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The Spanish Lawyer Online
The Spanish Lawyer Online

Antonio Flores’ Blog

Thoughts about laws and regulations which affect foreigners in Spain

Buying Property in Catalonia?

October 9th, 2017

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The Catalonian separatists’ independence adventure has ended up in economic failure: no longer a Catalan bank has its HQ in the region, following Banc Sabadell and Caixa’s hasty departure to pastures new -Valencia-. And they’re not alone: fearing massive loss of clients and being left out of the protective umbrella of the EU, hundreds of companies are following suit in what could be, potentially, an unprecedented financial debacle for any European country or region.

But rather than macroeconomics, what interests me is the -possibly- hundreds of foreign investors with private contracts exchanged for property in Catalonia that have been caught in the middle of this nightmare. What are their options? Should the proceed, or wait? Can they rescind and recover their down payment, or must they complete or lose their deposits?

We can confirm, almost without margin for error, that no contract signed for any property in the Catalonian region would include a “political unrest” get out clause. You can probably say the same for any EU country. Unfortunately, political unrest is exactly what is happening in the region, as confirmed by the Foreign and Commonwealth Office in a recent warning to travelers.

So, without contractual stipulation to the contrary, it appears that those who deem the situation uncertain, to say the least, don’t have a remedy under Spanish law…or perhaps they do.

The principle clausula rebus sic stantibus  (Latin for “things thus standing”) is the legal doctrine allowing contractual undertakings to become inapplicable because of a fundamental and extraordinary change of circumstances not envisaged by the parties. It is essentially an “escape clause” that makes an exception to the general rule of pacta sunt servanda  (“promises must be kept”) and favor contractus (“conservation of contracts”).

For instance, the hotel chain Accor persuaded the Supreme Court that the 2008 crisis impacted tourism so dramatically that a 29% reduction in the rent for a hotel was acceptable. Similarly, a couple who had specifically intended to finance the final payment on an off-plan property and were left “high and dry” by banks following the onset of the worldwide financial crisis, were granted remedy. Still, the Spanish Supreme Court remains cautious when applying the clause and recommends a case by case analysis of each contractual scenario.

As for the buyers of Catalonian-based property, we suggest a wait-and-see approach as the next days, if not weeks, will hopefully relax the political turmoil and allow for safe decision-making.

 

Property ,

Spanish Notaries and Supreme Court at war over validity of powers of attorney.

August 14th, 2017

According to the General Council of Notaries, these highly qualified professionals fulfil an essential part of the judicial life of this country by bringing legal sshutterstock_601180544ecurity and certainty. Their website states the following: “Notaries are State civil servants required to provide citizens with the legal certainty guaranteed by the Article 9 of the Spanish Constitution within the context of extra-judicial legal dealings.”

A recent ruling by the Supreme Court -and more so a previous one of 2013- seem to cast doubt over such convincing and forceful statement in respect to one the main functions of Notaries: granting powers of attorney (POAs) and their presupposed validity if the grantor challenges them in Court.

The 2013 sentence -supported by a prior one of 2010- shook the notarial establishment when it declared that POAs to settle, dispose of, mortgage or perform any other act inherent to ownership (art. 1713) would have to […] clearly specify the object and subject, in a clearly defined and predetermined manner. The high tribunal’s interpretation of general POAs to sell or mortgage is thus far-reaching: if the POA does not specify the property or the lender, the transaction can be rendered null and void.

Again, in 2016, the Supreme Court stated that those transactions where such POAs were used could also be declared null and void where the recipient abused or exceeded the instruction. This is how the Court explained it: […] In this context, the will of the parties stands as the guiding interpretation criteria, ruling out an automatic or mechanical reliance on the literality of the POA granted, but principally on the intention and will of the grantor to establish the purpose and sense of the instruction. And secondly, the obligations of fidelity and loyalty are indispensable guidelines connected to carrying out the instruction.

The importance of these rulings (dated 6/11/2013 and 20/5/2016) is that they rendered a Deed of Gift and a Deed of Sale of Shares null and void, even if the POAs were -allegedly- properly granted in front of Notary Public, with all the required solemnities and formalities.

For its part, Notaries believe that their job is separate from that of Courts and that the above rulings represent solutions to specific disputes brought before them.

Legal Practise , ,

Why you need a Lasting Power of Attorney in Spain

May 9th, 2017

shutterstock_89635177Lasting Powers of Attorney (LPA), well known and extensively used in common law jurisdictions, are legal documents which allow a person who is at least 21 years of age (‘donor’), to voluntarily appoint one or more persons (‘donee’) to make decisions and act on his behalf as his proxy decision maker if he should lose mental capacity one day.

In Spain, very few know that there are two almost identical legal documents that grant the same powers to a trusted person should the time of incapacitation arrive.

These documents are known as the “Poder Preventivo”, or Preventive Power of Attorney (PPA), and the “Autotutela”, or “Appointment of Tutor”, both of which are granted before a Notary Public.

The Preventive Power of Attorney is one where a person can deal with the financial affairs of the grantor, with immediate effect after a certain date or once a medical doctor declares a person incapacitated. For its part, the Appointment of Tutor deals with health and care decisions, daily routine or where the affected person should live (but will require judicial approval where the sale of assets is concerned).

It is recommendable to grant at the same time both the Preventive Power of Attorney and the Appointment of Tutor to avoid the lengthy (and costlier) process of applying for a judicial decision -appointment of tutor- following a clinically diagnosed incapacitation or intellectual disability because of disease or accident, a process that furthermore will require a separate procedure to sell real estate or other assets.

It is worth noting that both appointments can be revoked by the grantor whilst capable, and that Notary Publics in Spain have an obligation to communicate any such documents to the Spanish Civil Registry.

Family Law, Inheritance , ,

Taxes on Selling Off-Plan Properties in Spain

April 10th, 2017

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Off-plan property resales have been hard to come by since the days of the real estate boom; in fact, they have been all but absent. But with the property market finally rising from the ashes of the devastating real estate crash and new build properties being gradually offered to the public -and fast snapped up by speculators and consumers alike-, many off-plan buyers are finding that there is now a market to sell on their contracts before they get the keys to the properties.

What are their options from a legal and tax viewpoint? There are two methods to transfer the property rights (if should be noted that both methods will require the consent of the developer):

  • Method 1: The current buyer terminates the contract with the property developer who will refund the deposit paid and, simultaneously, will sign a new a fresh new off-plan contract with the new buyer. Any profit or premium will be settled between the parties although, almost always, the developer will demand just compensation -often times called commission- for consenting to the deal. This method would avoid -and evade- taxes as it is not obvious that a resale has taken place. However, property developers have been in the past investigated for these practices and can be made joint and severally liable for non-payment of taxes, for which reason this solution is not very popular.
  • Method 2: The current and the new buyer exchange contracts for the sale of the off-plan property, pay the relevant purchase transfer tax and inform the property developer. The latter party will then either draw up new contracts with the new buyer or just wait until completion, when they will transfer title to the new buyer. From a tax viewpoint, an off-plan sale will attract a heft enough 10% VAT plus 1.5% Stamp Duty for the buyer when he/she completes on the sale. But if a new buyer comes in, he/she will have to pay, in addition, Transfer Tax (8% minimum in Andalusia) on the assessed value of the under-construction off-plan unit, or the value of the premium, whichever the highest. For its part, the vendor will have capital gains tax (19%) on the net profit (the premium minus any commissions paid) although few choose to pay it.

Clearly, buying an off-plan unit can place excessive costs on the new buyer, making it a prohibitive proposal. It is suggested that prior to offering this to a prospective purchaser, real estate agents lay out the total costs (VAT & Stamp Duty, Transfer Tax, CGT, theirs and the developer’s commission) and where necessary, make a more evenly distribution.

Property , ,

“Plusvalia” tax, Facebook and others; round up of recent Spanish legal issues

February 28th, 2017

Spanish Courts have passed a few rulings in the past couple of weeks that are certainly noteworthy, the most important of which has made it fast to the headlines: the definitive challenge to the incomprehensible “plusvalia” tax, a levy that inexplicably is demanded by local authorities irrespective of whether property owners make, or not, a profit when selling.

Plusvalia Tax

According to a recent ruling by the Spanish Constitutional Tribunal, it is in unconstitutional to “tax not just a potential economic capacity but specifically, one that is fictitious, virtual or inexistent.”

The Constitutional Tribunal has ordered the legal definition of the plusvalia tax to be altered to embody the constitution principle of “economic capacity” to reflect that “only where a sale is conducted with profit can this tax be imposed on sellers”, allowing tax payers to “expose with all available evidence a situation where there is no increase in the value”.

Already several Courts have ordered Town Halls to reimburse this tax to property sellers who sold well below the price when they bought, a scenario that thousands could benefit from.

Facebook matters

Two rulings should make many think twice before posting: the Provincial Audience in Pontevedra (Galicia) has ordered a father to seek consent from his ex before uploading children’s photos on the site.

For its part, the Supreme Court has fined an online newspaper with fifteen thousand Euros for publishing Facebook personal photos taken from an account that was public. According to the high Court, the publication of photos in an open public account is for the purpose of sharing with third parties, but not for mass media consumption. But whereas the Court deemed the right to one’s personal image was effectively interfered with, this was not applicable to the right to privacy or dignity of the claimant.

Supreme Court tells lawyers to write less

The Civil Section of the Supreme Court has ordered lawyers to not exceed 25 pages in their appeal writs, and to use Times New Roman font size 12. According to the magistrates, excessively long writs are unnecessary and hinder the institutional function of this Tribunal. Failing to observe these norms can cause the claimant to lose his right to appeal!

Uncategorized ,

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

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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 , , , , ,