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Home Insirance

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

Geschrieben von Gustavo Calero Monereo am . Veröffentlicht in AFO, andalusia, Andalusian, conveyancing, DAFO, english speaking solicitor, illegal building, malaga, nerja, Property law, purchase process, SAFO, solicitors Nerja, Unkategorisiert.

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)

First occupation license for houses

FIRST OCCUPATION LICENCE (LPO) IN ANDALUSIA REPLACED BY RESPONSIBILITY DECLARATION

Geschrieben von admin am . Veröffentlicht in andalusia, Andalusian, costa del sol, english speaking solicitor, Unkategorisiert.

First Occupation License in Andalusia (LPO) and the RTA rental licenses
First Occupation Licence in Andalusia (LPO) and the RTA rental licences

Big news for Andalusian house owners that don´t have their First Occupation Licence (LPO) yet which is obliged to present when applying for the RTA rental licence of the Registro de Turismo de Andalucia. This was a problem because many houses don´t have this licence as it wasn´t a standard requirement for new build houses until the eighties.

On March 12, the Andalusian Government published in its Official bulletin (BOJA) a Law Decree which has as its main purpose to simplify the regulation of some procedures in Andalusia. This regulation has affected a multitude of procedures and among these the new article 169 bis of the Urban Planning Law of Andalusia (LOUA) of 2002 was approved, which affects the First Occupation Licence (Licencia de Primera Ocupacion or LPO in Spanish).

Likewise, article 169.3 of the LOUA has been modified with a second paragraph that establishes that those acts that are subject to a responsibility declaration do not require a licence. As a general statement, we can say that the new decree allows obtaining the right to occupy or use the majority of buildings located on consolidated urban land throughout Andalusia, by submitting the responsibility declaration together with the required legal documentation by the interested party.

In other words, it will no longer be necessary for these buildings to obtain the First Occupation Licence (LPO) from the city council since the new ´Declaration of occupation or use´ replaces the Occupation Licence. The responsibility declaration of occupation grants the owner the same rights that the First Occupation Licence granted from the day of its presentation.

What is a “responsibility declaration”? 

The responsibility declaration is a document signed by the interested party in which he declares that he meets a series of requirements according to specific regulations and therefore allows him to acquire a right. From the date of presentation (also by a certified architect) the right that is intended to the interested party is recognized, so from the legal point of view it is equal and replaces the earlier First Occupation Licence (LPO) granted by the City Council.

This type of procedure is becoming more common in the Spanish administration. This is because from the presentation of said responsibility declaration the right is recognized and, therefore, it is possible to avoid the waiting time and delay of the administration which in the case of the First Occupation Licence was months.

Which buildings can present a responsibility declaration for their right of occupation?

Article 169 bis commented above, establishes in its section c that it can be obtained by responsibility declaration “the occupation or use of the works of the previous section, provided that the buildings and facilities are finished and their destination is in accordance with the regulations of application“. These works in section b) of article 169, whose occupancy rights would be obtained by means of a responsibility declaration, are: “Works in existing buildings and facilities, on consolidated urban land and in accordance with urban planning, that do not alter the occupation and height parameters, nor involve increases in buildability or the number of homes ”.

Therefore, in section c, existing buildings that have never had a First Occupation Licence are enabled so that they now can obtain their right of occupation, by filing a responsibility declaration. Section d includes the possibility of obtaining the first occupation or use, through a responsibility declaration for new buildings: “d) The first occupation and use of new buildings, provided they are finished and their destination is in accordance with the application regulations and with the works licence granted”.

It is important to say that this change does not affect dwellings on undeveloped land, rustic dwellings, since they cannot obtain the First Occupation Licence as they officially are not part of the urban planning.

What obligations does the responsibility declaration establish?

The interested party who signs a responsibility declaration to acquire the right to occupy a property is responsible for the fulfilment of the established requirements to be able to enjoy said right. Along with the aforementioned declaration, he must present the required technical and legal documentation that certifies compliance with the requirements. Likewise, it will undertake to maintain compliance with said requirements once the declaration is presented.

Therefore, it is evident that responsibility declarations for the occupation or use of a building should not be presented when the requirements demanded by the norm for their presentation are not complied with. It must previously be analysed whether the house in question can obtain this right. It should not be forgotten that the presentation of the responsible declaration supposes assuming a legal responsibility. Presenting said declaration with falsification of the data or documents provided or not attaching all the required legal documentation may suppose legal responsibility for the interested party by the administration.

How does this regulatory change affect tourist rental in Andalusia?

This regulatory change is evident that it will allow many homes, which up to this date do not have a First Occupation Licence for various reasons but still complied with the requirements. These can now obtain this legal recognition with the presentation of the responsibility declaration and required documentation. Since the Andalusian Government legislated tourist homes and forced their registration in the Andalusian Tourism Registry (RTA), requiring the First Occupation Licence, there are many homeowners in Andalusia: Malaga, Costa del Sol or Costa Tropical for example, who have applied for such a licence for their homes. Due to the slowness of the municipalities in granting the First Occupation Licences, many of the owners that have applied for said licence are still waiting for this to be resolved.

Many owners from towns such as Nerja, Málaga, Marbella, Vélez-Málaga, Benalmádena, Fuengirola, Almuñécar, Torrox … etc, and many other municipalities on the Costa del Sol and Costa Tropical will now be able to obtain their right of occupation through a responsibility declaration and hence comply with the requirement of the LPO. This way they can carry out the registration of their home in the RTA for the tourist rental of the property.

There are more than a few foreign clients of our office who have spent months or years „fighting“ with their City Council to obtain their First Occupation Licence and now they will be able to obtain said right with the responsibility declaration, easily and quickly. Of course, for these homes, this regulatory change has meant a very important and positive change since one of the main attractions for a foreigner who wants to buy a property in Andalusia is its profitability through tourist rental. With the current crisis of the coronavirus COVID-19, these types of changes help the economic activity.

How does this change affect the sale of second-hand properties?

Most of property purchases by foreigners in Andalusia are existing homes and some of these do not currently have an LPO. It is evident that the responsibility declaration will, from now on, facilitate the process of obtaining the right to occupy a property. This due to the fact that it is understood that the right of occupation or use has been acquired since the presentation of the responsible declaration. Well, from the buyer’s point of view it is very important that, when buying on urban land, carefully check whether the property can obtain said right of occupation or not if the occupancy rights have been acquired by the seller through the presentation of the responsibility declaration.

The potential buyer must request a copy of the technical documentation presented together with the declaration from the seller, so that his lawyer and / or architect can review it and confirm that said property meets the requirements to obtain the right of occupation or use. If the future buyer does not make this verification, there is a risk that the seller of the property, in order to make it appear that his home has the right of occupancy, presents or is going to present the responsibility declaration despite the fact that the property cannot obtain said right for not complying with the requirements.

In this scenario, the buyer and new owner of the property may encounter a problem. Obviously, the seller could be held responsible for this situation but in most cases of foreign sales, the sellers are non-resident, it would be expensive and complicated to initiate legal proceedings. Always check with your lawyer about the situation of the property you are going to buy.

What happens with new construction promotions?

As we have previously mentioned, also for this type of housing it is possible for the developer to obtain what was previously the First Occupation Licence (LPO), through the declaration of occupation or use. The Urban Planning Law of Andalusia (LOUA) with this regulatory change, establishes that an occupancy licence for new homes is not required in Andalusia, it is possible to present the responsibility declaration of occupation.

In other words, even if the developer wanted to he or she could no longer obtain the LPO from the City Council as a result of this regulatory change. This means that, even if it is stated in the signed private purchase contract that the developer is required to obtain the LPO it would now be sufficient for the developer with the responsibility declaration as it would prove that the new house has the right of first occupation. The promoter by means of the declaration fulfils the private contract of sale.

What happens if the developer has improperly filed the statement?

The City Councils have an obligation to review whether or not the responsible statement meets the requirements to obtain the right of occupation or use, and may declare the cessation of occupation in the event that the requirements are not met and may also demand legal responsibility from the promoter for said actions.

If within the first six months from the presentation of the declaration, the City Council has not adopted the necessary measures for the cessation of the act or use, in the event that the requirements for that occupation are not met, the City Council would be liable for damages caused to third parties in good faith. In other words, the City Councils would answer to the people who bought these homes with the conviction that the sale could be carried out, since these the day they signed the Deed of Sale, they had the declaration responsible for the promoter of occupation or use (former LPO) .

The foregoing gives leaves us to understand that if the Town Hall reviews said declaration in those first six months and understands that the cessation of the occupation must be decreed, the developer would be responsible for the damages to the buyers. However, I understand that in most cases there should be no damage to the buyers, since the optional management of the works (mainly architects and surveyors) will ensure that their final works certificate is in accordance with the law since they would be the main responsible along with the promoter if this was not the case. The final works certificate is the most important technical document to obtain the right of occupation in a new home.

Can the declaration of occupation or use be presented in all Town Halls?

It is true that to this date few municipalities have approved specific procedures for this process such as Malaga, Marbella, Seville or Córdoba. The Andalusian Government has published a practical guide to this decree, along with the models for the responsibility declaration and the necessary documentation, so that the Town Councils can use it. In our opinion, such models can also be used by citizens since the right of occupation can only be obtained through a responsibility declaration, and not through a licence granted by the City Councils as of March 13th 2020.

It is true that since most of the municipalities have not approved this new procedure through their municipal ordinance, it is likely that they do not agree with obtaining said right of occupation by presenting the responsibility declaration, unless that City Council has previously approved that specific procedure.

Notwithstanding this Decree in the tenth transitory provision, allows those interested who prior to March 13 have initiated a procedure to obtain a first occupation license, can request the application of this new procedure and therefore may obtain the right of occupation through the responsibility declaration.

If the new regulation provides for the possibility of changing the procedure already initiated, we understand that since it entered into force it allows obtaining the right of occupation by means of a responsibility declarations, even though the City Council has not published its municipal ordinance.

Can supplies be contracted with this responsibility statement instead of the LPO?

The answer is categorically YES. Although it is very likely that it will be necessary to explain and discuss, at least during these first months since probably several of the supply companies for electricity and water will not have obtained this information or guidelines of said legal modification and will continue to demand the LPO. As you can understand, the best thing to do if you are an owner is to consult with your lawyer or architect about the specific situation of your property.

Of course, if you are in the process of buying a home or thinking about it, it is very important to contact a specialized lawyer who can advise you in the process of buying and selling the property and who knows these urban issues well.

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

 

purchase, property, coronavirus, private contract

Purchase contracts in Spain and the COVID-19 Corona crisis

Geschrieben von admin am . Veröffentlicht in Andalusian, costa del sol, english speaking solicitor, lawyer, malaga.

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)

 

Co

TAX DEADLINES WITHIN THE STATE OF ALARM IN SPAIN

Geschrieben von admin am . Veröffentlicht in Andalusian, costa del sol, english speaking solicitor, lawyer.

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)

Lower taxes on gifts in andalusia

LOWER TAXES ON GIFTS IN ANDALUSIA

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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

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

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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)

SPANISH-MORTGAGE

MORTGAGES IN SPAIN TO BUY PROPERTY

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Mortgages in Spain to buy property
Mortgages in Spain to buy property

Fixed rate, variable rate interest & Euribor

If you want to buy a property with a Spanish mortgage you should know that the standard in Spain is the variable interest. The Euro Interbank Offered Rate, also called Euribor, is the reference rate for variable-rate mortgages and is currently at very low levels. Most mortgages in Spain are established according to the Euribor plus the interest rate offered by the bank.

Some banks offer fixed-rate mortgages but the number of fixed-rate mortgages obtained in Spain is very low compared to that of variable-rate mortgages.


A mortgage in Spain or another country?

If you are non-tax resident in Spain and you are thinking of getting a mortgage to buy a home in Spain, it is very likely that a bank in your tax-residence country can offer you a better interest rate than a Spanish bank. Therefore, you should try to find out which banks in your country give mortgages in Spain.


Ways to reduce the interest rate 

In Spanish mortgages with variable-interest usually offer a series of extra products are offered that may reduce the interest rate of your mortgage loan. Each of these financial products / conditions can reduce the interest rate between 0,25% – 0,50%, with a maximum of non residents of 0,75% en 1,00%.

Some of these products / conditions are:

  • Setting up a direct credit of your salary or pension
  • Keeping a minimum monthly balance in the account linked to the mortgage
  • Signing up online banking or a virtual mailbox
  • Direct debits of service companies (water, electricity, taxes, etc.)
  • Having a debit/credit card
  • Having a pension plan with a minimal yearly contribution
  • Taking a life insurance and a house insurance / contents insurance


Starting the procedure with the bank

If you already know the bank where you want to apply for your mortgage, we suggest that you apply for the financial approval of the mortgage.

At this stage you will provide the bank with a complete list of your income and loans as well as your employment status and the amount of the mortgage loan you need. The bank will enter all these details into the system and tell you if they would approve the mortgage at your income level.

Through this, you can save time and money since you can find out, right from the start, that the bank will not give you a mortgage and it will not be necessary for you to provide all the financial documentation at the beginning. Besides from this it´s not necessary yet to pay the taxation of the property by the bank. This documentation for the bank, by the way, needs to  include an extract (´nota simple´) of the Land Book Registry, the Registro de la Propiedad, of the property you are interested in buying. If the bank analyses your financial details and cannot grant you a mortgage, you always have the possibility to go to a different bank.


Extra costs of the Spanish mortgage

Updated information due to the sentence of the Supreme Court in October 2018 as well as the change in the Spanish law based on which the banks pay most of the initial costs of the mortgage. 

  • Legal expenses:

These are usually between 3% – 4% of the amount of the mortgage, but are since October 2018 paid for by the banks (and they can be claimed back for mortgages signed since October 2014). They refer to taxes, the notary´s invoice (the Mortgage Deeds are different from the Title Deeds and so they are charged separately), the invoice from the Land Book Registry and processing fees. These expenses are the same regardless of whether the mortgage is obtained from a Spanish or a foreign bank.

  • Solicitor fees:

Even though you can negotiate your mortgage directly with the bank, it is advisable for your solicitor to help you with this process as you will obtain professional advice. Besides of this his work with the bank will be more efficient because he knows the different conditions of the banks, the can check the Spanish general Terms & Conditions and he can negotiate on your behalf.

  • Extra bank expenses:

Opening fee (usually 0,5% – 1% of the mortgage), obliged home insurance (contents insurance) and life insurance for each mortgage account holder.

On this point, I would like to make a special mention about the life insurance policy that most banks usually require to obtain. This insurance policy is obtained for the mortgaged amount and guarantees that the bank can collect the amount due to the bank from the insurance company in the event that the account holders die.

Life insurance is an interesting product for mortgage holders but it may involve a high premium, especially if the insured people are elderly or have any health problems. This is because, in these cases, the premium will be higher as the risk that the mortgage holders die increases. It´s important to know that after the first year you can switch from insurance company to one that offers you better conditions on your life insurance.

It is also common for some banks to require you to pay a single premium for this life insurance policy, i.e., when the mortgage is granted, the bank already charges you for the total insurance premium for the entire mortgage period.

It is important for you to have a summary chart of ALL mortgage costs, so you can know the net amount of the mortgage (after deducting expenses) you will have available to pay for the property.


Legally binding mortgage offer

Once the bank confirms that your mortgage is approved, the legal document that guarantees this is the binding offer (´oferta vinculante´). This bank document functions as a contract and binds the bank to giving you the mortgage under the terms established in the document. The binding offer is usually valid for one month but it may not be valid for less than ten days.


Recommendations when buying a property with a mortgage 

Since the final approval of the mortgage by the bank will take 2 or 3 weeks. Therefore it´s wise to start the mortgage procedure as soon as possible, even if you haven´t selected a definitive property yet.

Have you already decided on the property you want to buy, but you do not yet know if you are going to obtain a mortgage? In this case you could try to negotiate with the seller that the reservation document and/or private purchase contract are ´subject to mortgage´. This clause avoids that you would lose your reservation fees and/or down payment if no bank in the end doesn´t grants you a mortgage loan. However, most (Spanish) sellers do not like to sign contracts that are subject to the mortgage so the best thing is to have everything prepared with the bank so that it takes as little as possible to receive a reply.

Also please keep in mind that not all banks are willing to grant mortgages for house in the countryside, or only for a limited percentage.


Saving money by subrogation of a mortgage

If you are a home owner with a Spanish mortgage than -after one year- you have the right to subrogate your mortgage to another band with a lower interest rate of better conditions. In this case the new bank will pay the rest of the loan plus the transfer commission (if this exists) to your current bank and you will pay your mortgage from that moment to the new bank according to the new conditions.

The subrogation cost is very low compared to the cost of signing a new mortgage. Therefore, if the interest rate that the bank offers you is lower, it is very likely for subrogation to be beneficial to you.

 

Read the extended information about this subject in our pdf-file: Mortgages in Spain to buy property For general information about buying a house in Andalusia you can also watch this video:

 

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

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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)

Expenses from the renovation and improvement of a property can reduce the tax

RENOVATING YOUR HOME? DO IT RIGHT AND PAY LESS TAX WHEN YOU SELL

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Renovating house in Andalusia: tips & save on Capital Gain Tax

One of the first things many people do when buying a property is renovate it.

The expenses from the renovation and improvement of a property can reduce the tax on capital gains in the event that it is evidenced in the future sale of the existing or new build property. It is important to clarify that repair or preservation costs for the property are not deductible. Deductions only apply to renovations or improvements that increase the value of the property compared to before they were made.

The cost of improvements would be added to the price paid in the sale, resulting in lower capital gains tax due to the difference between the price to transfer the property and the purchase price, which means less tax would be paid to the Tax Agency. This will be so provided that such renovation and improvement works can be evidenced so that the Tax Agency can accept them. Below, you will find what I consider to be the most important aspects to be able to prove the works carried out for tax purposes.

TECHNICAL PROJECT

Having an architect draft a project and oversee the execution of the works is not a minor issue. If the works to be carried out are of a certain scale, it is always best to have a professional perform follow-up and control since he or she would be liable if something goes wrong. Likewise, having carried out the works with a technical project and a final works certificate can be used to evidence the improvements made in be property before the Tax Agency.

BUILDING PERMIT

If you are going to renovate a property, it is always necessary to get a building permit for both major and minor works. It is true that this is often not requested to save money, for instance when renovating the inside of a home or a room, as there are less chance you will be found out.

Having a building permit will help you on three important aspects:

  • To evidence the lawfulness of the works –provided that it complies with the permit granted–. Likewise, it is important for you to know that, if there is an accident at the building site, not having a permit may entail consequences of criminal liability for the owner.
  • When it comes to works where the distribution of the property will change, the constructed area will be enlarged or a new home will be built, the building permit –among other documents, such as the final works certificate and the permit for initial occupation– will be necessary to register this new construction in the Property Register.
  • When selling a home with profit, the building permit will serve to prove to the Tax Agency that improvements were made so as to request that these are taken into account as part of the purchase price of the home.

Having a building permit is more important in terms of urban-planning and criminal law than in terms of taxes.

CONSTRUCTION CONTRACT

It is very important to sign a contract for the works to be carried out with the builder. The construction contract will mainly evidence which is the construction company that performs the works, the type of works to be carried out, their estimated cost and the location where they will take place.

INVOICES AND PROOF OF PAYMENT

Without a doubt, in terms of taxation, this is the most important requirement for the Treasury to recognise this improvement or renovation.

We often find homeowners who have spent a lot of money on improving their properties but who have no invoices issued by the builder or proof of payment for these works. It is essential to prove to the Tax Agency that these amounts have been paid by bank transfer or personal cheques made out to the construction company. If you have no way to prove these payments, it will be impossible for you to include these improvements in the purchase price of the property. You must always request an invoice and keep proof of payment.

The costs of the improvements will be added to the purchase price because of which you will pay less Capital Gain tax. The Capital Gain tax of this moment is 19% over the profit between the purchase and sales price minus the deductions.

WORKS WITHOUT A PERMIT THAT CANNOT BE LEGALIZED

It is possible that, for the works you intend to carry out in your home, it is not possible to obtain a building permit, for instance in works to enlarge a home in non-urban land –rural land–, increasing the surface area beyond the development potential –such as when enclosing a balcony– or building to a height higher than that allowed. The first thing you should take into account is that, as the owner, you will assume the legal liability that may arise if legal proceedings are brought in connection with these works without a permit.

If you will be carrying out such works, it is important for you to sign a construction contract with the builder, for you to obtain an invoice for each payment and for payments to be made by bank transfer or cheque. Even if you do not have a permit, it would be possible for these improvements to be taken into account when selling the property.

The Tax Agency cannot reject improvement works for not having a building permit –inspecting urban planning law is outside their jurisdiction–, for which reason it is important for you to be able to evidence the works that were effectively carried out, what their cost was and submit payment documents.

In these cases, it would not be a bad idea to have a technician draw up some type of report –not a project– explaining how the property was before and the works that have been performed, providing photographs and documentation from the owner. This is an additional document that can be used to prove improvement works.

NEW CONSTRUCTION DEED

The New Construction Deed is a document signed before a Notary Public to register a building in the Property Register in Spain. Even when the construction does not have a building permit, it is possible for it to access the Property Register in Spain –which does not mean it is legal– provided that a series of requirements are met.

If you have built a pool, garage, storeroom, etc. in Andalusia without a licence, it is possible for you to get an architect to issue a certificate of age six years after completion, to evidence the new construction and its age. This certificate can be used to sign a Deed of Declaration of New Construction before a Notary Public and register the construction in the Property Register. In some cases, it would not be possible to register it in the Register, such as when the land is especially protected.

VALUE OF THE CONSTRUCTION DECLARED IN THE DEED

The value of New Construction assigned in the Deed cannot in itself be used to prove to the Treasury how much was spent on the property at the moment of selling.

For instance, if you declare, in the Deed, that you have spent 50,000 euros on the pool and garage you built, unless you have proof of payment and invoices from the construction company, the Treasury will reject this expense. This is so because what you do before the notary is nothing more than a statement, which means that the Notary does not check if you really spent that amount or if it was more or less –and isn’t required to do so–.

In my opinion, if you are going to do a Declaration of New Construction for works without a licence, you should include a copy of the invoices and/or proof of payment to the constructor in the Deed, as this would evidence the value you declared and make it easier for the Treasury to accept it when selling the property.

Lastly, if you are thinking about doing any work on your property, I wish you all the luck in the world and, most of all, lots of patience; I almost ran out of it myself when I renovated mine…

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

RTA VERHUURREGISTER ANDALUSIE: BOETES, BELASTINGEN, LICENTIE VAN EERSTE BEWONING EN LANDELIJKE WONINGEN

RTA FOR HOLIDAY RENTALS IN MALAGA: FINES, TAXES, FIRST OCCUPATION LICENCE AND RURAL PROPERTIES

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RTA, andalusian, taxes, occupation licence
RTA registration property rentals

It’s been two years since the entry into force of Decree 28/2016 regulating RTA FOR HOLIDAY RENTALS for properties in Andalusia.Half of all holiday rental properties in Andalusia registered before the Tourism Registry of Andalusia are located in the province of Malaga, according to the information published by Diario Sur in February 2018. This means that, in Malaga, there are over 18,000 tourist apartments registered.

It is important to remember that property rentals are subject to taxation

RTA FOR HOLIDAY RENTALS: inspections and penalties

The same newspaper has published that, in Malaga alone, there have been 1,354 inspections and 250 properties have been fined.

One of the most important requirements to be met by these properties is that they must have an initial-occupation licence as well as cooling and heating equipment. Once an RTA / VTAR number has been obtained, the property owner is required to include the registration number in advertising as well as in the promotional page on AirBNB or similar platforms offering these properties as holiday rentals.

Initial-occupation licence requirement

If the property does not have an initial-occupation licence, it should not be registered before them. I use the word “should” because the registration form is an affidavit, for which reason the property owners submitting it declare, under their responsibility, that the property meets all the legal requirements and the Andalusia Council will register the property automatically, without performing any prior inspections. However, if an inspection later finds that the legal requirements are not met, the owners will be fined.

There are many properties without an initial-occupation licence, due to different reasons, such as the age of such buildings, problems with the housing development, etc. This has driven some municipal councils to implement a specific procedure to obtain an initial-occupation licence solely to register the property before the Tourism Registry of Andalusia. Some of these councils are Málaga, Mijas and Benalmádena.

Nerja Council

The situation of holiday rentals in Nerja deserves a special mention. Nerja Council has paralysed the granting of initial-occupation licences since the entry into force of the Tourism Decree.

A month and a half ago, the council also established a procedure to grant such initial-occupation licences only for the purposes of registering properties before the Registry of the Andalusia Council (RTA). The website of the municipal council now includes the form necessary to file this application.

Over one year ago, our firm requested a copy of the initial-occupation licences of different properties in Nerja and, two weeks ago, we started receiving responses from Nerja Council.

Fortunately, the situation of these holiday rentals in Nerja seems to be in the process of being brought in line. This is definitely good news for all interested property owners as well as potential property buyers who will have the ability to obtain the initial-occupation licence necessary for registration.

Properties located in towns with fewer than 20,000 inhabitants

Another significant change that took place recently in the regulations set down by the Andalusia Council is that affecting holiday rentals located in towns with fewer than 20,000 inhabitants. These are towns such as Torrox, Viñuela, Alcaucin, Frigiliana, Competa, as well as most towns in La Axarquía.

Properties in these municipalities are not eligible for the 2016 Decree due to the properties being located in towns with fewer than 20,000 inhabitants. However, since February of this year, it is possible for them to be eligible for the 2016 Decree as they will no longer be considered rural properties, which, until now, was the only way to register these properties as holiday rentals.

RTA list of holiday rentals registered in Malaga

Due to the boom in holiday rentals in certain cities, such as Malaga, the Council has published a list of the registered holiday rentals.

This tool seeks to inform tourists about accommodation possibilities in the city and is also a tool to control the tourism boom affecting the city.

It should be noted that Malaga city is currently experiencing a significant boom in tourism, especially around the historic city centre. This has led to the emergence of plenty of tourist accommodation options, which has resulted in price rises for long-term lettings due to the low property supply as owners opt to offer the properties to tourists instead.

Over the last year, the historic centre has lost residents to holidaymakers. The Malaga Council is already debating the measures that should be taken to limit or regulate holiday rentals and make residential and tourist use compatible, so that residents are not lost and it is possible for people in the community to access rental homes, taking into account the average income in Malaga.

You can see the case of Palma de Mallorca, a city that recently approved a norm prohibiting holiday rentals.

Tax payable on the profits obtained

It is important to remember that property rentals are subject to taxation, for which reason owners –whether resident or not (IRNR)– must declare the profits obtained from such rentals.

Non-resident owners must declare such profits through form 210, which is submitted quarterly. Fortunately, since January of this year, the procedure has been simplified to make it possible to declare, in form 210, all the earnings obtained from renting the existing or new build property as a holiday rental over the quarter, even if they come from different occupants.

If the non-resident property owner owns several properties, a separate form 210 must be submitted quarterly for each one, and 19% of the total earnings obtained will be paid as tax, with the ability to deduct certain expenses according to the period of rental during that quarter.

It is interesting to note that, if you are tax resident in Spain, holiday rentals are taxed at a higher rate than rentals of usual residences –residential rentals–. This is the case because the Tax Agency allows these residential rentals used as the tenant’s usual residence to apply a reduction of 60% over the positive net return obtained from the rental. However, this deduction is not allowed for holiday rentals offered by tax residents.

Currently, there are still many property owners who do not declare rent but, if the Tax Agency devoted some attention to this matter, it could start inspection proceedings ex officio, by simply visiting a few websites and comparing them to the list of properties registered in the Tourism Registry of Andalusia.

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

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