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BUILDING PERMIT INVALIDITY AND CONSEQUENCES FOR THIRD PARTIES IN GOOD FAITH

Invalid Andalucian building permit/licence
Invalid Andalucian building permit/licence

One of the legal problems affecting some owners of properties on non-developable land has originated in the last ten years with the invalidity of building permits, which protected these constructions on non-developable land. This invalidity has been obtained in most of the cases by means of the corresponding contentious-administrative court proceedings.

First of all, the invalidity of a building permit would imply the demolition of what has been built under this permission on specially protected non-developable land; in case of common non-developable lands (without special protection), this invalidity may imply the demolition if more than four years has not elapsed between the end of the construction and the beginning of contentious-administrative proceedings or the invalidity procedure ex-officio by the Town Council. After March 2012 six years should have elapsed.

From a legal point of view, the main problem lies in the third party in good faith, included in Article 34 of Spanish Mortgage Law, who purchases a property to the former owner who had a building permit to build, and later on, he finds out that this permit has been challenged by contentious-administrative jurisdictional courts and found null and void by final judgment before the sale execution; or he finds out that there is a contentious-administrative proceedings going on when he bought the property and has not been finished yet. Therefore, sooner or later a judgment may be received stating that the permit is invalid.

The third party in good faith is not able to know about these facts because until the 1st of July 2011 it is not compulsory to register in the Land Registry the invalidity of the building permit ordered by final judgment or resolution ex-officio by the Town Council. This modification was incorporated by the Spanish Royal Decree-Law 8/2011 approval modifying some articles of Spanish Land Law. For this reason, this third party purchaser is not able to know about this situation, becausethe Land Registry has not recorded in most of the cases the decisions taken on building permits which may affect their property rights.

The abovementioned Royal Decree-Law approval has set the compulsory registration in the Land Registry of the legal condition of the property, so that the Public Administration bodies will be responsible if this notification is not served to the Land Registry when contentious-administrative proceedings are affecting the building permit granted to the property. Articles 51 and 53 of Spanish Land Law (Royal Decree-Law 2/2008 of 20th of June) set forth this compulsory registration, so that the third party in good faith may be able to know about the legal situation of the property by looking up the Land Registry and then decide about buying or not this property knowingly and intelligently.

However, regarding the abovementioned information, a problem arises when considering the facts previous to the 1st of July 2011—whether the proceedings are finished at this date or they are not resolved yet, because the abovementioned compulsory registration in the Land Registry was not in force as to this date as former regulations were applied.

In my opinion, the main problem of Spanish legislation in this field and its most frequent interpretation by Spanish case law, lies in the fact that the third party in good faith accessing the Land Registry is not protected by the Registry certification and the legal certainty that the Land Registry must provide, prevailing the planning legality support over the registry certification. We understand that is not abiding to law, because the third party in good faith, legal owner and unaware of the legal situation concerning the building permit, shall not be subject to the negligence of Public Administration.  In the interest of legal certainty, the rights of the third party in good faith should prevail over the planning law enforcement.

Apart from the abovementioned situation of the third party in good faith, the core problem lies in the fact that the property right in Spain does not enjoy a special protection. It is also worth mentioning that Spain is subject to comply with the Rome Convention, which considers the property right to be a fundamental right with a special protection. Concerning its interpretation of property right, The European Court of Human Rights (ECHR) itself has demanded the following:

1) Those affected by administrative or court proceedings which may imply the loss of their assets shall have an effective and real opportunity to defend their situation.

2) Any deprivation of a property to his owner due to the general interest—as the enforcement of planning law, requires a previous compensation for this deprivation. In fact, a recent resolution of the ECHR of the 31st of January 2013 by cautionary measure has cancelled a demolition in Cañada Real (Madrid) until the Town Council provides an alternative accommodation to the family occupying the property and the outlined underlying matter is resolved. In this case, we refer to the demolition of a property in a shanty-town located in specially protected land and without building permit.

Therefore, the Spanish legal system should reconsider certain substantive decisions providing the property right with a fundamental nature and protecting it. As a result of this, the protection of the third party in good faith should be one of the cornerstones of this protection, because this third party must not bear the damage of the unlawful conduct of Public Administration when granting these building permits, both in these cases where the invalidity proceedings were not entered in the Land Registry and were not available and those cases where proceedings are initiated against the building permit once the third party in good faith is the new owner.

In addition, these owners, who built their properties with the corresponding building permits granted by Town Councils, should not be deprived of their property right by means of the property demolition without compensation to cover their loss, as this demolition is originated by the negligence of the Town Council and not by the owner.

Spain should ensure compliance with its obligations as an EU Member State, as the property right concept of the Rome Convention and the European Court of Human Rights (ECHR) case-law is obvious in this regard. Therefore, we understand that this Convention is being infringed by Spain, apart from the fact that the current situation contribute to legal uncertainty.

 

 

Author: Gustavo Calero Monereo, C&D Solicitors (lawyers)
Torrox-Costa (Malaga/Costa del Sol/Andalucia)

 

 

BUYING YOUR HOME IN SPAIN BEFORE THE 31ST DECEMBER 2012

Buying your home in Spain
Tax benefit when buying your home in Spain

In this year we have published several blog articles regarding tax changes on property subjects which the Spanish Central Government has passed over this year. In that regard, the deadline to implement most of them finishes on the 31st of December.

As a requirement to increase tax revenues, this new year will bring the removal of some tax reliefs which are currently enjoyed by home buyers in Spain.

From the 1st of January, home buyers in Spain should consider that the following tax incentives will disappear:

1) 50% tax exemption on capital gains obtained for the future sale of the property which had been purchased before the 31st of December 2012.

2) The Spanish VAT rate will increase from 4% to 10% for new housing purchases.

3) Tax deduction for main residence purchases, applicable in the event of tax residence in Spain.

Tax saving when buying a home before the 31st of December may become a very significant factor to keep in mind for those looking for a property in Spain and hesitating about different alternatives to take a decision. In these cases, we recommend them to make up their minds before the end of the year in order to take advantage of the above mentioned tax relieves.

Furthermore, sellers have also a reason to sell before the 31st of December—from the 1st of January 2013, Spanish Plusvalia (municipal capital gains tax on land) rate may increase from 66% to 150%, depending on the municipality where the property is located.

It is also worth mentioning that Town Councils reviewing cadastral values in the last 5 years were obliged till now to apply a 40% to 60% reduction on the resulting payable fee for Plusvalia tax. However, from the 1st of January 2013 this obligation will disappear—then, each Town Council may decide whether to apply or not this reduction. Regarding the current economic situation of most Town Councils, all of us may have to get use to the idea that just a few of them may decide to apply this reduction.

 

 

Author: Gustavo Calero Monereo, C&D Solicitors (lawyers)
Torrox-Costa (Malaga/Costa del Sol/Andalucia)

 

 

PROPERTIES ON NON-DEVELOPABLE LAND AFFECTED BY RECENT FIRE IN COSTA DEL SOL

Legal risks rural house Spain fire
Legal risks rural house Spain fire

As a result of the terrible fire initiated last Thursday 30th in Coin, an estimate of 100 to 200 properties built on non-developable land within the municipal area of Coín, Mijas, Marbella, Ojén and Alhaurín el Grande were severely damaged and some of them completely ruined.

In this year 2012 the Decree 2/2012 for the regulation of buildings and scattered rural settlements on non-developable land in Andalusia was passed by the Andalusian Regional Government in January to put a stop to the problem of thousand of properties on non-developable land. However, this Decree does not currently apply nor does it mean the legalization of these properties, as it was already discussed on once of our previous article

According to the above mentioned Decree, most of these fire-affected properties are considered assimilated to out of ordination housing, as they were built without construction permits or infringing their condition and the municipal General Plan for Urban Planning PGOU. Therefore, no measures can be adopted to recover their legality, which has been disrupted over time and they cannot either be legalized. The only permission authorized by this Decree is “…works for the repair and maintenance which may require the strict maintenance of the security, occupation and health standards of the property” (Article 8.3 of the Decree).

In the event of some fire-affected properties considered out of ordination—properties built in accordance with the municipal PGOU, but considered “out of its ordination” after the PGOU modification, the permitted construction works shall be provided by the municipal PGOU, which is currently under development in most of the municipalities. The Andalusian Town Planning Act L.O.U.A. shall be also considered as it provides that “…only repair works for the strict maintenance of property occupation or usage…” as well as “…exceptionally partial and circumstantial works may be permitted for the property consolidation…”. It is worth mentioning that only a few of these properties may be under the “out of ordination” condition.

This restriction or limitation to alter or renovate properties on non-developable land is provided by the definition on the Decree for “scattered rural properties”, which are included within the “out or ordination” concept and its variant “assimilated”. In accordance with the case law, this concept has been defined as “constructions to disappear once their useful life possibilities finishes—the “out of ordination” condition aims the usage of property until it finishes over time, ends up as a ruin and naturally disappears. For this reason, the Andalusian regulation always provides the granting of permits for this type of constructions for the strict maintenance and under exceptional circumstances.

The Decree does not provide the legalization of these properties. In fact, part of the status for these “assimilated to out of ordination” properties considered as illegal, makes them to be given a definition and their use limited, since no measures can be taken to protect their legality, so that they are “attacked”, as too much time has elapsed since the were built.

In the event of a disaster as fire, flood, earthquake, landslides, etc…, in which a property is in ruins or very damaged and cannot be used again for the purposes to be occupied as a residence, if we abide by the current regulations on these events, it would be very complicated to grant a construction o repair permit for these properties, since it is against the concept of “out of ordination” and “assimilated to out of ordination” provided by the Decree.

The problem lies in a Decree which does not give any solution to the current legal condition of these properties, which have been tolerated by the Andalusian Regional Government and Town Councils for many years. During all these years, nobody has done anything at all on this matter and for that reason no legal measures can be legally adopted to restore their legality.

According to the first political reactions read on the papers about the burned properties, it seems that each particular case may be studied. In some cases, a forced and exceptional interpretation out of the legal framework would be adopted, so that those families with just one house would be allowed to rebuild and live on their non-developable lands as they did before the fire. The problem of this “shortcuts” to implement what the legal regulations do not provide is that a precedent is set, so that in the future event that any of the owners of the more than 100,000 properties built in non-developable land in Andalusia had a disaster of this kind, aren’t they also entitled to receive a similar treatment from the Public Administration? For this reason, the problem lies in a Decree for appearance’s sake, which does not solve the problem and is currently open to doubt in this type of situations.

 

Author: Gustavo Calero Monereo, C&D Solicitors (lawyers)
Torrox-Costa (Malaga/Costa del Sol/Andalucia)

 

TAX EXEMPTION WHEN BUYING A PROPERTY BEFORE 31/12/2012

Tax exemption capital gain tax sale
Tax exemption capital gain tax sale

Regarding the current financial situation, which is reflected in the drop of property sales in Spain every three months, the Spanish Government has passed a new tax exemption. This exemption tries to promote the sale of properties and may become very interesting for both individuals and bodies corporate considering buying a real estate property in Spain in the short term, whether they purchase commercial premises, homes, offices, garages, plots, storage rooms, etc.

On the 12th of May 2012, the Central Government passed the Spanish Royal Decree-Law 18/2012 of 11th of May on the restructuring and sale of the property assets of the financial sector. This regulation included in its First, Second and Third Final Provisions the tax exemption for bodies corporate and individuals, whether resident or non-resident in Spain. This reform law allows all those buying a property from the 12th of May 2012 till the 31st of December 2012 to pay taxes only on the 50% of the capital gains tax when selling the property subsequently, whether in 1, 5, 10…etc years, while the remaining 50% is free of charges.

This exemption may save an important amount of money, because if a property is currently sold in Spain, capital gains are taxed at 21% for non-residents (19% from 2014), at 27% for resident taxpayers in Spain (21% from 2014) and at 30% for bodies corporate.

Here we present an example: imagine you are thinking about buying a property in Spain considering the current market opportunities; the price for this property may be EUR 200,000; the following eventual scenarios may occur according to the date of purchase when selling this property, for example, in 2017 for a sale price of EUR 270,000:

1) Non-resident taxpayers: EUR 70,000 of capital gains at 19% makes a total payment of EUR 13,000; if the purchase is performed before the 31/12/2012, the total payment would be EUR 6,650.

2) Resident taxpayers: EUR 70,000 of capital gains at 21% makes a total payment of EUR 14,700. If the purchase is performed before the 31/12/2012, the total payment would be EUR 7,350.

3) Corporate: EUR 70,000 of capital gains at 30% makes a total payment of EUR 21,000. If the purchase is performed before the 31/12/2012, the total payment would be EUR 10,500.

Obviously, this tax saving is not definitive in order to decide whether to buy a property or not in Spain, as it is not possible to know whether prices may go down much more nor the gains resulting from the eventual property sale. However, this fact may be a helpful factor to take a decision for those considering buying a property, especially for those non-speculative potential buyers whose main purpose is to enjoy this property for many years; thus, the longer they own the property, the greater the capital gains may be when selling it. Look at the figures and draw your own conclusions.

 

Author: Gustavo Calero Monereo, C&D Solicitors (lawyers)
Torrox-Costa (Malaga/Costa del Sol/Andalucia)

 

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