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.
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.
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.
A new decree (28/2012, of 2nd of February) about homes for tourist purposes in Andalusia, will enter into force on 12 May 2016. The aim of this decree is to regulate the large market of homes belonging to individuals and let by them as a holiday accommodation at different periods throughout the year.
These lettings, by days or weeks, as well as the use and terms of the lease, were not regulated until now. Therefore, the purpose of this Decree is to ensure that these homes meet a series of minimum requirements to be let, establishing the rights and obligations of both owners and customers and requiring the registration of the homes.
Clearly, this Decree has a significant impact in Andalusia, especially in Costa del Sol and Axarquía, for touristic cities like Granada, Malaga, Seville, and municipalities such as Nerja, Malaga, Torrox, Fuengirola, Marbella, Mijas, etc., which have many homes used for rentals of this type.
What is a home for tourist purposes?
These are homes located on residential land, offered in exchange for a price for the accommodation of people on a regular basis and with tourist purposes. Homes are understood to be let on a regular basis for tourist purposes if they are marketed or promoted in a tourist marketing channel. E.g.: Airbnb, Tripadvisor, Windu, property agencies, etc.
If you are the owner of a home on residential land in Andalusia and, during the year, you offer it for letting for days or weeks, this home will have tourist purposes. Therefore you must comply with the regulations of this Decree if you wish to continue to engage in this activity legally.
Which homes are excluded from this regulation?
Rural homes (houses in the country side) offered for holiday letting are not regulated by this decree. However, they do have the obligation of registering as a tourist home in the rural environment (Vivienda de Turismo en el Medio Rural). Therefore the owners of these homes must also register them before the Government of Andalusia but under a different regulation.
Homes let by the same person for two consecutive months or longer are not considered holiday homes and, therefore, do not need to register. This refers to homes let under a lease agreement for a period exceeding 2 months.
If, during the year, you let your home for over 2 months but you also let it for days or weeks, you will have to register it. Lettings exceeding 2 months and lettings for days or weeks are compatible in the same home.
An exemption to the application of this Decree is established when a single person has 3 or more homes for holiday lettings, within a radius of approximately 1 km. In this case, this Decree will not be applicable and regulations on tourist apartments will apply.
What does this Decree entail?
The obligation to register any home on urban land that the owner whishes to use for holiday letting before the Registry of Tourism in Andalusia. Once the home is registered, a registration number will be issued that must be displayed when offered for letting. The home only needs to be registered once and the registration number can be used for subsequent letting. The owner is the one legally responsible for registering the home and this home can´t be used for holiday letting unless it is registered before the Government of Andalusia by 12 May this year.
What are the registration requirements?
The home must be on residential (urban) land.
It must have a Licence of First Occupation. If it does not have the initial occupation permit, a certificate from the City Hall showing the location and use of the home should be accepted, but we are waiting for the written confirmation of the Junta of Andalusia.
Depending on the season, all accomadations need to be equipped with cooling and heating. In this case, the period for the owner lacking these installations is extended until 12 May 2017 and the property may be let during that period.
The home must have the essential furniture and furnishings required for the total amount of persons it is rented out to.
A first-aid kit is required.
It must have tourist information about the area, showing places to visit, restaurants, etc. A small tourist guide or advertisement from the corresponding tourist office can help you meet this requirement.
It must have complaint and claim forms available to customers in a visible place.
The home must be cleaned upon the check-in of new customers.
Linen and tableware appropriate for the number of people.
Contact telephone number to handle problems and emergencies.
Information and instructions about the appliances/equipment in the home must be available in a specific place.
Information must be provided about internal rules for the use of facilities, according to the regulations of the Residents’ Association (community rules).
The maximum amount of people allowed in the property is 15.
In case you are renting out a room, instead of the entire house, the maximum amount of people allowed per room is 4.
All bedrooms must have external ventilation through windows.
What are the obligations for each customer?
A contract document must be signed by all parties, showing the details of the property, the owner, the number of days of stay and the price of accommodation, as well as the identification of people with a copy of their passports or residence cards. We are talking about a simple document of just 1 or 2 sheets, that the owner must keep for a period of 1 year.
Likewise, the owner must notify the Guardia Civil (police) of the occupation of the home with each new customer. The owner must provide a copy of the contract and the passports/identity cards of occupants.
What happens if I don’t register my home in this registry?
Inspection services may review the situation and begin penalty proceedings. Be careful, because the fine may range from 2,000 to 18,000 Euros.
Furthermore, you have the obligation to allow inspectors to enter the home when they visit it to verify that it meets the requirements for letting. If you do not allow inspectors to enter the home, you could be fined for very serious misconduct, with a large penalty.
What else does this Decree regulate?
Among other things, it regulates the rights of customers in cases where there is a conflict with the owner regarding the price of the letting, check-in and check-out times, advance payments or deposits for letting, etc. Ultimately, it regulates the terms for prices, booking, advance payments and cancellation, unless otherwise agreed in writing between the parties.
Taxes on income received
This registry is of an administrative nature, dependent on the Government of Andalusia and created to regulate the conditions of holiday lettings. It has nothing to do with the obligation to pay taxes on rental income. Likewise, if your home is registered in this Registry but you do not rent it out, it will have no cost to you.
The payment received for letting a home -either for holidays or long-term (longer than 2 months)- must be declared before the Tax Agency, which depends on the Central Government. The income tax you pay depends on the fact wheter you are a fiscal tax-resident in Spain (IRPF tax) of not (IRNR tax).
Legal advice
Even though the Decree will enter into force on 12 May, it is already possible to start the process to register homes in this Registry. If you have one or several properties being let as holiday homes you must register them before the Government of Andalusia. We can take care of processing the documents you need to register your home. We can also inform you about all the requirements that your home must meet and your obligations as its owner. Don’t hesitate to contact us at 0034 – 952 532 582 or info@cdsolicitors.com
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.
In September, the Government of Spain, through a legislative amendment, opened the door for city governments to be able to offer a discount (reduction) in Property Taxes (IBI) from 1 January 2016.
This legislative amendment introduces the possibility of offering a reduction of 20%, 16%, 12%, 8% or 4% of the IBI of a property if its energy performance certificate shows a rating of A, B, C, D, or E, respectively.
Now that the central government has allowed for this modification of the IBI, it will now be up to each city government to decide whether they want to apply this discount.
This is so because Property Taxes are of a local nature. City governments are responsible for their management, as long as collection of this tax is carried out pursuant to the Law on Local Treasuries, which is the one amended by the central government to allow for this IBI discount.
That said, if you own a home in Spain and you want to know whether you can save on property taxes, I advise you to do the following:
Ask your city government whether it plans to apply this IBI discount from 1 January 2016. If the answer is NO, this settles the matter.
If your city government says YES to the previous question, look at the energy performance certificate of your home to find out its rating.
If you have purchased a home in Spain within the last 2 years, be aware that this certificate will be part of your deed of sale.
If you do not have an energy performance certificate, you may be interested in ordering one, so you can know the energy rating of your home and find out whether you can get an IBI discount to pay less every year.
Regarding the energy performance certificate, most properties “fail”, i.e. they have a very low rating. Without a doubt, it can be said that homes in Spain are not energy efficient.
If the rating in the energy performance certificate of your home is very low, do not panic since, unfortunately, this is normal. According to the information published by the idealista website at the beginning of this year, 95% of homes fail in energy efficiency.
In my opinion, this measure, introduced by the central government, is positive, as it is always good to “reward” homes that are better insulated and require lower energy use to be habitable. When they use less energy, they pollute less.
From a seller’s point of view, this certificate is seen as yet another expense and another bureaucratic hindrance to sell a property. But, if the certificate is completed well, it provides very valuable information to buyers, as they will know the energy efficiency of the home before buying it and will be able to make improvements in this sense.
Regarding the energy performance certificate, it should be said that it must be available when a home is on sale or up for rental (leases longer than 4 months) so that, from a buyer’s point of view, one can know the energy efficiency of a home from the moment one becomes interested in it.
In recent years, during the course of our work, we have met many foreign customers interested in living in Andalusia Spain, preferably in coastal areas and having their own rural hotel, hostel or Bed & Breakfast (B&B). Many of these customers consider this option due to their attraction to Andalusian climate and culture, with the dream of changing their lives and enjoying life in an extremely charming country.
Taking over a business or starting up yourself?
The main option that customers interested in opening a B&B in Andalusiacontemplate is to buy a business already in operation, with fewer people seeking to buy property to build the business from the ground up.
If you look on the Internet, there are quite a few ads for the sale of rural hotels and B&B´s. Many of these ads offer the method of transferring a business that is already operating, along with the rental or sale of the property where the activity takes place.
During the transfer of the business, its assets, such as customer portfolio, fixed assets, provisions, etc. are valued. This serves the purpose of establishing a transfer price for the business, which must be paid by the new owner interested in continuing the operations.
What is a reasonable ´traspaso´ price for buying an existing B&B?
The valuation of the business (traspaso) is usually based on its income during recent years and on net profit, as well as the value of its fixed assets, i.e., all remodelling, improvements and provisions acquired for said business. Obviously, licences and legal permits required for engaging in such an activity are a key part of the transfer value.
In the transfer method, the rental of the property is usually established, most often with a lease option, or the property may be sold directly to the new owner. It seems more reasonable to choose rental with a lease option for the property during the first years of the business as if, for any reason, the business is not what was expected and the profits or workload are not worth the effort, we would lose the amount paid for the transfer but would not have to remain the owners of a property we acquired for a business we no longer wish to operate.
As you may infer, the operational cost of a B&B may be high enough to justify carrying out, prior to its purchase, a due diligence process about it for the purpose of determining whether the asking price (traspaso) is reasonable. I consider three lines of action very important in this regard:
VALUE OF THE BUSINESS.
You should hire an economist, expert, or tax consultant to study the accounting of the business during recent years, including all tax documentation, as well as the accounts submitted at the Commercial Register. With this report, an objective professional, knowledgeable on the matter, will take a snapshot of the financial situation of the business.
BUSINESS LICENCES.
In order to check whether the B&B you are seeking to purchase has all the necessary business licences, it is important for an architect to visit city hall and check whether the business is in order and complies with all the legal requirements for its operation. The architect will visit the property to verify that the infrastructure and installations are those legally required for this business and will issue a report of his or her findings.
PURCHASE OF THE BUSINESS.
Once you have decided to acquire the business, when preparing all the documentation for the transfer and rental/purchase of the property, it is important for an attorney to intervene so as to guarantee all the obligations of the parties, establish the payment method and protect the buyer from potential problems during its execution. If the property where the business will operate is located in a rural area, as is the case for many of these hotels, the intervention of an attorney is even more important, as these areas are subject to a series of legal limitations that must be reviewed.
Professional advice for your investment will pay back
It is obvious that this complete due diligence process for the B&B makes buying the business more expensive as you may spend a significant amount of money on these professionals and you may end up not buying the business. However, you must consider that spending thousands and thousands of euros, often from your savings or a bank loan, on something, before verifying its value, can lead to a very difficult financial and personal situation.
It is also a good idea to get informed about tourism in that area and expectations for the future. There are statistical data about the occupancy rates for rural accommodation that may help you. For instance, the Institute of National Statistics (INE) periodically publishes detailed occupancy surveys for rural tourism and any other type of accommodation and all this information, in detail and broken down by regions, can be accessed from its website.
New business changes after recession in Andalusia
For instance, on the 1 September, www.escapadarural.com published that rural tourism in Andalusia reached an occupancy rate of 36% in July and August. At the provincial level, 49% of businesses in Malaga were fully booked.
Compensation demolition Andalucian home owners in good faith
Last 24 June, the Senate approved an amendment that provides greater protection to third-party homeowners acting in good faith in administrative proceedings. This amendment was approved with the favourable votes of the main political groups and introduces a third paragraph in article 108 of Law 29/1998, of 13 July, which regulates contentious-administrative proceedings in Spain.
This new third paragraph provides that: “The Judge or Court, in the cases where, in addition to declaring the construction of a property to violate regulations, it issues a reasoned order to demolish the works and restore the physical reality altered, shall require, as a condition prior to demolition and unless a situation of imminent danger prevents it, the provision of sufficient guarantees to respond to payment of compensation due to third parties acting in good faith.”
In other words, with this paragraph, it is guaranteed that the judge ordering the demolition of a building in administrative proceedings must ensure, prior to the demolition, that third parties acting in good faith that will be damaged by the demolition of their homes will receive compensation. This means that, what this new subsection regulates is that a home may not be demolished if the homeowner cannot be compensated in advance, as it is understood that the homeowner has no reason to suffer these damages when the party responsible for the unlawful act committed by building the home was someone else.
The approval of this new subsection equates the handling of the enforcement of judgments on buildings, which entail their demolition, in administrative and criminal proceedings since, as we explained in our article from March, the criminal code has also been amended in this sense.
The amendment in the administrative field, which gives greater protection to third parties acting in good faith, is even more logical, from a legal standpoint, than the one in the criminal field and, needless to say, represents the correction of a regulatory mistake that resulted in great injustice.
It should be noted that, in contentious-administrative proceedings, courts examine building licences granted by the City and which have been unlawfully granted due to being contrary to the plan of the municipality.
Before this amendment, when a judgment nullifying a licence of this type was handed down, usually, one of the consequences of this nullification was the obligation to demolish the works completed under the licence declared null, without compensating homeowners acting in good faith at the time of demolition in these proceedings. The only option for these homeowners was to start different judicial proceedings either against the City or against the seller of the property, which could take years to be solved and provided no certainty of recovering the investment made. We can thus prevent cases as regrettable as that of Mr and Mrs Prior.
We can affirm that, in judicial proceedings related to buildings, both in the administrative and criminal fields, thanks to these legislative amendments, homeowners who purchase or will purchase a property in good faith, not being responsible for any unlawful act, will enjoy greater protection of their assets and property rights.
Part of what we denounced and explained in an article published in 2013 has been addressed by these changes, even though there is still some way to go and more legislative changes are expected.
This legislative amendment, as the one introduced in the criminal code in March, has been made possible thanks to the work of several associations of people affected from many different areas in Spain, including: AUAN, AMA and SOHA. The continued and persistent work of these associations, their representatives and the lawyers involved have made it possible for all homeowners in Spain who are third parties acting in good faith to enjoy greater legal certainty.
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 1st 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.
In our postof last March on Inheritance and Donation Tax, we discussed about the fact that European non-resident citizens in Spain were experiencing discrimination against resident citizens, because, under the same circumstances, they had to pay more taxes than resident taxpayers.
This unequal treatment happened when the deceased or beneficiaries were non-resident in Spain and they paid taxes in conformance with a State regulation which was more detrimental than the regional one, which was only applied to resident citizens.
This discrimination was confirmed by the European Court of Justice ruling dated 03rd of September 2014, which resolved this issue and established that Spain was infringing the free movement of capital within the EU, because of this separate treatment between resident and non-resident citizens.
On the 1st of January 2015, in order to comply with the aforementioned judgment, the amendment of the State Inheritance Tax regulation has entered into force in Spain. A special scheme has been introduced in regards of the Inheritance Tax, so that non-resident citizens in Spain who are European residents may apply the regional regulation as residents already do, equating their situation.
This new regulation establishes that in the event that the deceased is a European non-resident in Spain, the European non-resident beneficiaries may apply the regional regulation where the most valuable assets are located in Spain. If the beneficiaries are resident in Spain, the regional regulations where they reside shall be applicable.
If the deceased has been a resident in a Spanish region and the beneficiaries are non-resident in Spain, the non-resident beneficiaries shall pay inheritance tax in conformance with the regional regulations where the deceased resided.
At this point, it is worth mentioning that the collection of the Inheritance and Donation Tax in Spain is assigned to regional governments, so that they are free to set forth their own regulations.
The effect of this assignment is that the amount to be paid for this tax by Spanish residents may significantly vary depending on the region where they live. In fact, a fiscal “war” has arisen between regional governments as regards of this tax, because some people have decided to establish their residence in regions with a more favourable tax scheme in order to pay fewer taxes for inheritance and donations, particularly those with more valuable estates.
The most recent and famous case in Andalusia was that of the late Duchess of Alba, who was sentimentally related to Andalusia but not fiscally, because her residence for tax purposes was in Madrid. The main benefit of this fact is that her beneficiaries have had a tax saving of more than 90 million Euros in the Inheritance Tax.
Since non-resident citizens will also enjoy the same Inheritance Tax regulation than resident citizens and considering that the regulation to be applied is that of the region where the most valuable assets are located, this unequal treatment between regions will also affect them.
However, imagine that you are a non-resident in Spain, do not have any property, but you have some money in a bank entity in Spain. In this case, which regulation shall be applicable for your beneficiaries? It seems that the applicable regulation shall be that of the region where the bank registered office is located. Thus, it is not the same a bank entity with registered office in Madrid, Barcelona or Seville, for instance. It has been said “it seems” above, because a definitive answer has not been obtained when contacting the Tax Administration Office in respect of this issue.
In short, these are good news for European foreign citizens and their beneficiaries, and welcome to the regional regulatory “chaos” in respect of Inheritance and Donation Tax.
Andalucian houses constructed on non-develople land
Three weeks ago the Junta de Andalucia (Andalusian Regional Government) announced a reform of the Urban Development Law for Andalusia (LOUA) which aims to provide further legal security for owners of homes that are built on non-developable land (rustic land).
With the current LOUA regulations, for those buildings constructed on rustic land in Andalusia and which are within a zoning plot, the prescription period of six years that the administration has to “attack” these constructions on rustic land does not apply. In other words, no time limit is established, therefore the government leaves open the possibility to begin administrative procedures against said plot and the constructions that are on it, when it deems convenient, even if it has been over six years since the home was built.
The above has the main effect that a building on rustic land, built over six years ago on a property that has not been segregated, cannot be penalised or “attacked” by the government, whereas if the construction is part of a segregation/plot division it could be penalised in spite of being built over six years ago, and demolition of the homes built on this plot could be ruled, as established in article 49 of the Regulations on Urban Development Discipline. Regarding this article, I point out that in spite of it and in my opinion, I do not think that it is feasible to carry out any demolition under this precept due to several legal reasons.
The problem with current regulations since the LOUA came into effect in 2003 is that no serious monitoring or inspection policy has been implemented by the Junta de Andalucia and the Town Halls on rustic land. This has led to the proliferation of thousands of new homes and plot divisions throughout Andalusia, especially during the times of the real estate boom, and more so on the Costa del Sol, where this speculation reached unsustainable proportions.
In spite of the fact that it was feasible to control these constructions, it was not done and this led to the buildings entering the legal level, with many owners purchasing in good faith with all the appearances of legality. This has shown that current regulations in Andalusia on rustic land, and specifically on plot zoning, are pointless, because no one has made sure that they were enforced, making them inefficient at best.
Now the intention is to modify the LOUA and provide the possibility for isolated constructions located on plots of rustic land to regularise their situation through the figure of assimilating it as unregulated, that was introduced by the Decree of 2012. This will be so provided that the period of 6 years has elapsed without the government beginning any penalisation procedures against these buildings, therefore to these purposes the legal situation is considered as equal to those homes that are not located on a zoning plot.
It will take a period of 5 or 6 months for this reform to be approved, and it will be approved by parliamentary proceedings, therefore changes will be included during its approval.
I understand that this initiative by the Junta de Andalucia is a first step towards solving this problem. We all would have preferred for this not to have happened and that rustic land would never have been part of town planning speculation, but this problem started many years ago and the issue is clear; what to do with thousands of homes that cannot be demolished now?
Most of these homes are inhabited and they are still being bought and sold between private persons, therefore it is necessary to regularise them so that third parties acting in good faith have legal security as owners of these properties. Likewise, it is reasonable that those that were built without a building permit, which is most of them, should assume a cost for the regularization procedures and they should contribute the same as any citizen who wishes to build a house, and this bearing in mind that the acknowledgement by AFO is not the cure-all either. From an ecological and environmental standpoint, the legalisation procedure must guarantee that these homes do not cause any further damage to the area where they are located, and that their waste water is completely purified by autonomous installations, because as long as they are fully illegal, and cannot be “attacked” by the government, each owner will do what they see fit and damage to the environment will be higher.
In short, given the current situation and bearing in mind the problem that has been created due to the inactivity and lack of control by the public administrations, from a legal, financial and environmental standpoint, we must establish a regularization procedure for these homes. If not, if we continue with the current situation, it would be a great mistake and it would only continue to aggravate the problem as the years go by.
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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.
