularly; in an offshore jurisdiction or under the mattress.

Only in Spain, according to the 2015 Tax Control Plan by the AEAT (Spanish Tax Office), 7,000 taxpayers are already in the investigation stage on whom the Tax Agency has indications that either they had to present form 720 and did not do so or they did not declare their foreign assets correctly. With the Panama Papers scandal, this number will certainly double.

As far as Spain is concerned, it is interesting to note that offshore companies do provide a very significant degree of anonymity. In fact, offenders have generally been caught by tip-offs, police raids on law firms on occasion of fraud investigations or massive document leaks -such as the Panama Papers-. Unfortunately for many those caught, tax evasion came tied in with money laundering since these are connected crimes.

Offshore fans or nostalgics of appealing names such as Belize, Cayman or Seychelles need to once and for all accept that fiscal or planning has nothing to do with fictitious residencies and other forms of concealment.

One can have millions stashed away via a Turks and Caicos company, a boat in the name of a Madeira-registered entity and the villa via a Gibraltar offshore vehicle, provided they are properly declared in the country of residency. And there is no tailored or ‘bespoke’ tax advice or planning that will substitute this obligation.

 

Tax Law , , ,

New Andalusia Rental Law: Compliance and Fines

February 25th, 2016

Regional and local press has extensively covered the enactment of the new rules governing rented accommodation. The rules, under the title Decreto 28/2016, de 2 de febrero, de las viviendas con fines turísticos y de modificación del Decreto 194/2010, de 20 de abril, de establecimientos de apartamentos turísticos, has failed to elaborate on two important aspects: what does compliance really entail and what are the fines for non-compliance?

  1. In respect to compliance, the rules obliges owners to offer clients –among other requirements- the following: license of occupancy, rooms with adequate ventilation and darkening devices (shutters or similar), sufficient furniture and necessary appliances, touristic information whether in hard copy or electronic, of data for the area (bus schedules, close-by parking facilities, medical facilities in the vicinity and a plan of the town), complaint form, first aid kit, bed linen, cutlery and crockery adequate to the size and requirements of the property (and a replacement set for each). As if not enough, the law says owners will have to have a telephone number available to tenants where they can call to resolve any incidences, an instruction manual for kitchen appliances, details of the use of communal facilities and property equipment, as well as details on access of pets to the property and information on potential restriction for smokers and a few other requirements.But whilst some of the above are clear, the meaning of ambiguous words such as “adequate”, “sufficient” and “necessary” can widely differ depending on who you ask. Attending these grey areas is a pressing requirement.
  2. The fine system is also not clear. The 2016 Act refers to a 2011 Rural Accommodation Act for elucidation of what fines are applicable. Some scaremongers have enjoyed spreading the belief that if you do not register, you will be fined up to 150,000 Euros. The reality is that failing to register their properties can “only” be fined between 2,000 and 18,000 Euros, the heavier monster fine of “up to 150k” being reserved for other contraventions i.e. unlawful discrimination or obstructing inspectors on duty.

Interestingly, the Act does not address the fines for failing to comply with one or more elements within the the long list on point a), for instance: missing spoons, dirty linen or insufficient first aid kit.

The experience in Catalunya and the Balearics regions, where similar rules apply, shows us that lack of registration is attracting the vast majority of fines, with little or no precedent in respect to the degree or correctness of compliance.

Property , ,