purchase, property, coronavirus, private contract

Purchase contracts in Spain and the COVID-19 Corona crisis

Written by Gustavo Calero Monereo on 23 April, 2020. Posted in Andalusian, conveyancing, coronavirus, costa del sol, english speaking solicitor, judgment, lawyer, legal advice, malaga, mortgages, nerja, Property law, purchase process, Sin categoría, solicitor, torrox.

Purchase or sales contract during COVID / Corona crisis

It is clear that the healthcare crisis caused by the Coronavirus (COVID-19) has had a huge impact on all areas of our daily lives. The state of alarm decreed by the Spanish government, as well as many other governments in foreign countries, has caused movement restrictions and limitations, the closure of the airspace, the paralysis of the business fabric and government agencies, etc. People’s everyday lives have been severely affected from a social and economic standpoint.

With this article, we would like to respond, as much as possible, to the doubts and uncertainties of foreign clients buying homes in Spain, as well as their sellers. We are referring to sales between individuals that were already underway with signed contracts but which were ‘surprised’ by the COVID-19 crisis and the measures adopted by the Spanish government decreeing the state of alarm.

At the end of the article, we will comment briefly on the legal situation of sales of new homes or off-plan sales from developers.

What does Spanish law say on the fulfilment of purchase contracts?

The first thing that must be said emphatically is that, under Spanish law, the clauses agreed in a contract have the force of law and, therefore, the parties are required to fulfil them. In other words, the impossibility of fulfilling what has been agreed in a contract is an exception and is interpreted very restrictively.

The Spanish Supreme Court, when dealing with potential breaches of contract and to avoid the loss of the money paid, has established that the party in breach has to evidence and argue the reasons behind said breach, as well as prove that it did everything possible to perform the contract.

However, even after establishing the impossibility of complying with the contract, if it is possible to amend or adapt it so it can be fulfilled, the parties must seek to modify the contract in that way, to solve the problem arising from the situation caused by the state of alarm and the COVID-19 Corona crisis. In other words, when faced with the potential avoidance of the contract by one of the parties, they must always attempt to reach an agreement to fulfil it.

Which property sales could be affected by the state of alarm?

In my opinion, the conveyance contracts that may be affected are those that required either of the parties to fulfil a requirement or condition agreed in the contract before the execution of the public deed of sale and that condition is affected by these months of paralysis.

Due to the paralysation of activities and movement limitations, it is very possible that some of the requirements established in a conveyance contract cannot be fulfilled, as the estimated time to process or manage these were calculated based on a normal situation, which has not existed since 13 March. As an example, we can mention the following:

Purchase contracts in the state of alarm:

For the conveyance contract to establish the condition of being granted a building permit or the record for legalisation of a home, such as DAFO in rural homes in Andalusia. As city halls are paralysed or working at minimum levels, it is very possible for these applications not to be processed until the state of alarm is brought to an end.
For the condition to be obtaining a Spanish mortgage. If the appraiser cannot travel to visit the property or the bank’s risk department is not operating, this process will be paralysed, making the average resolution time much longer than initially expected.
For the date of signing the conveyance contract and recording it as a public deed to coincide with the period of the state of alarm and/or the restrictions on commercial flights, making it impossible for either of the parties to attend the notary office.
The impossibility to obtain an NIE (foreigner’s identification number.), which is necessary to sign a conveyance contract before a notary and pay the corresponding taxes. The processing of these documents is currently suspended. The national police stations in Malaga that we asked don’t know when they’ll be able to open to accept new NIE applications.
Either of the parties being admitted into hospital or in quarantine.

What should the seller and buyer do in this situation?

Well, the first thing is to see if the private contract contains any clause that governs these situations since, as I’ve mentioned, the sales or purchase contract has the force of law and binds the parties. However, in conveyance processes where the deed cannot be signed for reasons arising from the coronavirus crisis, what both parties should do would be to amend the contract and extend it, to give time to the party that needs it in order to complete the sale. In most situations, it is only a matter of time for that circumstance or condition that is currently impossible to fulfil to be fulfilled later on.

Likewise, in the event of inflexibility and the refusal of either of the parties to grant such an extension to the conveyance contract, in most cases there would be no legal grounds to terminate the contract and/or claim damages. As mentioned above, the parties must always attempt to reach an agreement to comply with the contract.

Is it possible for the buyer to terminate the contract due to the COVID-19 crisis?

Withdrawing from a conveyance contract due to a sudden drop in house prices and in the face of an economic crisis is a complex issue. In this case, we are referring to the buyer having to accredit meeting one of the requirements established in case law for terminating purchase contracts, this being that there has been an extraordinary change in the circumstances leading to the execution of said contract.

In other words, the buyer would have to evidence that the current economic crisis, resulting in a deep and prolonged economic recession, could be openly considered an economic phenomenon able to generate a severe disruption or change in the circumstances leading to the execution of said contract.

In Spain, the courts have been rejecting the possibility to terminate a sales or purchase contract based on this circumstance. However, this possibility should not be ruled out and individual factors should be analysed, such as whether the home will be a primary home or a holiday home, if the buyer was in need of mortgage financing, if the financial situation of the buyer has changed significantly, etc.

What is the buyer’s situation in the sales process?

With this question, what we want to address is the situation of a buyer who made a decision to purchase a home at a specific price a few months ago, based on an economic situation that is in no way similar to the current one.

Let’s imagine Dutch, Belgian, English, Swedish or other foreign people who wanted to invest in property in Malaga or the Costa del Sol, either to obtain a profit or to let it. Clearly, the sales price they agreed was based on the value of that property under the earlier economic situation. For instance, let’s imagine a home in the historic centre of Málaga or Nerja, highly sought-after areas with tourist attractions before COVID-19, with great possibilities for letting in the tourist market, which is currently suspended.

Well, as a buyer, in the event that continuing with the purchase of the property would lead to incurring significant levels of debt, the first thing to do would be to analyse two things:

The amount of money paid to the seller (usually 10% of the purchase price). Whether the buyer is willing to lose that money, essentially due to thinking that it is better to lose the money and not buy the property.
The content of the purchase contract clauses agreed in terms of what happens when the buyer breaches the purchase contract. This is an important issue because a breach of contract could lead to different legal situations. The usual process is to execute an earnest money contract, which entails losing the money paid to the seller, leading to the termination of the contract, this being the clause that our firm usually agrees in conveyance contracts. However, if this is not properly drafted in the contract, it is possible for the seller to be entitled to require the buyer to comply with the purchase contract and sign the public deed, even if the buyer agreed to lose the earlier money paid. Obviously, this claim from the buyer would have to be addressed in judicial proceedings, which would take years before the parties get a resolution and usually sellers settle for keeping the money paid as a deposit.

What is the seller’s situation in the selling process?

For sellers, they are most likely the most interested in completing the sale of the home as, certainly, the price set in the sales / purchase contract signed before COVID-19 will be higher than what they can obtain in the short or medium term. Without a doubt, the current situation will lead to a general drop in house prices, even though no one knows how long this will last.

That said, it is possible for sellers who already have a signed contract and who see that buyers are hesitating to complete the conveyance to be interested in making it easier for buyers to complete the purchase. In other words, in this context, negotiating a lower price so that the seller can sell doesn’t seem far-fetched. In the end, the price drop would depend on whether it is very important for the seller to sell right now or they can wait, or whether the money already paid by the buyer is enough compensation for the seller to agree to keep that amount as a penalty instead of negotiating.

What is the situation when purchasing new builds or off-plan homes?

In sales of this type, in terms of the performance of the contract by the buyer, the situation is the same as explained above, in terms of both compliance with the contract and its termination clauses. In my opinion, the buyer’s potential doubts would be determined by the progress of the works and the expected completion date of the development, also thinking about the financial solvency of the developer.

If the buyer signed the sales contract over one year ago, when the market was experiencing a good time and prices were rising, it is very likely for the price agreed at that time to be lower than what they could find at the beginning of this year, for instance. On the other hand, if the works are close to completion, there would be little doubt as to whether the developer will complete them, as they would be almost completely sold and few buyers would be thinking about terminating the purchase contract, since they would have already made significant payments on account for their homes. In this case, the scenario for the buyer is safe.

In the case of developments where construction has not yet started but which were already being marketed, with expected completion likely coming in a year or two, the scenario is different. In this case, buyers who are in doubt and recently signed the private contract must assess the price of the property and its completion date, as well as find out the number of homes with signed contracts sold by the developer, in order to make a decision. However, if the private contract has not yet been signed and only a reservation had been agreed with the developer, they can withdraw from it and recover the amount paid. They can also wait longer, as developers are likely to lower prices, depending on how long the crisis lasts.

In terms of the solvency of developers, due to the obligation to guarantee all the amounts paid during construction once the private contract has been signed, the buyer would have complete legal certainty in the event that the developer is unable to complete construction. This situation is in no way similar to the 2008 crisis, where many buyers lost their payments on account.

Individual review situation purchase contracts

However, these sales processes starting prior to the COVID-19 crisis can lead to complex situations that should be analysed individually and always with the advice of a lawyer. This is not the time to make decisions without the appropriate legal knowledge, taking into account that a private conveyance contract has already been singed. Rushing is never a good idea.

Author: Gustavo Calero Monereo, lawyer at C&D Solicitors, (Málaga, Andalusia)

LOWER TAXES ON GIFTS IN ANDALUSIA

Written by Gustavo Calero Monereo on 23 May, 2019. Posted in andalusia, Capital Gains, conveyancing, english speaking solicitor, gift tax, judgment, malaga, nerja, Property law, purchase process, tax liability.

On 9 April, the Andalusia Council approved, through a Decree Law, an amendment of the tax on inheritance and gifts, which, in particular, entails great tax savings in terms of the tax on gifts. This legislative amendment introduced a bonus of 99% of the tax liability due in inheritance and gift tax, that is to say only 1% of what was previously paid would be due.

Needless to say, the Tax on inheritance and gifts is devolved to the different Autonomous Communities that make up Spain so this bonus is the one in force in Andalusia. But, depending on the location of the property or residence of the recipient (for movable assets) –the person receiving the asset–, legislation will be different on the matter of inheritance and gifts.

Example: A father gifts his son 200,000 euros

With the previous legislation, the tax liability on this gift would have been 31,621.21 euros, which meant that the son would have had to pay 31,621.21 euros in taxes after receiving this money from this father. With the new regulation, this tax liability of 31,621.21 euros can benefit from a bonus of 99%, which means that, now, the son would pay a tax of 316.21 euros. Without a doubt, it represents huge tax savings. When money or other moveable property is donated, the applicable regulation for this purpose will be that of the residence of the recipient.

Who can benefit from this bonus on the gift tax?

Those people included in groups I and II established in the regulation governing this tax can benefit. This means that the recipient must be the spouse, child, grandchild or parent of the grantor; the person who gives away the asset.

What other requirements need to be met for gifts in Andalusia?

Besides being included in groups I and II mentioned above, it will be necessary for the donation to be made effective in a Public Deed before a Notary and, if money is gifted, its source must be justified. In case of donating a property, this Deed will be used to inscribe the property in the new name of the new owner in the Land Registry.

What happens with the Capital Gain Tax and Plusvalia?

From the perspective of the tax on gifts, there is no problem with a parent donating a property in Andalusia for the child to apply the 99% bonus and pay a very small amount for the tax on gifts. The problem in the case of properties affects the grantor because, even if the property is gifted, the Tax Agency equates that transfer to the sale of the property –for the Treasury, there is no difference between donating and selling–. For this reason, the grantor must pay Capital Gains Tax calculated on the difference between the original value paid in the purchase of the property and the value of the property when gifted.

It is important to note that if the grantor is a tax resident in Spain, over the age of 65 and gifting their habitual residence, no capital gains tax would be paid for gifting or selling the property.

Lastly, as the city where the property is located also interprets a gift as a sale, it will ask for its piece of the pie in the form of capital gains tax – Plusvalia in Spanish-. This local tax is calculated according to the number of years that the grantor has owned the property, with a maximum of 20 years, and is paid on the increase in value experienced by the plot/land of the property.

What if I value the property at a low price to pay less tax?

You may be tempted to set a very low value for the property gifted and thus pay less Capital Gains tax when it is gifted. This is perfectly understandable but it is very important for this value not to be below the minimum taxable value, which is the taxable value that the Treasury deems properties in Spain to have. That is to say, the value of the property being gifted should not fall below the minimum taxable value to prevent an inspection by the Tax Agency. The minimum tax value in urban properties is based on the cadastre value of the property multiplied by a factor that varies from town to town.

Does this bonus apply to everyone, regardless of whether they are resident in Spain?

As explained in several previous articles, the most recent from March, different judgments have ruled that both residents of the European Union and residents of third countries must be treated the same as residents in Spain for the purposes of the Tax on Inheritance and Gifts. Based on this, anyone who meets the requirements explained in this article can benefit from the 99% bonus in Inheritance and Gift Tax introduced in Andalusia or any other regulation of the relevant Autonomous Community.

Example of a property being gifted

Let’s imagine a Swedish homeowner who bought a property in Almuñécar (Granada) for 200,000 euros and decides to gift it to his son who lives in China, with the current minimum taxable value being 300,000 euros. Since the home is in Andalusia, the son-recipient can benefit from the 99% bonus in the tax due and would only have to pay 554.68 euros for the tax on gifts, of the total tax amount of 55,466.81 euros.

Since the father-grantor obtained capital gains of 100,000 euros from the gift, he will have to pay capital gains tax on this 100,000-euro “profit”, which currently stands at 19% of net profit (after certain possible deductions). However, as the owner is 64 years old, resident in Spain and is gifting his habitual residence, we recommend that he waits until he turns 65 to avoid paying capital gains tax. The son will surely understand the reasons.

What happens to taxes where the recipient resides?

Before accepting a gift, it is important for the recipient to get information, from his or her country of residence, regarding which tax will have to be paid on this, if any. Lastly, it should be said that this amendment of the Tax on Gifts in Andalusia means that the construct of gifts may be attractive in situations where a couple wants one of the spouses to own 100% of the property –only for married couples under separation of assets– or if they want to leave the property to their children or grandchildren during their lifetimes. Previously, from the standpoint of tax savings in Andalusia, the only options were to terminate co-ownership or sell the property but now, with this new amendment, in many cases it will be better to gift it as more taxes will be saved on the transfer of the property.

Read more about the subject of selling your house in Andalusia in the video below:

Author: Gustavo Calero Monereo, lawyer at C&D Solicitors Torrox (Málaga, Andalusia)

saving for non-EU citizens in the spanish inheritance tax

INHERITANCE TAX NOW ALSO THE SAME FOR EU- AND NON-EU CITIZENS

Written by Gustavo Calero Monereo on 21 March, 2019. Posted in Andalusian, costa del sol, english speaking solicitor, heir, Inheritance Tax, judgment, lawyer, legal advice, NON RESIDENT, Sin categoría, wills.

As we stated in our post in February 2015, on 01/01/2015, the regulations governing Inheritance Tax were amended, EU citizens began paying the same Inheritance Tax as citizens resident in Spain. From that time EU citizens were able to pay tax in accordance with the regulations of the Autonomous Community where the assets are located. Remember that these regulations are much more beneficial than national regulations on Inheritance Tax, which were applied to EU citizens until that date. This amendment left non-EU citizens out, which were required to continue paying tax according to national regulations.

Supreme Court rules in favour of Non-EU members

However, two judgments of the Supreme Court, in February and March 2018, referring to residents in non-EU countries such as Canada or Switzerland, determined that there would be discrimination contrary to the free movement of capital if non-EU citizens were not allowed to opt for regional regulations in the same manner as EU citizens. Therefore, these non-EU citizens should also be treated in the same manner as EU citizens in terms of Inheritance and Donations Tax, also being eligible to receive regional tax benefits.

We should add that the free movement of capital is enshrined in article 63 of the Treaty on the Functioning of the European Union, which prohibits all restrictions on the movement of capital between Member States and between Member States and third countries, making the limitations for non-EU citizens in terms of Inheritance Tax contrary to the regulations of the European Union.

Since September 2018, the Spanish Tax Agency decided to comply with these rulings and started accepting settlements of Inheritance Tax for non-EU citizens, applying the regulations of the relevant autonomous community to these.

Benefits of tax calculations by Autonomous Communities

This change in tax criteria represents significant savings in terms of inheritance for non-EU citizens, as it should be noted that, in most Autonomous Communities in Spain -including Andalusia-, a widowed spouse, children and descendants, such as grandchildren, barely pay any Inheritance Tax, as they are eligible for significant bonuses. These bonuses in Andalusia were explained in detail in our article from January 2018.

Possibility to reclaim tax until four years back

Suffice it to say that this tax change opens the door to claims from non-EU heirs who have paid Inheritance and Donations Tax over the last few years, if a comparison between national and regional regulations were to show that they paid much more than an EU citizen would have. This claim may be filed provided that the right to claim has not been time-barred, the deadline being established at four years after the payment was made.

Brexit and British citizens

As a last note, considering the consequences of Brexit for British citizens with properties and assets in Spain, fortunately, even if they remain outside the European Union and would be considered non-EU citizens, they would be able to continue to benefit from bonuses and discounts in Inheritance and Donations Tax in the same manner as before.

It should be noted that there are many British homeowners and buyers with properties in Spain and, at least, their heirs will not be harmed in terms of taxes payable in a future inheritance procedure.

Author: Gustavo Calero Monereo, lawyer at C&D Solicitors Torrox (Málaga, Andalusia)

less taxes when you buy a property in Spain

Less AJD tax in co-ownership termination property and potential claims for Spanish Tax Office

Written by Gustavo Calero Monereo on 1 February, 2019. Posted in conveyancing, judgment, lawyer, legal advice, malaga, purchase process, Sin categoría, solicitor, taxes.

It’s usual when couples break up and they own a property at 50% -or in properties belonging to several heirs- that for various reasons one of the joint owners would want to sell his or her share and the other one would want keep the entire property. Said sale or purchase can be made effective through executing a Deed of co-ownership termination (Extincion de Condominio).

Over these deeds 1.5% AJD Tax (Actos Juridicos Documentados / Stamp Duty) is paid instead of the normal 8% ITP / Transfer Tax. There now is an important change that even lowers this AJD tax and makes it possible to claim back money from the Spanish Tax Office.

What is the Extincion of Condominio and what are its benefits?

It’s usual when couples break up and they own a property at 50% -or in properties belonging to several heirs- that for various reasons one of the joint owners would want to sell his or her share and the other one would want keep the entire property. Said sale or purchase can be made effective through executing a Deed of co-ownership termination (Extincion de Condominio). Co-ownership termination consists in transferring something that belongs to several owners, who agree to award it/sell it to one of them, with the other joint owner/buyer paying a price for acquiring the share that belonged to the others.Termination entails the end of joint ownership and this asset becomes the property of a single individual but it’s only applicable to properties belonging to several owners, if they decide to sell everything to one of them. It wouldn’t apply if the sale of this share goes to more than one owner, e.g. if there are three joint owners and two of them keep the other one’s share.

Termination of co-ownership offers one main advantage over a sale: the tax paid by the buyer to acquire this share of the property is significantly lower. While in Andalusia the tax on asset transfers for the purchase of a home is 8%, the tax paid for termination of co-ownership is 1.5%, as Stamp Duty (AJD Actos Juridicos Documentados). In other words, to benefit from the tax rate for co-ownership termination, there can only be one owner of the property in the end as, otherwise, this would be considered a normal sale and be taxed at 8% ITP Transfer Tax.

Examples

% ITP tax

3 Couples have a joint property. 1 Couple sells their 33,33% on a 50-50 base to the other 2 couples. Both remaining couples pay 8% over their bought share because the property stays in co-ownership.
2 Couples have a property and 1 couple sells to the other couple that is married in separation of goods. They pay 8% ITP tax because the tax office sees this married couple as 2 parties.
3 Brothers inherit a property and 1 sells his part to 1 brother that then owns 66,66%. The buyer pays 8% ITP because there still is a co-ownership of the property.

1.5% AJD tax

A married couple gets divorced or 2 non-registered partners end their relationship. One sells to the other, so there is no co-ownership anymore and the remaining owner pays 1.5% AJD over the bought 50% of the property.
2 Couples have a property and 1 couple sells to the other couple that is married in joint assets. They pay 1,5% AJD tax because the tax office sees them as 1 party.
3 Brothers inherit a property and 2 sell their part to 1 brother that then owns 100%. The buyer pays 1.5% AJD over the bought share of 66,66% because there still is no co-ownership anymore.

The owner/buyer now pays less tax

Since 9 October 2018, thanks to a Judgment of the Spanish Supreme Court, the tax cost assessed for termination of co-ownership has been significantly reduced. Up to that date –incomprehensibly– the tax of 1.5% was paid on the entire value of the property, even if, for instance, the share transferred was just 50% of the property. However, with this judgment, a new approach is established, in which tax will only be paid according to the value of the share effectively being transferred, i.e. only on the price to be paid to the seller, thereby avoiding the extra cost that this type of transfer entailed when tax was paid for 100% of the property value, even if the share acquired was just 30%.

Possibility to claim previous payments AJD tax

Likewise, this change in taxation through the aforementioned judgment can have positive consequences on Deeds of Co-Ownership Termination executed within the last four years. Owners who were already joint owners of a property and acquired the rest by paying the price and paying 1.5% tax on the total property value can file a refund claim for undue payments before the corresponding Tax Office. The tax office of the Andalusia Council is the oficina liquidadora.

They can claim a refund of the 1.5% paid for the share of the property they did not acquire, as they already owned that share. If they purchased 30% of the property two years ago and had to pay 1.5% of the total property value, they can claim a refund of the 1.5% paid for the 70% of the property they already owned when they purchased the remaining 30%.

Important: You can only claim back any tax paid within the four years prior to the date of filing the claim for undue payments, as this is the maximum time period to file a claim in accordance with Spanish tax law. I.e. the submission date of the claim cannot be later than four years after the due date of this tax, which is 30 days after the execution of the Deed of Co-Ownership Termination.

Author: Gustavo Calero Monereo, lawyer at C&D Solicitors Torrox (Málaga, Andalusia)

RECLAMATION PLUSVALIA TAX FROM SALE PROPERTY AT A LOSS

Written by Gustavo Calero Monereo on 21 February, 2017. Posted in Andalusian, Capital Gains, costa del sol, english speaking solicitor, judgment, nerja, plusvalia.

A few weeks ago, a seller was bitterly complaining to me about what they had paid for capital gains tax on the sale of their home in Capistrano, Nerja to a Swedish couple, even though no profit had actually been made.

I then remembered an article we published in June 2014 on this matter, where we spread the news about new case law defending the position of taxpayers who had sold a property at a loss and, furthermore, were forced by the city council to pay capital gains tax, even though no profit had been made from the sale of that property.

Many sales take place at a loss and there are many more to come as, in general, current prices are still below those in effect a few years ago.

In the two and a half years since the publication of that article, the position of taxpayers to be able to claim back what they had paid in municipal capital gains tax for the sale of their homes without having made any profit has improved and the government will probably be forced to amend the Law in order to prevent councils from continuing to demand payment in these situations.

First of all, if they want to cancel the capital gains tax bill received from the council, they must know that they need to pay it first and then file a claim, and they will then have no option but to resort to the courts to claim a refund.

However, according to a judgment of the Higher Court of Justice of the Community of Valencia in late 2016, it is not necessary to obtain an expert appraisal to prove the value of the property, as it is understood that the amounts shown in the purchase and sale deeds clearly determine the actual value of the property and, therefore, show whether a profit was made.

So far, taxpayers wishing to file a claim through the courts needed an appraisal to prove that the actual value of the property transfer was lower than the purchase price. However, through this judgment, the amount shown in the purchase and sale deeds can be enough to accredit the values of the property when, through examining the deeds, one can easily see that there has been no increase in the value of the land.

The strongest argument in favour of taxpayers is that the Constitutional Court, in its recent judgment of 16^th February, established that making citizens pay taxes for non-existing enrichment in the sale of their homes contradicts the principle of financial capacity set down in art. 31.1 of the Spanish Constitution. The Constitutional Court clarified that capital gains taxes are legal but it is unconstitutional to pay this tax when no actual gains have been made in the sale of the property.

The Constitutional Court also clarified that legislators will be the ones who will have to amend the legal framework of this tax in order to prevent taxation in these situations where no capital gains are made from the sale of a property.

Until the Law is amended, we assume that councils will continue to demand payment of capital gains taxes even when properties are sold at a loss but, after the pronouncement of the Constitutional Court and with the arguments set down in the other judgments mentioned, taxpayers will be able to claim back what they have unduly paid to the council in these circumstances. However, it is true that, for smaller amounts of capital gains tax, it may not be interesting to file a claim, taking into account the costs involved in hiring a solicitor and a barrister.

Many cities in this area: Nerja, Frigiliana, Torrox, Vélez Málaga, etc., issue bills for capital gains tax once the sale is recorded in a Public Deed, for which reason, in order to obtain a cancellation of this bill from the council, it would be necessary to challenge it before the deadline established by law.

If the claim is not filed before the deadline and, therefore, the administrative action becomes unappealable, it will become more difficult to file a successful claim.

Author: Gustavo Calero Monereo, lawyer at C&D Solicitors Torrox (Málaga, Andalusia)

FLOOR CLAUSES MORTGAGES: NEGATIVE REPORT FROM CJEU

Written by Gustavo Calero Monereo on 1 August, 2016. Posted in Andalusian, banks, floor clause, judgment, nerja, solicitors Nerja.

In our last article in May, related to floor clauses, we explained that judicial proceedings before the CJEU (Court of Justice of the European Union) are currently taking place.

The purpose of these proceedings is to decide whether Spanish banking entities have to return all the money unduly charged through floor clauses or, on the contrary, they only have to return the amounts unduly charged after 9 May 2013.

The preliminary opinion of the advocate general taking part in these proceedings establishes that banks should only have to return the amounts unduly charged after 9 May 2013.

The Judgement in these proceedings is expected for late this year and, even though the opinion of the advocate general is not binding, it is usual for the Court’s Judgement to follow the same reasoning.

Regardless of the surprise that this opinion has caused among many lawyers and judges, we must remember that Spanish banks will have to return the amounts unduly charged after 9 May 2013 through floor clauses, and this will not change, regardless of the Judgment of the CJEU, as these proceedings will only decide whether banks will have to return the amounts unduly charged before 9 May 2013 or only those amounts unduly charged after this date.

It is very important for everyone affected by floor clauses in a mortgage to file a judicial claim to recover the amount the bank has charged unduly, as well as to prevent the bank from continuing to charge them more money than the agreed interest rate for their remaining mortgage periods. The success rate in these proceedings is quite high and banks would be ordered to cover court costs caused by these proceedings.

Currently many banks are trying to prevent customers from initiating judicial proceedings by offering false solutions such as agreeing on a fixed interest rate for mortgages. Don’t sign or agree to anything without talking to a specialised lawyer as most of these solutions only seek to keep the bank from having to pay you everything it owes you and make you waive your right to file a judicial claim.

Thanks to our agreement with the Gallego & Rivas law firm, which specialises in banking law, we can study your case at no cost, completing an initial assessment of your documentation and giving you an estimate of the total amount of money you could claim, as well as the money you would save in the future by eliminating the floor clause from your mortgage. This is all with no commitment to hire our legal services.

If you are interested in getting this consultation free of charge, the way to proceed is to contact us at info@cdsolicitors.com, giving us your contact details and sending us a copy of your Mortgage Deed as well as the latest invoice for your mortgage loans. We will be happy to help you and clarify your legal status.

Author: Gustavo Calero Monereo, C&D Solicitors (Lawyers)

FREE CHECK SPANISH MORTGAGE WITH FLOOR CLAUSES

Written by Gustavo Calero Monereo on 18 May, 2016. Posted in Andalusian, banks, english speaking solicitor, euribor, floor clause, judgment, mortgages.

CLOSER TO A DEFINITIVE SOLUTION FOR THOSE AFFECTED

The first thing I would like to do is inform you that C&D Solicitors has signed a collaboration agreement with the Sevillian law firm Gallego & Rivas, which specialises in financial and banking law.

On the basis of this agreement, Gallego & Rivas have offered to study the documentation of homeowners who may be affected by a “floor clause” (cláusula suelo) in their mortgages, free of charge. At the end of this article, we will explain how those affected can get access to this service.

First of all: What is a “floor clause”? A mortgage is said to have a “floor clause” when, in a variable-interest mortgages, there is a clause in the Deed of the Mortgage Loan establishing that the interest for this mortgage cannot be lower than a certain threshold.

In other words, in this case, the mortgage cannot benefit from a low interest rate and from the successive drops that may occur, as the minimum interest rate is “shielded” and any interest rate set below the one established in the “floor clause” cannot be applied. For several years, the Euribor rate has been very low and these clauses have represented considerable losses for many customers.

For the last few years, there have been many legal proceedings in Spain brought by people affected by “floor clauses” in their mortgages. In fact, almost five years ago, we published our first article about this matter, echoing the first judgments. We should keep in mind that mortgages with “floor clauses” were common until 2009 or 2010.

Most judgments have sided with the complainants. Likewise, the Supreme Court pronounced itself in May 2010, declaring these clauses null.

So far, the legal arguments are clear so people with a “floor clause” in their mortgages have a very good chance of obtaining a favourable ruling. Such ruling would order the bank to eliminate the “floor clause” of the mortgage, as well as to return the money that customers have overpaid in their mortgages, in addition to the legal costs of the proceedings.

In its judgment of May 2013, the Supreme Court, in its legal reasoning, only ordered the banks to return the money unduly charged to customers from 9 May 2013 and not since the clause started to be applied to the customer. I.e. what was unduly charged before that date was not eligible for a refund.

The Supreme Court appealed to the economic turmoil that it could represent for banks to return the total amounts unduly charged to customers before 9 May 2013 as, considering that there are thousands of mortgages affected by a “floor clause”, banks would be forced to refund billions of euros to their customers.

Due to the controversial nature of this legal reasoning, a Commercial Court in Granada raised a prejudicial question to the Court of Justice of the European Union (CJEU) so that it would pronounce itself on whether banks should refund the amounts overcharged to their customers from moment that the “floor clause” in their mortgages was applied instead of from 9 May 2013.

On 26 April, the CJEU held the public hearing on these proceedings and, on 12 July, the advocate general of the CJEU will present his findings. At the end of the year, we will know whether Spanish banks will have to return everything unduly charged or just the amount overcharged after 9 May 2013.

It seems that there are good chances that the CJEU considers that everything unduly charged to every customer with a “floor clause” must be refunded. The decision is transcendental since –according to some sources– we are talking about 7 thousands millions of euros.

These 7 thousands millions of euros would be added, to the 5 billion euros that banks are estimated to be required to refund to customers, for everything unduly charged from 2013 to the present day.

Regardless of the date set by the CJEU, “floor clauses” are abusive and those affected have the right to file a complaint to get their money back. This is why we have signed an agreement with the law firm Gallego & Rivas, which has offered to study the documentation of homeowners who may be affected by a “floor clause” (cláusula suelo) in their mortgages and provide them with a short report on their situation.

The study of this documentation would be free of charge and legal advice would also be provided to recover the money lost and the cost of the proceedings. Customers can then decide whether they want to initiate legal proceedings.

Later, according to the number of persons interested in taking legal action against their banking institution, we could set up a day at our office in Torrox-Costa (Malaga) so that those affected by a floor clause in their Mortgage Deeds can get first-hand contact with Gallego & Rivas.

Ultimately, the affected person will get a specialist lawyer to study his case at no cost and advise him of the potential actions he may take to recover the money, as well as the cost of the proceedings.

Author: Gustavo Calero Monereo, C&D Solicitors (Lawyers)

Torrox-Costa (Malaga/Costa del Sol/Nerja/Andalucia)

JUDGEMENT: Bank responsible for bank guarantee developer

Written by Gustavo Calero Monereo on 16 February, 2016. Posted in banks, costa del sol, developer, english speaking solicitor, guarantee, Headline, judgment, nerja.

Bank responsible for guarantee developer

In September 2013 I published an article where I mentioned a judgment rendered by a Court in Albacete on the 8th of June 2012 and that was confirmed by the Provincial Court in the same year. In these proceedings forty-six homebuyers who purchased off-plan houses that were never built -but for which they had made several payments on account- sued the developer and the bank jointly, despite not having bank guarantees for the amounts paid.

As I mentioned in that article this judgment (a first at the time) ordered the bank to refund all the amounts paid by the buyers. It thereby established joint and several liability with the developer of the homes through an interpretation of articles 1 and 2 of Law 57/1968, of 27 July 1968 on the collection of advance payments in the construction and sale of homes.

This however was just an isolated judgment, which did not set precedent. In fact, in the two years since, there have been judgments both in favour and against banks.

These different interpretations have come to an end as, on 21 December 2015, due to the many contradictory judgments the Supreme Court rendered an appeal judgment on this matter. This judgment of the Spanish High Court unifies the criteria to prevent different interpretations by other courts. The Supreme Court is certain about the interpretation of these regulations and ruled in favour of individual homebuyers.

The High Court understands that the credit institutions where homebuyers deposit advance payments to purchase a home under construction, must respond to homebuyers. This refers to cases where the homes are not completed by the developer and the latter has no money or is insolvent, making it impossible for homebuyers to recover any money paid.

In the Fifth Legal Grounds, the last paragraph of the judgment, the Court states that the credit institution has the legal responsibility of a special duty of oversight over the developer to which it issues a loan for the construction of those homes, so that the deposits of homebuyers, especially individuals, are transferred to the special account that developers must open and the bank must require the developer to guarantee all the amounts it collects.

Credit institutions that grant loans to developers to build homes, have the legal obligation of opening a special and separate account, duly guaranteed, so that the amounts that buyers pay for the homes are deposited in that account. If the credit institution does not guarantee that buyers’ money is deposited in a special account, it will be held liable for the total amounts deposited by buyers in any type of account held by the developer at the entity.

In other words, if the bank has not ensured the protection of the buyers’ money, with this Judgment, there is no longer any legal doubt that the bank will be sentenced to refund, from its own “pocket”, the money paid by homebuyers in cases where the developer does not complete homes and it has no money or becomes insolvent.

In my humble opinion, it seems logical and consistent for the Supreme Court to have settled this matter in favour of homebuyers.

In banking practice, most developers building homes off-plan create a company aimed exclusively at building that development, with these companies usually being devoid of any assets.

From now own, I believe that these loans issued to developers will only be granted after reviewing the solvency and guarantees of the developers thoroughly and that branks will monitor the money that buyers pay for their homes.

In these situations, with this judgment by the Spanish High Court, buyers of homes that are not completed will have the necessary legal certainty to get, through a Judgment, banks to be ordered to refund their money, thereby having more options available to recover the money they lost.

It is very likely that, if this situation arises, now, with this judgment, the bank will choose to avoid legal proceedings and reach a settlement with buyers.

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

HOME BUYERS ACTING IN GOOD FAITH, MORE PROTECTION IN THE CRIMINAL FIELD

Written by Gustavo Calero Monereo on 26 March, 2015. Posted in AFO, Andalusian, building permit, costa del sol, Headline, judgment, lawyer, non developable land, Property law.

Spanish home buyers acting in good faith

Yesterday Thursday 26 March, the Lower House of the Spanish Parliament ratified the amendment to article 319 of the Spanish Penal Code, approved by the Senate last 12 March. A paragraph has been added to section 3, which reads: “In any event, the Judges or Courts of Law may issue a reasoned order to demolish the works and restore the physical reality altered at the expense of the principal thereof, without prejudice to the compensations due to third parties in good faith, and, assessing the circumstances and after hearing the competent government body, shall temporarily subject the demolition to the constitution of guarantees that ensure their payment. In any case, the seizure of the earnings from the offence shall be available, regardless of the transformations that these may have undergone”.

This new regulation will be into force next 1^st July.

Until now, in proceedings regarding an Offence against Town and Country Planning, the judgment ordered the demolition of what had been built illegally and compensation was set by way of civil liability for the developer, in favour of buyers acting in good faith. The problem is that, in most of these cases, collecting said compensation was very complicated since the developer was either insolvent or had disappeared. However, enforcement of the demolition was not stopped, for which reason we could find ourselves before an unfortunate scenario where a buyer acting in good faith and recognised in a judgment could have his home demolished without being effectively compensated.

From now on, in criminal proceedings for Offences against Town and Country Planning, the judge may stop the demolition of the home until due compensation to the third-party acting in good faith is guaranteed.

From the literal wording of the amendment introduced, it seems that the judge will be the one who, after assessing the specific situation in each case, will stop said demolition, for which reason I understand that it will be an essential requirement to prove that the buyer is really a third party acting in good faith.

Likewise, it seems interesting that, in assessing whether to stop the demolition, it is required for the competent Government Body, which I take to be the City Hall, to be heard in the proceedings. I suppose that, in these cases, the City Hall can provide relevant details leading to stopping the demolition. Also, since the City Hall is the one responsible for executing the demolition, it may argue on the suitability of stopping it until it can ensure compensation for the third party acting in good faith.

Lastly, this amendment refers to stopping the demolition temporarily, i.e., a specific period of time is not established but, in any case, it should not perpetuate over time. However, the concept of “temporarily” is very wide and it may be interpreted as sufficient time to guarantee compensation to buyers acting in good faith.

I can say, with full knowledge, that this amendment of the Penal Code has been possible mainly thanks to the work of two associations in Andalusia that have been working on protecting buyers acting in good faith for several years: SOHA and AUAN, especially noting the great work done by Gerardo Vázquez, a colleague of mine, attorney and legal adviser at AUAN. The efforts of these organisations and their mobilisation have made this amendment possible.

The aforementioned organisations, along with many others that have been created, are justified by the great problem faced in Andalusia, which has 300,000 homes built in non-developable land (NDL). On the Andalusian coast, due to foreign residential tourism, many buyers are foreigners and this has led these owners, facing the legal problems with these homes, to move to defend their interests, to strengthen and to tell authorities about the existing situation.

The main problem, at least in Andalusia, has been the complete inactivity and inefficiency of Urban Planning in Andalusia, which has led to a failure in regulating non-developable land in Andalusia and to the existence of many homes built on non-developable land.

Regulations with very fixed and strict criteria governing construction on non-developable land were approved. However, Autonomic and Local Governments have completely neglected to provide the necessary oversight to enforce these regulations.

From the beginning of the years of the housing bubble, the competent government bodies have shown no predisposition to initiate and solve disciplinary procedures against offenders, with all the legal consequences that this entails, such as demolishing what has been illegally built. The governing party in City Hall should have assumed the “feared” political price that these unpopular measures may have entailed.

Most of these buildings have everything: registered deed, pay IBI (Property Tax), are registered in the Property Register, have electricity and water, and have paid autonomic taxes such as ITP (Tax on Asset Transfer) and AJD (Stamp Duty).

Many of the properties have changed owners, meaning that the person responsible for construction is no longer the owner of the home. When these properties enter legal proceedings, third parties acting in good faith appear, affected by this situation that the Local and Autonomic Governments, with full knowledge, have allowed due to their complete inaction in the field of Urban Planning.

The regulations provided in the Urban Planning Law of Andalusia (LOUA) to govern the very strict use of non-developable land were based on environmental protection and on maintaining the rural value of a large portion of the Andalusian territory so as to preserve this environment and its values.

However, its lack of application due to a lack of real and effective control of what was being done on non-developable land has given rise to the failure of regulations on the use of non-developable land provided in the LOUA.

In reality, this has resulted in large rural areas becoming full of unregulated buildings, achieving the opposite effect, as the lack of protection of the rural environment is clear in these cases.

In practice, a total lack of protection of rural land has occurred in some areas under greater urban pressure, where, without controls or any type of criteria regarding what was being built at the architectural level, construction has been allowed, of palaces, warehouses, terraced houses, one-storey homes, towers and everything in between. There has also been no control of the necessary infrastructure or facilities for these homes to be used: discharge of sewage, illegal wells to obtain water, etc. Furthermore, many of these homes did not pay local building taxes, as the majority were not eligible to obtain a licence under the LOUA.

However, as we explained in a previous post, it should be noted that, in some cases, the licenses for segregation, building and initial occupancy were indeed granted for some of these homes. The fact that the Government is responsible in these cases is more than obvious and the damages suffered by owners, who purchased the homes in good faith, are completely reprehensible.

This situation of deregulation of non-developable land has an undesirable effect on citizens, as there is a feeling that there are citizens who ignore the law and go unpunished and that there are others who are required to comply with it.

If the urban planning disciplinary proceedings had been started quickly and efficiently at the beginning of that frenzied period of real estate development on non-developable land, the message that citizens would have received would have been very clear and many buildings would not have been built. There would still be homes on non-developable land but the magnitude of the problem would be quite different.

Faced with this situation, the legal response to solve this problem should be consistent with the reality that exists and that has been tolerated by the Government itself for so many years. This is why the necessary legislative reforms in this area must be tackled rigorously and without propaganda messages, avoiding a focus on the debate on “amnesty for everyone” or “offenders must pay” because the situation is much more complex.

In the administrative field, the majority of these homes should be regularised as, in many cases, penalties for using land illegally would have expired and many of the developers-builders are not the current owners.

In the future, there should be a debate regarding the effectiveness and efficiency of Urban Planning under current regulations, as well as regarding whether the regulation of non-developable land in the LOUA is adequate for the purpose it intends to fulfil.

Author: Gustavo Calero Monereo, C&D Solicitors (lawyer)

Torrox-Costa (Malaga/Costa del Sol/Andalucia)

RECENT CONTROVERSIAL DEMOLITION OF TWO PROPERTIES

Written by Gustavo Calero Monereo on 28 October, 2013. Posted in assimilated out of ordination, building permit, developer, english speaking solicitor, Headline, judgment, lawyer, legal advice, malaga, nerja, non developable land, property law, Property law, solicitors Nerja. No Comments on RECENT CONTROVERSIAL DEMOLITION OF TWO PROPERTIES

Controvercial demolition properties Andalucia

Last Monday October 14th, the Regional Andalusia Government Junta de Andalucia carried out the demolition of two houses which were built without construction permit on non-developable land in the rural area of Las Terreras, in the municipality of Las Canteras, Almeria.

In this case, the developer did not have construction permits to build both properties. This is a different situation from that explained in our blog post in March, but there are also involved third parties in good faith, who bought the aforementioned properties to the developer/seller. The demolition of these properties means the infringement of a fundamental property right according to the interpretation of the European Court of Human Rights (ECHR), which has demanded that:

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

– Property loss due to general interest—for example, the compliance of planning legality over ownership of assets—shall be previously compensated to the owner.

Therefore, upon consideration of this European case law, it is not sufficient that in these two cases the judgment has assessed civil liability and the seller-developer is sentenced to compensate owners who bought these properties, but this compensation should be made effective prior to demolitions to avoid the risk that the seller fails to pay or is not able to pay and, as a result of this, third parties in good faith are not compensated. It should be noted that subsidiary liability of public administrations is not observed, as no construction permit was granted.

In order to guarantee the payment of compensations, appropriate actions should be taken prior to execute demolitions in the same proceedings for the enforcement of judgments. If this were possible, this situation should be determined as a reason to stop the judgment enforcement until compensations are paid to the affected owners. Obviously, each case should be analysed in order to determine whether the owner knew about the absence of construction permits and even though he was aware of the risk involved, he bought the property. In these cases, protection for these owners should be different.

Regarding certain information compiled by different means, there is a chronological perspective to be pointed out in respect of these two demolitions, which reveal the inefficiency of inspection and penalty procedures in regards of town-planning regulations, as well as the belligerent approach of public administrations participating:

– In 2004, the Andalusian Regional Government initiated a proceeding against the developer and he was fined because of the earthmovings in this area. Then, he was obliged to restore it to its original state. Obviously, the developer failed to comply with this order to restore it to its former state. In addition, the Town Council or Andalusia Regional Government should have acted in this moment, as well as they have done now, when carrying out the demolitions.

– In 2007, the Andalusia Regional Government officially ordered to the Town Council the demolition of the properties, as they have been built on non-developable land without construction permits. From 2004 to 2007, 3 years have elapsed. During this period of time the 4 properties were built and no competent public administrations did paralyze the works before they were completed. As a result of this, the completed houses were entered into legal transactions and then new owners arised. Why were construction works not paralyzed within these years?

– Once that the 4 properties were completed, the Town Council authorized water and electricity supply for them; this illegal authorization granted by the Town Council implied that these homes were appropriate to be occupied, as these supplies were essential for their sales.

– In 2012, The Andalusia Regional Government seemed to request the Town Council to execute the demolitions.

– In October 2013, the demolition of two properties was carried out by the Andalusia Regional Government, because the Town Council did not do so. The other two properties are also pending to be demolished.

Nine years have elapsed since the construction activities without permits are known until their demolitions were indeed executed. During this period of time, third parties in good faith have appeared and been affected by this situation. Have public administrations really done their utmost? Could have they acted earlier and with greater accuracy since 2004?

It would be a rather difficult task to think that the Andalusia Regional Government and Town Councils are not liable for a large number of homes built without permits on non-developable land in Andalusia—liability becomes obvious for those properties built with construction permits—since they had aerial images of each area, cadastral information and documents from the Payments Offices for transfer tax collection, which may have allowed them to protect non-developable land and enforce Andalusia town planning Act (LOUA). But they did not want to do so. Accordingly, as town planning duties have not been complied in respect of inspection and penalty procedures, the liability of Andalusia Regional Government and Town Council is joint and shared.

It is also worth mentioning the existence of certain arbitrariness on the part of public administrations when judgments were enforced, since older proceedings are still pending to be enforced and no actions are being taken on them.

Foreign residential tourism is a key factor for local economies in many areas; different national newspapers have been looked up and all of them echoed the new demolitions, which is a very harmful publicizing. They stressed the absence of economic compensations before demolitions were carried out, rather than demolitions itself.

It is not a question of implementing a general amnesty for all irregular acts executed on non-developable land without permits, since this may lead to a negative message for people who meet regulations. However, the fundamental property right should not be further infringed in conformance with the European Court of Human Rights (ECHR) case law and property right should be protected in Spain as a fundamental right. In addition a legal system which protects third parties in good faith should be provided in order to ensure legal certainty; inspection and penalty procedures should be carried out and should not go on forever due to the lack of interest of public administrations, so that their effectiveness may paralyze these type of constructions before they are entered into legal transactions; common sense and realism should be imposed and Regional Governments should be consistent with what has been accepted in these years, due to their failure to act or interminable penalty and enforcement procedures.

It seems understandable that town-planning legality will be now strictly enforced and hopefully it will be watched over. However, solutions should be provided from a logic and legal perspective for all previous cases.

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