Tag: legal advice

PURCHASE OF A HOME IN SPAIN AND HOME INSURANCE: WHAT YOU NEED TO KNOW

Home Insurance, purchase, property, Spain
Home insurance of your Spanish property

Buying a home in Spain entails a great financial investment and, therefore, you’ll want to do it with the lowest possible risk. This is why it’s very important to obtain legal advice and hire a specialised lawyer to help you throughout the purchase process, so that you can enjoy legal certainty and be aware of all the relevant information about the property.

However, there is another important thing to do before signing the Purchase Deed for the property. It is advisable to have home insurance ready to prevent any risk of financial loss due to potential damages, such as theft, water damage or fire. The importance of home insurance for the owner’s peace of mind and the investment made is self-evident.

This is why we’re posting this article, to clarify some concepts for foreign homeowners in Spain, so that they can understand this very important product well. In the event that you are buying with a mortgage, the bank will advise you and recommend that you obtain home insurance as, in the event of serious damage to the mortgaged property, the bank will want to secure repayment of the money borrowed.

At the end of the article, we cover home insurance for rural homes built in Andalusia, with or without DAFO/SAFO.

 

What are the building and the contents in home insurance?

A home insurance policy for an existing or new build property is based on two main concepts: the building and the contents.

1) The building (continente) is made up of the construction and structural elements of a home or building, whether these are walls, ceilings, floors or installations such as heating, water or electricity, among others.

2) The contents (contenido) are made up of the belongings of the people living in the home, such as furniture, electronic devices, personal effects, clothing, jewellery, art, etc.

 

What would be an appropriate value for the contents?

To properly assess the contents, we recommend that you think about how much it would cost you to buy the items you have in your home, going room by room until you cover everything in it. Jewellery or cash money have specific valuation in home insurance and may be insured up to a certain limit or under certain conditions. In other words, in this case, this information must be provided to the company so that it takes it into account in the policy.

 

And what is the right value for the building?

If the building becomes damaged, e.g. a fire, the company will provide compensation according to the cost of rebuilding the home, i.e. the potential cost of rebuilding the home must be calculated. The resulting value of this calculation is the one that should be included in home insurance as the value of the building.

A very common way to calculate said value is the use of average estimated building values published by the Colleges of Architects. For instance:

Mr Olle Johansson, a Swedish national, purchased a new home in the city of Malaga in 2020. It’s a flat measuring 120 sq. m.Well, taking into account the average estimated building values from the College of Architects of Malaga for 2020, the value per square metre built would be 809 euros. In other words, the value of the building for 120 square metres would be 97,080 euros. If there is an underground carpark and a store, these should also be appraised separately from the home, so that the policy covers them. Another example: Mr Jan Van Poppel, a Dutch national, will purchase a home in the countryside, in the Mijas area (rural land), which has: 200 built square metres plus 30 square metres for a pool. The value per square metre for an isolated home in the countryside is 984 euros and the value of the pool would be 445 euros per square metre. Therefore, the value of the building would be about 210,150 euros.

 

Valuing the building at the purchase price

When we buy a home and obtain home insurance, we often think about setting a value for home insurance as close as possible to the purchase price paid for the property. However, this reasoning is misleading as it should be taken into account that the land where the home is located is not covered by home insurance, as the land always remains intact. In the event of serious damage, if you already own the land, you only need to insure the cost of rebuilding the home. However, the value of this land is what makes up most of the purchase price of a home in most urban sales. For instance, buying a home in the golden mile in Marbella, in central Malaga or on the beachfront in Nerja entails a high cost due to the location (land) of the property, rather than for the value of the building itself.

Rebuilding is much cheaper than buying when you already own the land. Therefore, the most important thing is to insure the real reconstruction value in the event of serious damage. This is about assigning the actual value to the building of your property. You also need to take into account that, when you own a home in a block of flats, if there is serious damage affecting the building, the community insurance will cover part of the damages affecting only the common elements of the building. The façade, roof, terraces, etc., are elements that would be covered by the insurance of the Homeowner’s Association in the event of a fire. In other words, if you are buying a flat or apartment, you’ll need to insure the building. This is why, in these cases, you should calculate the reconstruction value of your building for insurance purposes. If you provide a value above the reconstruction value, this would lead to so-called over-insurance in your home insurance and, if you provide a lower value, it would lead to under-insurance.

 

What would happen in the case of over-insurance in the policy?

Imagine a home in a building measuring 100 square meters, with a building value of 300,000 euros because this was the price paid when it was bought. If there is a serious accident requiring the reconstruction of the home, the company will never pay more than the reconstruction value, which would in general be around 80,000 – 90,000 euros. In this case, the owner would be paying a very high premium every year for the insurance policy needlessly, as the company will only honour claims up to the reconstruction cost of the home. In extreme cases, the company could even interpret that there has been bad faith when obtaining the insurance policy and this could be a major issue, as it could declare the policy void and refuse to pay the amounts that should be paid in the event of damages.

 

What happens in case of under-insurance?

In the event that the building or content is valued below the actual value of the building or furniture, the company will not cover 100% of the damages, even if the amount of the claim is lower than the value of the insurance policy. For instance, if the actual value of reconstruction of the building is 100,000 euros and the policy contains a building value of 60,000 euros, the home would only be insured at 60%. Someone might think in this case that any damages equal to or lower than 60,000 euros would be covered by the policy but in reality that’s not the case. For instance, in the event of a small fire with damages valued at 10,000 euros, the company would interpret that 40% of the claim is not covered by the policy as only 60% of the building value of the home is insured. Therefore, it will only pay 6,000 euros as compensation, always applying the rule of proportionality to every claim.

 

Special insurance: luxury homes

If you own a luxury home or you are thinking about buying a luxury home, the estimated cost of reconstruction or replacement based on the coefficients of the colleges of architects would surely not be a valid calculation method for homes of this type. The key to insure the building in homes of this type is to calculate the reconstruction value of the property with objective parameters. I.e. if the home has very high quality finishes in terms of automation, insulation, aluminium or timber structures, flooring, taps, toilets, air conditioning, etc., this must be taken into account and, in this case, these values should be added to the building insurance. As mentioned, the value of the building must be as accurate an estimate as possible of what it would cost to rebuild the home to the same standards. In this case, it’s very important to inform the company of the “peculiarities” of this home so that it has as much information as possible and to accredit the reason behind the value of building insurance being above the average reconstruction values in the area. Keeping all purchase invoices and proof of purchase for high-value furniture is very important to prove the estimated cost.

 

What is the insurance compensation consortium?

All persons who have an insurance policy in Spain, whatever the type, pay a small part of the price to the consortium. The consortium is a public business entity that covers accidents such as flooding, terrorism, atypical cyclones, large fires or other risks set down in the “extraordinary risk insurance regulations”, which are not covered by insurance policies, with damages of this type being expressly excluded from insurance covers. When damages of this type occur, as the insurance company does not cover them, the consortium acts as guarantor to compensate policyholders and keep them protected in these situations.

 

Rural homes and the building value in home insurance

First of all, we should remember the legal premise that most existing rural homes (rustic / countryside) in Andalusia, which are used for residential purposes, are illegal and, therefore, in the event of the destruction and total loss of the home, such as due to fire, earthquakes, serious flooding, etc., they cannot be rebuilt. This is because the Urban Planning Law of Andalusia (LOUA) does not allow for issuing a building permit on rural land for a residential home. The existence and continuity of those thousands of illegal homes on rural land are based on their age. Therefore, in the case of destruction or total loss, there would no longer be an old home and it would not be possible to obtain a permit to build a new house or rebuild the one that was there.

The above explanation means that the value of the building in home insurance for these homes can be estimated, as mentioned above, at around 984 euros per square metre built in Malaga. As the value is based on what it would cost to rebuild the home and the rural home cannot be legally rebuilt in the event of total loss, what situation would we be in? In the event of total loss, if we have a country home with a surface area of 150 square metres and the building is valued at 150,000 euros, the company would pay that amount as compensation for the building, along with the amount corresponding to its contents. In this case, the owner would receive compensation for the home in addition to the value of land where nothing can be built. This is why the value of the land in a rural home is very low compared to the construction value, especially when compared to an urban home on land where it is legal to rebuild it.

 

Tips for a safe and well insured home

When obtaining home insurance and purchasing your property, think carefully about the value of the building and contents and don’t forget to include stores, parking spaces, pools, etc. If you have any doubts about the insurance value, talk to the insurance company itself. It’s important for the company to help you clear up any doubts when assessing your insurance value.

 

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

purchase, property, coronavirus, private contract

Purchase contracts in Spain and the COVID-19 Corona crisis

Purchase or sales contract during COVID / Corona crisis
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)

 

Coronavirus, taxes deadlines, spain

TAX DEADLINES WITHIN THE STATE OF ALARM IN SPAIN

Coronavirus, taxes deadlines, spainDue to the actual crisis that has been declared in the whole world by the World Health Organization because of the Coronavirus (also known as Covid-19), almost every country has put into force different measures.

*This document has been written according to the law and Decrees in force until 4th April 2020.

In Spain, the 14th March 2020, the government declared the “state of alarm” (regulated in Art. 116.1 of the Spanish constitution and the organic law 4/1981), for 15 days, (until the 29th March), through the Real Decree 463/2020, closing museums, monuments, restaurants and almost every business open to the public. Nevertheless, concerning the increase of the infections, the state of alarm has been extended for another 15 days until the 12th April 2020, after the approval of the Parliament ( Congreso de los Diputados, Decree 11/2020), and pending for another extension until the 26th April.    

The main goal of these decrees is to prohibit free movement of people in order to prevent further increase of infection among the Spanish population. Nevertheless, all these measures have economical, fiscal and, of course, social consequences.

Extension of the payment dates for self-employed and small entrepreneurs (PYME) (Deferral and split payments).

  1. Self-employed and small entrepreneurs with a turnover of less than € 6.010.121,04, are allowed to defer payment of the tax debt (less than 30,000 euros) without the need to provide a guarantee for a 6-month term. The first three of these months will not accrue default interest, with the consequent. Said deferral only refers to settlements or self-assessments  that had to be presented or entered from March 13th to May 20th of 2020 (article 14 Decree 7/2020).
  2. A postponement of tax debts that previously could not be postponed is now allowed (article 65 LGT):
  • Those that the person is required to make payments on account for (art. 65.2 b), such as the quarterly model 111 or the 3% model Modell 211.
  • Those derived from taxes that must be passed on by law having been collected (art. 65.2 f), such as model 303 of VAT
  • Fractional payments of Corporation Tax. (art. 65.2 g), such as IS model 202

Suspension of legal terms not concluded before March 14 (Decree 8/2020 and 11/2020)

Article 33 of Royal Decree-Law 8/2020 and its clarification with Decree 11/2020 applies to all taxpayers, extending the deadlines not concluded before March 14, 2020, until April 30 2020 for:

  • The payments of tax debt for liquidations in the voluntary period and those that, in the executive period, have been notified of the enforcement order.  For example: if you have been notified of a settlement for the payment of a tax debt on March 12 you would have to pay it no later than April 20 (according to the General Tax Law in its article 65.2), however, with this decree the payment can be postponed until April 30.
  • Deadlines and fractions of deferrals already granted (prior to March 14, 2020 without prejudice to the deadlines reflected in art. 14 of the previous Decree 7/2020), as well as the deadlines on auctions and adjudication of goods made by the Treasury state.
  • Deadline to meet the state agency requirements, embargo proceedings, requests for information or to make allegations in tax procedures (regarding nullity, rectification of errors, requesting returns).
  • If there was doubt as to whether or not these tax procedures initiated by the corresponding autonomous and local Administration, the new Decree 11/2020, in its article 53, establishes that the suspension of the aforementioned period also applies to local and autonomous administration (in the art.33 of decree 8/2020).
  • Deadlines to meet requirements and requests of the cadastre.
  • No proceedings to execute the guarantees already seized which fall on real estate in the administrative procedures of constraint

 

What happens with the procedures communicated as of March 14?

For all the aforementioned procedures communicated as of that date, they are extended until May 20 of 2020 (unless the one granted by another tax rule is higher).

For example: if a settlement for the payment of a tax debt was notified on March 19, in normal cases you would have to pay it no later than May 5, however, with this decree, payment can be deferred until May 20.

However, in any of the above assumptions, if the taxpayer complied with the requirement, paid the tax debt or presented allegations despite the deferment granted, they will be understood to have been carried out for all purposes, procedure completed.

 

What happens with self-assessments such as the payment of Property Transfer Tax in the sale of a home?

When a person buys a home in Andalusia, they have 30 days to pay the Property Transfer Tax, which is currently 8% of the purchase price. The payment of the same is done through a self-assessment. In other words, the buyer or his/her representative prepares this tax model and presents it voluntarily for payment within that period.

The decree regarding the state of Alarm does not include self-assessments as deferrable, according to Royal Decree 465/2020, of 17 March, amending Royal Decree 463/2020 of 14 March, declaring a state of alarm, so for example, neither the quarterly settlements of VAT nor personal income tax (models 130 and 303) are postponed and maintains their deadline for April 20 for the third quarter.

 

What happens during the state of alarm with the legal term of actions that tax authorities can exercise against someone and the deadlines for filing appeals?

Royal Decree 11/2020 establishes that the period from March 14 to April 30, will not count for the purposes of prescription in the actions that the tax administration may exercise against the administered.

Let’s take an example, if the administration had a maximum period until March 19 to demand payment of a tax, and it has not been demanded by March 13 the administration automatically has until April 30 to request payment.

There would neither be a deadline for the expiration of the procedures initiated by the administration.

On the other hand, the deadlines for the filing of administrative economic appeals against tax acts or in the economic-administrative procedures not notified before March 14, 2020, do not start until after April 30, 2020.

 

What happens with the income declaration from rentals or the annual IRNR declaration for non-residents?

These deadlines do not vary, meaning that all non-residents in Spain receiving an income from rentals of a property here in Spain must declare said profit quarterly within the corresponding period.

 

Author: Guillermo Arenere Ruiz, lawyer at C&D Solicitors, Torrox (Málaga, Andalusia)

Tax payment for renting out your Spanish home

TAX PAYMENT FOR RENTING OUT YOUR SPANISH HOME

Tax payment for renting out your Spanish home
Tax payment for renting out your Spanish home

Information on tax payment for renting out when you investi in a property in Spain: The number of foreigners interested in buying a property in Spain as an investment or just to be able to enjoy their holiday periods is constantly increasing. Over the last few years, the rental market, in particular tourist rentals, has grown enormously in Andalusia, especially cities on the Costa del Sol and the Costa Tropical, such as Málaga, Nerja, Almuñécar, Marbella, Benalmádena, etc.

More than a few home buyers in Spain are attracted by investment prospects through the earnings obtained by renting out their property. As expected, earnings obtained from renting such properties -either through a permanent contract or through holiday rentals- must be declared in Spain by both fiscal residents (yearly IRPF tax) and non-fiscal residents (quarterly IRNR tax).

 

What taxes are currently paid by non-Spanish residents?

Since 2016 citizens resident in the European Union, Iceland or Norway have to pay 19% of the profit obtained from rentals. Non-EU citizens must pay 24% of the earnings obtained from renting out their properties. This difference in taxation has resulted in a complaint to the European Commission for discrimination of non-EU citizens, which is pending resolution on the date of publication of this article. This of course is an important matter for British home owners after the Brexit, because when Great Britain leaves the EU under the current ruling they would be considered Non-EU citizens and would therefor pay more taxes.

 

Can non-residents deduct expenses?

Citizens non-resident in Spain but resident in any country of the European Union, Iceland or Norway can deduct the same expenses as citizens resident in Spain for short-term rentals. The only exception would be for properties rented as permanent homes of the renter as residents in Spain can deduct 60% of what is paid by the tenant while non-residents cannot apply this deduction. Official costs can only be deducted proportionally depending of the total amount of days that the property was rented out. For example, if you rent out 90 days a year, you can only deduct 25% of the yearly costs. Citizens not resident in the European Union, Iceland or Norway cannot apply any type of tax deduction, for which reason they would pay IRNR-taxes on the gross profit received from renting the property.

Tax payment for renting out

TAX PAYMENT FOR RENTING OUT
TAX PAYMENT FOR RENTING OUT

What expenses can be deducted?

Citizens resident in the European Union, Iceland or Norway can such as property taxes, waste removal or fees for the homeowners’ association. They can also deduct other expenses, provided that they can show that they are financially linked to the rental activity, such as interest on loans, repair and maintenance expenses, electricity, insurances, water or gas expenses, etc.

 

When do you have to declare this IRNR with tax payment for renting out?

Payment for income obtained by citizens non-resident in Spain from the rental of their homes takes place quarterly through submitting form 210. If you own more than one property, one form must be submitted for each. This form must be submitted within the first 20 days of April, July, October and January, i.e. it is necessary to submit four forms per year, declaring the rental income for the 12 months of the year. Homeowners who rent out their properties as holiday rentals can submit, in the same form 210, all income received from rent for the three months declared, even if it comes from different tenants.

 

What can happen if I fail to declare rental income?

If the Spanish treasury detects you are renting your home without declaring anything, it will initiate proceedings to send you a settlement proposal, which will entail late interest due to declaring your income after the due date. Likewise, the treasury is sure to initiate a penalty procedure where you could end up paying a fine of 50% to 100% of what you failed to declare. Currently, thanks to the internet and digital home rental platforms, such as Airbnb, HomeAway, SpainHoliday and Tripadvisor, the Treasury has carried out several inspection campaigns over the last few years, requiring thousands of homeowners to regularise their rental situation.

 

What about the RTA rental license and the Guardia Civil?

To be able to publish your property on online rental platforms you need to have a RTA rental license of the Registro de Turismo de Andalucia, both for urban and rustic properties. If you don´t have this license yet, we could apply for it on your behalf and inform you about all official requirements that secure a safe and qualitative home to the renter for which you could get an inspection. Urban properties also need their Firsts Occupation License and if you don´t have this yet, we recommend that you contract an architect to apply for it at your Town Hall. Standard licenses for rustic properties (“alojamiento turistico”) have a limit of 90 days a year and you can´t offer extra services like breakfast.

The last thing that you need to know if you rent out your property to tourists, is that you are obliged to report all arrival within 24 hours to the Guardia Civil (Police) through their online platform.

 

What do I need to arrange?

Well, even if you don’t like paying taxes, just as most of us don’t, we advise that, if you are renting your home in Spain, you regularise the situation and submit form 210 so you can pay the treasury for the profit obtained from renting the home.

 

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

 

Lower taxes on gifts in andalusia

LOWER TAXES ON GIFTS IN ANDALUSIA

Lower taxes on gifts in andalusia
Lower taxes on gifts in Andalusia

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

saving for non-EU citizens in the spanish inheritance tax
Spanish inheritance tax now the same for EU- and non-EU members

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)

DAFO-AFO-Andalusian-property-purchase

DAFO UPDATE: OBLIGATIONS, INSIDE REFORMS, MORTGAGES & RTA/VTAR RENTAL LICENSES

DAFO
DAFO UPDATE: Obligation, interior renovation, mortgage & RTA/VTAR rental license.

New information on the DAFO certificate: in June 2017, we posted an extensive article on the legal situation and the legalisation of homes in non-urban land in Andalusia –DAFO / AFO–, outlining our opinion about positive and negative aspects of this legal precept. Almost a year and a half after this article, we would like to use this post to provide new information to owners and buyers of homes on non-urban land.

This information, which we believe may be useful, does not represent a fundamental change from what has already been stated, as there have been no legislative changes to the DAFO during this year and a half. This information, however, is based on our experience with different Councils in the province of Malaga and the approach they have been using for DAFO, as well as the questions we have seen among our clients.

Are Councils required to issue a DAFO/AFO?

Nowadays, we have found that a growing number of Councils, whenever there is any notification relating to a rural home, automatically open a file and start proceedings to start the DAFO process. This could be for example for the notification of:

  • Sale of a home
  • RTA (VTAR / Vivienda Rural) rental registration
  • Opening License Casa Rural / B&B
  • Registration of a property in the Land Registry
  • Applying for an urban certificate (for example for a purchase)
  • Change of account holder of the water supply

In other words, a growing number of Councils have been taking advantage of any information or request related to a property located on non-urban land to demand owners to start the DAFO process and legalise the rural homes built in the municipality. That said, if you wish to rent your property seasonally and you intend to register your home in the RTA -Andalusian Tourism Registry-, or you would like to register a pool or storage in the Property Registry, we recommend that you first analyse whether your home could obtain a DAFO.

As we have explained on many occasions, the DAFO is a procedure created to regularise homes on non-urban land that have been built illegally –most of them–, over which legal liability can no longer be claimed due to the passage of time. When the Council issues the first notification, it does not really require the owner directly to start the DAFO process. This first notification is about “telling” the owner to submit evidence whether the home complies with the legal requirements to be eligible for DAFO. This means that, if it does not comply with these, it is very likely that this is because there is some illegal situation in the building. This issue may still be subject to penalties from the Council and, in this case, the Council must open a sanctioning procedure against this unlawful situation, with the legal consequences you can imagine.

It is for these reasons that it is very important that, before you do anything or apply for anything at the Council that may entail the opening of a file against the property, you confirm that the home is eligible for DAFO and whether there is any building or work that may give rise to penalty proceedings. In this case, it is best to do nothing until enough time has passed. This in normal countryside is 6 years. Likewise, if you are thinking of buying a rural property, you must know that, when the Public Deed of Sale is executed and submitted to the Property Registry, the Council will receive a notification of this transfer and may later require you to legalise the home through a DAFO process.

Can I carry out internal refurbishments and renewal works through DAFO?

In accordance with Decree 2/2012, which governs DAFO, in this type of buildings “… only repair and preservation works required by the strict maintenance of the safety, habitability and sanitation of the building may be authorised”. Having said this, it is obvious that the works that may be carried out in properties of this type are limited and must be very clearly justified, always thinking about preservation and maintenance and never on improvements or additions, as renewal works as such are not possible. Since all rules are subject to interpretation, it is possible for some Councils to authorise certain types of refurbishment works that others do not. For this reason it is best to inquire at the Council to see if you could get planning permission before the work begins.

However, having said this, the desired internal refurbishments must always be justified from a point of view of habitability and necessity in terms of health and safety in the building, such as:

  • the opening of windows,
  • replacement of the roof,
  • replacement of floors,
  • substitution of sanitation equipment,
  • extension of the surface of a room that may be considered too small (without increasing building surface), etc.

The important thing is to evidence the need to carry out such works. Most likely, for the council to issue planning permission, it will be necessary to have completed or applied for the DAFO. Along with the technical project from an architect for the DAFO, the need to carry out such works should be justified due to the safety, habitability or sanitation of the home, applying for the corresponding licence. It will be very difficult to obtain permission without having completed the DAFO process.

If the home you intend to purchase already has a DAFO certificate, it is possible to apply for planning permission for the refurbishment works mentioned above but it is necessary to take into account the date the DAFO was obtained. It would not be very logical to apply for permission to refurbish a home for which the DAFO was approved only a few months prior, as the DAFO is supposed to certify that the home was in perfect conditions of habitability, without problems in terms of its safety or sanitation. Needless to say, if there has actually been some sort of unforeseen breakdown or accident in the property, permission may be requested for such repairs.

Can properties with a DAFO/AFO be mortgaged?

This question arises because a Spanish Royal Decree from 2009, regulating the mortgage market, contains an article that specifies that properties not meeting the legal requirements may not be mortgaged. Despite the existence of this rule, we must state that rural properties or homes on non-urban land have been, are and will continue to be able to obtain mortgages. There may be some banking institutions that do not provide mortgages for rural properties but there are many that do, which is logical as, in most cases, these properties are consolidated and are not subject to penalties, for which reason there is legal certainty over these.

We have submitted a query/test to one of the largest appraisers on the national market for mortgage valuations. In our query, we sent the land registry information – nota simple – of a rustic property with a DAFO certificate registered in the Property Registry and the response from the appraiser was unequivocal: homes with a DAFO are being appraised on the mortgage market. It should be taken into account that the appraisal value of a property for mortgages issues on non-urban land –a rural property– may be 20% to 40% lower than the purchase price, as the mortgage is given over the valuation price of the property. Nevertheless, a mortgage can be secured for these.

Can I have a RTA / VTAR rental licence for my rural property?

It is possible to rent and register a home on non-urban land in the Andalusian Tourism Registry -RTA- for short-term rentals (less than 2 months). This home would usually be registered as a tourist home for rural accommodation -VTAR-. As clarification, it should be said that it is possible to register rural accommodation or B&B as a country lodge or “casa rural” but this is designed for owners who are engaging in economic activities and operating such rental as a business, with at least one of them being required to register before the Treasury, pay VAT and register for Social Security.
The registration of a rural property in the RTA is subject to two approaches, depending on whether we talk to the Regional Government of Andalusia or the Council.

a. Regional Government of Andalusia

A few days ago, we had a talk with an inspector of the Regional Government in Malaga, who is in charge of inspecting homes of this type. Among other things, he told us that the Licence for First Occupation –Licencia de Primera Ocupación or LPO– is necessary to register homes on non-urban land in the RTA. As some people know, very few rural homes have an LPO. However, it is possible to obtain “legalisation” through the DAFO. The Inspectorate of Malaga have told us that a DAFO certificate would not be deemed to replace the Licence for Initial Occupation. In my legal opinion, I think that the Inspectorate are wrong and I clearly deem it arguable that, in the absence of a Licence for First Occupation, if a property has a DAFO certificate, this document should be accepted. Among other things, the DAFO certificate is the council recognition of the habitability of the property on non-urban land. In fact, Councils interpret this as a licence for the occupation of the property.

b. Councils

The Regional Government of Andalusia will notify the Town Hall when a home is registered in the RTA and this will lead some Councils to automatically call upon the owner to legalise the home through DAFO. It is also possible that a Council form will need to be completed before the home can be rented. Ultimately, at the municipal level, it is necessary to notify that you intend to rent your home and, if you lack an LPO, you will probably have to obtain a DAFO so that you can get this document, which recognises the habitability and occupation of the dwelling.

What should I do if I want to buy a rural home?

You can select the one you like best, without fears or concerns. Take the time you need and, once you have made a choice, you can start the buying process and negotiation. At the start of the process, do not hesitate to hire a lawyer specialising on this matter, who is familiar with this aspect of the law. As we have stated on many occasions, the cost of a lawyer is very small in comparison to all the money you will spend to buy a property in Spain. Saving money by failing to hire a lawyer during the process to buy your home in Spain may be one of the biggest mistakes you ever make. I know you may think what I want to do is to sell you my services –and this is true, this is why I work. But if you think about it carefully, you will understand the importance of having sound legal advice while buying a property in a country different from yours.

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

The purchase of a property in Spain

ARE YOU THINKING OF BUYING A HOME IN SPAIN?

The purchase of a property in Spain
Buying a house in Spain or Andalucia?

When thinking about purchasing a property in a different country, there are many doubts and uncertainties that may arise.

We’ll try to give you the basic information you must take into account as well as a few tips.

WHAT ARE THE EXPENSES WHEN BUYING A HOME IN SPAIN?

The legal costs of a sale are usually around 10-12% of the purchase price for a secondhand home or 13-14% for a new home.

The highest cost is the tax on the purchase of properties: The property-transfer tax for secondhand homes –8% in Andalusia– or VAT at 10% plus document duties at 1.5% when purchasing a new home. Other costs to be taken into account are notarial fees and the Property Register.

The fees of the property agency are usually paid by the seller and included in the purchase price.

I ALREADY FOUND THE PROPERTY I WANT TO BUY. WHAT NOW?

Once you have selected a property, the agency will ask you to pay a deposit, usually around 5,000 euros, to remove the property from the market and provide enough time to sign a private sales contract where the seller will be paid 10% of the purchase price.

This holding document is usually a simple document that must include: the details of the sellers and buyers, the purchase price, the payment terms, the date of signing the private contract and the deed of sale.

For more information about the entire purchase process, click here or have a look at this video:

HIRING A LAWYER

If you’re thinking about spending a significant part of your savings on buying a home, it seems logical to hire a lawyer to advise you and make the sales process less stressful.

Beware of people who advise against hiring a lawyer to save costs or those who seek to provide legal advice and are not lawyers. If what you’re looking for is a lawyer, you can ask for a certificate accrediting his recognition and/or a professional liability insurance policy.

You should take into account that the average cost of a lawyer is around 1% of the purchase price plus VAT. Is it really worth saving 1% considering all the money you’ll be spending?

The lawyer you find should be independent and be very familiar with property law, being able to demonstrate some experience in this sector is always important. It may be helpful to review the public information available on the lawyer’s website as well as customers’ reviews.

WHICH DOCUMENTS SHOULD I HAVE IN MY POSSESSION?

The most important ones are:

  • “Nota Simple”, this is a short information of the property from the Property Register
  • Copy of the IBI or property tax for the home
  • Utility bills

If they also provide a copy of the licence or deed of the property, even better.

REGISTRATION IN THE PROPERTY REGISTER AND CADASTRE

The short information from the register – nota simple- and the cadastral reference appearing on the property tax bill can be used to verify that the property is duly registered in the property register and the cadastre, as well as that the persons selling it are its owners.

STRUCTURAL SURVEY?

It doesn’t seem unreasonable to have an architect visit the property and carry out certain checks, such as measuring the built area –this way you’ll know that the register and cadastre are accurate– and you’ll also get a professional opinion about the state of repair of the property.

Obviously, the architect will only be able to see defects that are apparent but at least you’ll be able to rule out certain flaws within the property.

URBAN PLANNING INFORMATION

If you’re going to buy a home on urban land, it is important that you ask the council if it has a licence for construction and first occupation licence. The licence of first occupation is requested from the council once construction work on the home is completed.

It is important to keep in mind that older homes –built before 1977– did not have a first occupation licence as this did not exist. It is also true that some recently built properties do not have that licence either for different reasons. Even though, in theory, the property cannot be occupied and used without that licence, this is actually possible and this is not necessarily an obstacle to buying the property.

Verify that the development where the home is located is free of debts towards the council and has been completed, in order to avoid paying additional costs in the future.

COUNTRYSIDE HOMES

If you’re going to buy a home on rural land, in this case the urban-planning situation is very different from the one explained for properties on urban land. The most important thing is to get information about when construction ended, whether the land has any type of special protection or if the council has started proceedings to re-establish lawfulness. In Andalusia, a regularization process has been created.

CHECK FOR POTENTIAL DEBTS WHEN BUYING A HOME IN SPAIN

With the information from the Property Register, the one received from the Council and the community of owners, you can see whether there is a debt on the property that could affect you as its new owner. This refers to debts such as a mortgage, liens, property taxes, community fees, etc.

If there are any debts, the best thing to do is to have the seller pay them before signing the Deed of Sale or withhold the amount of the debt from the seller so that you can pay it yourself.

DEED OF SALE AND YOU’RE THE NEW OWNER

For you to become the new owner of the property, you’ll have to sign a Public Deed of Sale before a Notary and pay the seller the rest of the price agreed, receiving the keys to the property.

Once you sign the deed, you need to start the process to record the home in your name in the register and cadastre, as well as pay all taxes.

After this, we hope you enjoy your new home.

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

DAFO, AFO, SAFO Huis platteland

THE PURCHASE OF HOMES AND DAFO/SAFO CERTIFICATES IN ANDALUSIA

DAFO certficate countryside Andalucia
DAFO certficate countryside Andalucia

Lately, in the purchase of rural homes, one of the most important points discussed between buyers and sellers is the procedure “Asimilado Fuera de Ordenación”, –DAFO or SAFO–. What it is, what its consequences are, who does it, who assumes the cost, etc.

Basic rules to buy in the countryside in Andalusia

Before talking about this procedure, and based on my experience with clients looking for a home in the countryside, it is necessary to mention that, in non-development land in Andalusia –rural land–, it is not possible:

  1. To build homes, unless the intention is to engage in agricultural or livestock-farming activities in a professional capacity on the parcel.
  2. Existing buildings may not be expanded and/or remodelled, both inside and outside. People have to purchase what is already built and no changes are legally allowed.
  3. It is permitted to build with the intention to operate rural accommodation or a bed & breakfast, but it is necessary to carry out a preliminary operational project – called in Proyecto de Actuación -, that the Government of Andalusia must approve. This procedure can take over 6 months and it is difficult to obtain a positive response from the Regional Government.

It is necessary to take into account that most homes currently sold in the Andalusian countryside are illegal or irregular, i.e. if the authorities had done their work, they should not have allowed construction and, therefore, they should not exist.

The case is that, for most buildings, it is not possible to start any penalty procedures against buildings built without a licence or with an illegal licence on non-development land due to the time elapsed.

This means that legal responsibility is time-barred since over six years have elapsed since the end of construction. When we refer to non-development land with any special protection, the period of six years does not apply.

What buildings can and cannot be constructed in the countryside

In non-development land, a construction licence cannot be granted to remodel or rebuild. For instance, in the event of a fire when the home would be completely destroyed, it´s not allowed be rebuilt.

It is possible to grant a licence for small repairs or modifications necessary for the habitability and safety of the home, such as, for instance, replacing part of the roof or a wall that has been damaged or has collapsed.


Why was DAFO/SAFO created?

Because of the above, the Government of Andalusia approved regulations in 2012 with the idea to regularise, not legalise, thousands of homes built on non-development land –rural land–, in breach of urban-planning regulations. Since 2012, City Councils have started to create internal regulations to govern this procedure.

Speaking colloquially, with the resolution of Assimilated out of Ordination – Asimilado Fuera de Ordenación -, the goal is to have a record with a specific date of what has been built on that property –both inside and outside each building–, how many years have elapsed since construction and to certify that the home can continue to exist without penalties in the future, even though it will not be possible to expand it and/or remodel it or to build new structures.

This is not a legalisation because the home is left outside urban regulations –as it was built illegally– but it is a regularisation as the City Council itself certifies this legal situation and confirms in writing that it will not be possible for this home to be subject to a penalty due to the time elapsed.

The legal situation of a home in non-development land does not change after receiving the resolution of DAFO/SAFO from City Hall, i.e. the home will continue to be illegal as it was built on land where construction is not allowed but, since the time limit established by law to issue a penalty for this infringement has elapsed, this procedure against the owner cannot be started due to this situation. With or without a DAFO certificate, the legal situation remains the same.

DAFO/SAFO Procedure

In this procedure, it is necessary to have a project by an architect, to pay a fee on the value of the building on the date it was built, which may range from 2.5% to 4.5% depending on the City Council where the property is located, and the City Council will also verify the water and electricity supply as well as the need for a septic tank so that the home can comply with regulations.

It will actually be the architect paid by the owner who will inform, in his or her project, everything necessary for the home to be eligible for a DAFO certificate. Once the project has been submitted, the architect from the City Council will visit the property to inspect it and verify whether it complies with the requirements for a DAFO certificate.

Once this procedure is completed, which may take between 4 and 6 months, the City Council will issue a resolution certifying Assimilated out of Ordination – Asimilado Fuera de Ordenación -, from Regulation for that home and all structures built on the plot.

Is DAFO mandatory for the sale of a home?

To buy or sell a property, holding a DAFO/SAFO certificate is not a legal requirement. That being said: is obtaining a DAFO/SAFO certificate for a property good or bad?

In favour of the DAFO certificate, we can mention that buyers will have the certainty that what has been built already cannot be subject to a penalty and/or demolished because it is accredited in writing that legal responsibility is time-barred, with the certificate from the City Council granting the DAFO certificate. Likewise, it will provide certainty that the City Council will not require you to obtain a DAFO/SAFO certificate for the home in the future, as the procedure was already completed at the time of purchase.

It should be taken into account that, currently, nearly no City Council offers any information in writing regarding a property built on non-development land unless it holds a DAFO certificate or processes it.

This means that, if you go to get something in writing, they tell you that you certainly can but you first need to process the DAFO certificate for your home. This means that, if you do not want to obtain a DAFO certificate for any reason, it will be very difficult for buyers or their lawyers to obtain information in writing about the property.

The downside of having the DAFO is that, if there are any structures or remodelling –inside or outside– completed within the last six years or if the land on which the property is located is subject to any type of protection (and it can´t be proven that the buildings are old enough), applying for this procedure can only cause problems to the owner as the City Council will be required to initiate penalty procedures.

Likewise, if the new owner is thinking about remodelling after buying the home –ignoring the advice of a good lawyer–, the City Council will already be perfectly aware of what had been built before and it will be easier for them to prove that the structure has been remodelled or some variation has taken place.

It is also necessary to take into account that it may be possible for a property to obtain a DAFO certificate in 2016 and remodelling or expansion of that home to take place in 2017. What I mean with this is that complete certainty in this sense can never be achieved.

Current status of the DAFO certificate

It is true that the processing of this certificate is starting to become common at City Councils because they have also realised that it´s tax payment is an important source of income.

Many City Councils have an unwritten rule to start an application automatically when they receive or someone requests any type of information and/or documentation about a property on rural land, so we can say the owner would be obliged to make the DAFO.

In the situation mentioned above, many buyers want to prevent having to pay for the cost of the procedure themselves, which has resulted in an increasing number of buyers requiring the seller to process it and pay for it.

It is also true that, in some sale transactions where a DAFO certificate is not desired, a reduction in the sale price is usually agreed with the seller and the new owner will decide whether to apply for it in the future.

Is possible to get a mortgage in a property with DAFO?

Another issue that some clients ask about, is whether it is possible to grant a mortgage for a property with a DAFO certificate.

On this matter, the reality of the property market goes beyond the legal limitations in force since 2009 as, even though it is not theoretically possible to grant a mortgage for buildings or structures exempt from regulations, the reality is that there are banking entities that do grant mortgages for properties out of ordination or assimilated out of ordination, i.e. rural properties.

In my opinion, if there is money to be made, banks will not stop granting mortgages for properties of this type -with or without DAFO- regardless of what the Decree of 2009 says. Obviously, mortgages approved for these properties usually offer a lower loan amount and not all banks offer mortgages on rural land.

Buying and selling homes in rural land

When buying and selling homes in non-development land, for them to be able to be included in the property market, with or without a DAFO certificate, there are no limitations or restrictions. This means that most of these properties are registered in the Property Registry and in the Cadastre and have already been sold or bought on different occasions even though few yet hold a DAFO certificate.

Currently, there continues to be an important portfolio of potential buyers interested in properties in the countryside.

The important thing, when someone is looking to buy a property on rural land, is for buyers to know what they are buying, be aware of the legal limitations of properties on rural land, and receive specific legal information about the property, with or without a DAFO certificate. This will enable them to make a decision with full awareness of the legal status of the property.

A lawyer to buy a property?

Lastly, it’s not that we’re trying to promote our services –well, maybe a little–, but in the purchase of a home, especially for homes like these, having a lawyer is never a bad idea as his or her fee will cost very little in comparison to the purchase price and can save you from many headaches or costly problems in the future.

 

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

 

 

lawyer dutch speaking

JUDGEMENT: Bank responsible for bank guarantee developer

Bank responsible for guarantee developer
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)

 

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