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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

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.

 

Property , , ,

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 ,

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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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!

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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.

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Madrid Courts Rule in Favour of British Investors Against Spanish Banks

January 29th, 2016

shutterstockSpanishPropertyDevelopmentBanco Popular, BBVA, Banco Mare Nostrum and Valencian Building Society S.G.R. have been ordered to pay over 2 million Euros, plus interest, to 40 British investors represented by Lawbird Legal Services.

The rulings were received on the same day and refer to investors who had paid large deposits on off-plan properties in El Pinet, in Alicante, and Costa Palatinum, in Murcia.

Court number 1 in Madrid wrote the following arguments on deciding the outcome:Banco Popular had issued two bank guarantees, one for 19 mm Euros and a further one for 4.4 mm Euros.

  • S.G.R. had too issued a guarantee for 5 mm Euros.
  • Banco Pastor had offered the developer a counter-bank guarantee which, according to the Judge, amounted to a collective policy to insure off-pan deposits.

For its part, the Appeal Court in Madrid (Section 25) held, in support of the investors, that:

  • A recent Supreme Court ruling had concluded that for the 57/1968 Act to apply, the off-plan property should be used for family living accommodation purposes, whether temporary, accidental or circumstantial. This includes “touristic apartments” as they are to be used by the owners as holiday homes, irrespective of their use as an investment for the most part of the year.
  • The developer had voluntarily submitted to the 57/1968 Act by producing a general bank guarantee that specifically referred to the Act.
  • Off-plan property buyers in Spain have an “inalienable right” to have their off-plan deposit underwritten, rights that cannot be waived by banks who, having issued a collective insurance cover failed however to grant individual policies to buyers.

 Banks have been ordered to pay the Courts the designated amounts, or face enforcement proceedings.

Both rulings are available to readers who so request a copy (less information deemed confidential at Lawbird’s discretion).

Litigation, Property , , , ,

Tenancy Agreements in Spain: the 11-month property rental contract

January 20th, 2016

This title of this post infers the existence of a type of residential rental contract that lasts for 11 months, no more but no less. And to a certain extent, if you had just landed in certain parts of Spain and you’d met up with property professionals (real estate agents mostly) there would be no reason to not believe that an 11-month contract –short term or holiday rental- is distinct from a 1-year plus contract –long term-.

At the same time, there appears to be an informal network of non-legal practitioners who are routinely consulted by people with legal problems and have, by reiteration, created parallel pseudo laws (and even case law) that, quite simply, do not exist in real life. And the 11-month contract is one ‘legislative’ creation of these “Costa” lawmakers as it does not exist as a standalone contract type. 

The following bullet points will help understand the current situation with urban rental contracts:

  • There are only 2 types of urban rental contracts: residential rental contracts and non-residential rental contracts (which includes short term/holiday lets, commercial, etc.).
  • Duration of residential rental contracts can be freely agreed between the parties. If the agreed term is below 3 years, the contract will be automatically extended on expiration of contract term unless the tenant submits notice of termination of contract with at least 30 days.
  • The above rule is mandatory and cannot be waived by the parties by private agreement.
  • Many residential rental contracts are disguised as short term, and consequently many short term contracts will be treated as residential by the Courts.
  • The Spanish Supreme Court has stated that irrespective of the name given to the contract or the term agreed by the parties, if the tenant had a requirement for a habitual and family domicile to take care of his/her permanent and essential needs (and that of the family), the contract will be deemed residential and therefore the 3-year rule will apply.

Likewise, the short-term nature of the contract refers to not the duration but to the reason and purpose of occupation of the property, it being determined by its brevity.

Means to prove that a short term contract is in reality a residential one are, for example, the tenant(s) having a job wherever he/she lives or running a company, children’s school enrollment, registration with the Town Hall (‘empadronamiento’) etc.

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