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The Spanish Lawyer Online

Antonio Flores’ Blog

Thoughts about laws and regulations which affect foreigners in Spain

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Archive for the ‘Property’ Category

Mortgage loan taxes: Spanish Supreme Court appeals its own ruling

October 26th, 2018

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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 , , ,

Spain Speeds up Squatter Evictions

June 19th, 2018

Spain’s Senate has approved specific measures against illegal occupiers of private property. Under the new bill, named specially “Amendment to Procedural Act 1/2000 in respect to illegal occupants of property”, squatters will be served with an eviction notice and told to justify ownership of the property through a title deed, or show lack of one on the part of the claimant. If no sufficient justification is provided by the squatters, the court will order immediate repossession of the home with no chance of appeals.

What´s interesting is that squatter´s rights to fight the case in Court -and effectively ‘buying’ an average of 15 months whilst the case in dealt by the Courts- are drastically curtailed under what is a fast-track procedure aimed at preventing, in particular, what the preashutterstock_354121799mble of this described as “extorsion to the owner or lawful possessor of the property with the purpose of obtaining financial compensation as a condition for the recovery of the property”, often conducted by  “very organized mafia-style networks”.

Courts will now serve notice on squatters (identified or not) giving them 5 days to produce a rental agreement, or any other document enabling them to lawfully stay in the property, failing which the Court will order immediate eviction. In addition, under the new law the Courts will have to observe the following:

  • Squatters will have no rights other than to produce a valid agreement to cover their stay in the property. Opposing any application to have them evicted will not have suspensive effects.
  • Sentences against squatters will have no right of appeal and will be immediately enforceable.
  • Social services will be on stand-by in case of eviction of children, elderly or people with special needs.
  • The reform will only affect properties whose owners are “private individuals, non-profits and public agencies that own social housing.” It leaves out real estate held by banks and investment funds.

The above measures will become applicable 20 days after the publication of the law reform in the Official Gazette.

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Tenants and Occupants Could Face Jail for Theft and Damage

April 17th, 2018

shutterstock_1057453064A recent writ of accusation by a Murcia-based prosecutor is a stark reminder that certain illegal practices by toxic tenants, and other occupants of real estate, will not enjoy impunity. The writ refers to a non-paying tenant who -in the middle of an eviction process- chose to retaliate against the landlord by stealing, among other items, 2 fans, a mattress, a washing machine, a dishwasher, hobs, curtains, a coffee machine, a microwave over, a table and 4 chairs.

The State Prosecutor is asking that the tenant serves a minimum of 2 years in prison as the value of items stolen exceed 400 euros.

In a similar case, Criminal Court 15 in Valencia has imposed a 14-month prison sentence to a tenant for misappropriating furniture items and a 3,000 fine for causing damage to various others, consequence of “a deep resentment and a direct intention of causing financial and emotional harm to the owner”, according to the sentencing Judge.

In Barcelona, the Appeal Court (Section 10) passed a prison term to a tenant that, with the intention of causing the maximum possible damage, knocked walls, pulled pipes and cables, broke shutters and tore curtains and generally, left the property in a lamentable state of despair.

Its worth noting that in all the rulings, the actions caused by the tenant exteriorize a deliberate and intentional desire to cause monetary loss to the owner.

If the above scenarios want to be avoided by both tenants and owners, it is highly recommendable that parties carefully examine the property to be rented and draw up an inventory (photographic or video if possible) before granting possession.

 

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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.

 

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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.

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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 , , , , ,

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 , , , ,

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.

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