Have you sold property at a loss in Spain? You can now apply for a full tax refund!

Raymundo Larraín Nesbitt, November, 8. 2017

Lawyer Raymond Nesbitt goes on to explain how vendors (both resident and non-resident) can now benefit from a time-limited opportunity to claim back their tax on selling property at a loss in Spain.  

 

 

 

 

 

By Raymundo Larraín Nesbitt
Director of Larraín Nesbitt Lawyers
8th of November 2017

 

Introduction

Following a recent Constitutional Supreme Court ruling from 2017, if you have sold (or are planning to sell) property in Spain at a loss you can now benefit (for a limited time only) from a full tax refund (plus interests).

The new ruling argues that taxes need to respect the constitutional principle of economic capacity. Taxing someone when no profit was made (on selling) would therefore be unconstitutional and would qualify for a full tax refund.

On selling, a vendor needs to pay a tax known as ‘plusvalia’ tax. It is this tax that can be fully refunded.

Practical effects of this new ruling

  • Vendors who sold property at a loss as from 2013 can now request a full refund of plusvalía tax plus legal interests on top.
  • It is estimated over 550,000 vendors qualify for this refund since 2013.
  • Refunds on average stand to be in excess of €3,000.
  • Claims are time-limited. You cannot claim back your money after the statute of limitations kicks in.

 

How can we help you recover your money­?

One of the core specialties of our law firm is litigation. We offer a no win no fee* on these cases.

We will examine your matter free of charge and report back to you if you have a strong case.

You only pay our legal fees, if we win your case. That simple.

What we need from you

  • Copy of Title Deed (buying).
  • Copy of Title Deed (selling).
  • Copy of last IBI/SUMA invoice.
  • Copy of plusvalia tax invoice.

 

Frequently Asked Questions

 

  1. Does this new ruling mean I no longer have to pay plusvalia tax on selling at a loss?

No. You will be expected to pay this tax to your town hall on selling a property whether you have made a profit or not. Once you have paid it can we then claim back the tax on your behalf plus interests.

  1. Hearsay has it that I only need to fill in a form before a town hall to get my money back. Why should I need to hire a lawyer?

This information is incorrect, hugely misleading and can make you lose ALL your money. There is nothing worse and more dangerous than a half-baked truth.

The first step for a law firm to recover your funds is to apply for a refund petition. Wording and arguing the petition properly, in a legal manner, is critical for reasons I explain further below. In 99% of cases town halls turn down this form or simply ignore the claim.

Once the claim is spurned by a town hall, the following step is to instigate a legal proceeding which hinges on said petition, hence its importance. If the petition was incorrectly worded, say by a layman, the case is lost beforehand, and you will NOT receive back your money, period. Litigation is necessary almost in every case to recover your money.

If you want your funds back, you simply need to hire a law firm such as ours to act on your behalf from start to finish; you cannot cut corners doing it yourself.

  1. Can I claim my money back without a lawyer?

You can try albeit most likely fail. You simply need to appoint a lawyer to litigate on your behalf.

Conclusion

There is a limited time frame to claw back your tax refund (which varies depending on your own personal circumstances, ranging from only 30 days to 4 years). After your claim becomes time-barred, your case is precluded and you lose all your money.

Act now, you will not get a second chance! Contact us free of compromise before it is too late.

 

"La acción es la clave fundamental de todo éxito." – Pablo Picasso.

Loosely translated as: "Action is the key to success".

Pablo Picasso was a Spanish painter, sculptor, printmaker, ceramicist, stage designer, poet and playwright who spent most of his adult life in France. Regarded as one of the most influential artists of the 20th century, he is credited for co-founding the Cubist movement. Child prodigy, Malaga-born Picasso achieved universal renown and immense fortune for his revolutionary artistic accomplishments, becoming one of the best-known figures in 20th-century art. One of a kind towering artistic figure that casts a long shadow over every other artist that has followed in his wake.

 

Larraín Nesbitt Lawyers, small on fees, big on service.

Larraín Nesbitt Lawyers is a law firm specialized in litigation, conveyancing, taxation, and inheritance. We will be very pleased to discuss your matter with you. You can contact us by e-mail at info@larrainnesbitt.com, by telephone on (+34) 952 19 22 88 or by completing our contact form.

Article also published at Spanish Property Insight: Have you sold property at a loss in Spain? You can now apply for a full tax refund!

*Court runner’s fees & property assessment report not inclusive.

 

Legal services Larraín Nesbitt Lawyers can offer you

 

Litigation related articles

 

Please note the information provided in this article is of general interest only and is not to be construed or intended as substitute for professional legal advice. This article may be posted freely in websites or other social media so long as the author is duly credited. Plagiarizing, whether in whole or in part, this article without crediting the author may result in criminal prosecution. VOV.

2.017 © Raymundo Larraín Nesbitt. All rights reserved.

 

... Read more

Plagiarism: Flattery or Just Plain Theft?

Raymundo Larraín Nesbitt, October, 8. 2016

By Raymundo Larraín Nesbitt
Lawyer – Abogado
8th of October 2016

 

 

This month’s article is somewhat personal. Due to the attention some of my articles receive, I get copied a lot. It has reached the point where I am catching over ten people/companies every month. A recent example is the article I wrote earlier this year on Andalusia’s Holiday Rental Laws. This article alone was massively plagiarized. Because of this I thought it would be a good idea to write up a reminder of the legal repercussions in Spain on copying other peoples’ intellectual property.

In Spain, much like in the United Kingdom, all original written material is protected by Intellectual Property Laws (Royal Decree 1/1996). Moreover, Spain’s Criminal Code in its Chapter XI protects author’s Intellectual Property Rights against plagiarism in three articles no less (articles 270-272), all of which have jail terms associated to them, ranging from 6 months to 4 years. All an offended needs doing is file a denuncia against the offender at a Police Station. Plagio is a pursuable criminal offence. As an example, two people were arrested in Torremolinos (Malaga), and were remanded into custody for plagiarizing just one article from a website.

I first started writing articles in 2004 and, with any luck, would like to continue doing so for the remainder of my career. The aim is to provide insight to legal topics which continuously crop up with my law firm’s clients. Since many of these legal queries were on the same topic I decided at the time to make it easy on myself and write up fact sheets on a given matter collating the most frequent queries on a topic and replying to them. In time, some of these fact sheets evolved and became the elaborate articles I now publish.

As an example, I wrote back in 2005 a fact sheet on Licence of First Occupation. At the time of publishing, LFO were unheard of and my article was the first to be written in English on the matter. In hindsight it would have been more grammatically correct on my part to call them First Occupancy Licence but the term LFO catched on and I just let it go. You can still find an original version of my fact sheet from 2005 on following this link. Over time this article evolved and grew more complex resulting in this other one: Licence of First Occupation.

Where I am getting at is that some of my articles and blog posts are liked so much that people and companies happen to borrow them from our article’s archive and reproduce them in their own blogs or corporate websites crediting me as the author as well as placing a working link back to the original article, which is just fine by me. In fact, this prompted me to add a disclaimer in every article I write saying just that:

Please note the information provided in this article is of general interest only and is not to be construed or intended as substitute for professional legal advice. This article may be posted freely in websites or other social media so long as the author is duly credited. Plagiarizing, whether in whole or in part, this article without crediting the author may result in criminal prosecution. VOV.

Unfortunately, a minority at times takes a step further crossing the red line, removing my name and cheekily crediting themselves as authors! Despite the famous quote by cleric Charles Caleb Colton, Imitation is the sincerest form of flattery”, I would argue that imitation is simply profiting from other’s hard work, whilst taking undue credit for it, which I personally find repulsive and is too much to put up with. I for one do not feel flattered; to my mind plagio is simply cold-hearted thieving and I take it very seriously adopting a hardline stance. I also warn in my disclaimer that I may take legal action against offenders when appropriate. I have instigated criminal proceedings against two individuals and one company for this very reason so far.

Besides, before publishing an article I always lodge it first in an Intellectual Property Registry. The purpose of this is to be used as evidence in a criminal case and prove who wrote a text first as the date and time are electronically registered on submitting the text. I was forced to act like this as some people lost the plot stealing content from me left, right and centre. Some articles, like the one I wrote on Bank Repossessions in Spain back in 2007, elicited a huge response and generated over 200 plagios!! This article at the time was the first one to be written in English on how Spanish repossessions work and garnered much attention. You can find an updated version from 2014 here.

Bottom line, sooner or later I am bound to catch all those using my articles and blog posts without authorisation; that is without crediting me as the author. Over the last decade I have caught several hundred websites using them unlawfully, as well as over a hundred lawyers/law firms, both Spanish and British, all of which apologized. Only in 2016 I have been forced to contact several dozen law firms on grounds of plagiarism. I do not relish having to waste my time hounding people and companies when they could make a perfectly licit use of my articles by simply crediting me as the author. It is not as if I charged for my articles, they are free.

Native English speakers may be harder to hound, because, on mastering English, they are able to sneakily change the wording, producing what they think is an ‘original’ work that make my plagiarised articles more difficult to track down on using search engines. This aggravates me even further when I finally get on to them. It should be noted that, from a legal point of view, amending or tweaking written content to fool search engines with a view to conceal a plagio is still regarded legally as plagiarism and only buys them some time; regardless, they will be held criminally liable when found.

As written above, and in line with Spanish Property Insight’s copyright policy, I have no qualms in anyone using my legal articles on their own websites so long as they comply with two simple requirements:

  1. Credit me as the author.
  2. Place a working link back to the original published article (not the website's homepage).

I.e.

Raymundo Larraín Nesbitt

Lawyer, Abogado.

Original article: http://www.en.larrainnesbittabogados.com/articles.php

On complying with the above, there is absolutely no need to previously contact me to request my permission to publish any of my articles. Hundreds of websites, spanning from mortgage brokers to real estate agencies, use my legal articles unmolested and I welcome their use. You can find my articles collated here should anyone wish to use them:

Raymundo Larraín Nesbitt

I will only contact those whom I feel are abusively taking unfair advantage of my hard work by not crediting me as the author and profiting from it or else even going as far as removing me and crediting themselves as the authors of my articles!

 

Examples of correct usage of my articles

 

 

Andalusia´s Holiday Rental Decree

Rental Laws in Spain

New Rental Legislation in Andalusia

Dación en Pago – Handing Spanish Property back to the Bank

How European Regulation affects Foreign Resident’s Spanish Wills

How to Buy Property in Spain Safely

Taxes on Buying Spanish Property

The pros and cons of buying and owning Spanish property through a company structure

Taxes on Selling a Spanish Property

Non-Resident Taxes in Spain

 

Examples of non-sanctioned use of my articles that may lead to prosecution: Spot the Differences!

 

 

  • Multiple plagios by lawyer Juana Mª Giménez Ballesta who removed my name and plagiarized no less than eight copyrighted articles crediting them all to herself and published them on local ex-pat newspapers in Costa Blanca & Almeria. The only word in English she added to my eight articles was 'laywer' after her own name, which she happened to misspell.
  • Plagio by lawyer David Ivars who published several of my copyrighted articles (as well as from other lawyers) under his own name in local ex-pat newspapers in Costa Blanca.

 

  • Escritura Title Deed Explained

 

Plagio by Freedom Media, S.L. (Paul Sully and Lynne Robinson, Canary Islands). These individuals are hands down the plagio kings of this list with over 8 articles plagiarized across seven issues of their magazine. Not content with plagiarising just one article, this Canary Islands magazine ups the ante and cheekily plagiarises two of my articles on the same issue in 2.013, word-for-word (pages 8 and 16)!!: http://www.freedom4sale.com/downloads/freedom-issue-80.pdf

Plagio: http://lascasitas.eu/escitura.html

Plagio by Sunshine Tropical Properties (Granada): https://www.sunshinetropicalproperties.com/contact/faqs/

My original article (ranking number one in Google): Escritura – Titled Deed Explained – 8th of April 2.013

 

  • Renting in Spain: Top 10 Mistakes

 

Plagio by Freedom Media, S.L. (Paul Sully and Lynne Robinson, Canary Islands). Page 16: http://www.freedom4sale.com/downloads/freedom-issue-80.pdf

Plagio by Living in Spain Org: http://livinginspain.org/renting.php

Plagio by Mr Druvis Dubrovskis from Tenerife All Sales: http://www.tenerifeallsales.com/decide-to-evict-landlords-must-know/

Plagio by yourmove.es : http://yourmove.es/more-information/landlords-guide/

My original article (ranking number one in Google):  Renting in Spain: Top 10 Mistakes – 8th of June 2.011

  • Off-Plan Construction Guarantees – Know Your Rights

 

Plagio by

Original article from 8th of November 2.011 (ranking number one in Google): Off-Plan Construction Guarantees – Know Your Rights

 

  • How to Buy Resale Property in Spain

 

Plagio by Spanish lawyer Miquel Àngel Mas i Colom from DMS Consulting 11th March 2015: http://www.consultingdms.com/en/buy-house-spain-legal-tax-problems/

Original article from the 31st January 2010: Buying Property In Spain. Buying Resale: Avoiding the Pitfalls

Revamped version from the 21st February 2.013 (ranking number one in Google): Buying Resale in Spain

 

  • How to Buy Off-Plan Property in Spain

 

Plagio by

Original article from the 18th April 2.010: Tips on Buying Property in Spain Off-Plan

Revamped version from 8th June 2.013 (ranking number one in Google): Buying Off-Plan in Spain

 

 

 

  • Dissolution of Joint Property Ownership

 

Plagio from 2.013 (page 16): http://www.freedom4sale.com/downloads/freedom-issue-79.pdf

Plagio by Spanish law firm Spanish Solutions Legal & Tax (La Zenia, Orihuela Costa):

http://www.spanishsolutions.net/legal-issues-in-spain/dissolution-of-joint-ownership/

Plagio by Spanish lawyer Celso Rodriguez Corral (Corral & Alcaraz Abogados) : http://www.corralalcaraz.com/nie-number-residency/dissolution-of-joint-property-ownership/

My original article from November 2.007: Dissolution of Joint Property Ownership

And a revamped version from 8th May 2.011 (ranking number one in Google): Dissolution of Joint Property Ownership

 

  • Bank Repossessions in Spain

 

Plagio from 2.014 (pages 16 – 18): http://www.freedom4sale.com/downloads/freedom-issue-85.pdf

Original article from 2.007: Home Repossessions in Spain

Beefed up article from 21st February 2.014 (ranking number one in Google): Bank Repossessions in Spain

 

  • Andalusia’s Holiday Rental Laws

 

Plagio Serviturismo Carboneras (2.016, unsigned): http://www.serviturismo-carboneras.com/en/InfoDecanglais.pdf

Plagio by Lets in the Sun: http://www.letsinthesun.com/2016/03/01/holidayrentalslicence/

Plagio by Spanish law firm Lex Legale, Luis Alberto Sánchez (Fuengirola): http://shorttermrentaladvisers.com/decreegeneral/

http://shorttermrentaladvisers.com/short-term-rental-law-andalucia/

Plagio by Spanish law firm Oscar Eguren Fernandez (Marbella): http://mimarbella.es/new-holiday-property-rental-law/

https://www.facebook.com/Oegurenasesores/

Original article from the 8th February 2.016 (ranking number one in Google): Andalusia’s Holiday Rental Laws

 

  • Licence of First Occupation

 

Plagio (undated, unsigned): http://www.discovercostacalida.info/en/Information-On-Living-In-Spain/Your-House-In-Spain/articles/First-Occupancy-Licence/

Plagio: http://www.spanishsolutions.net/2010/10/cedulacertificate-of-habitation/

Plagio from a Spanish law firm: http://www.cdsolicitors.com/2012/01/19/obtainning-the-first-occupation-license/

My original fact sheet from 2.005: Licence of First Occupation

Article from 29th January 2:009: The Licence of First Occupation Explained

A revamped version from 8th April 2.013 (ranking number one in Google): Licence of First Occupation

 

  • Golden Visa Law Spain

 

Plagio by Drumelia estates Marbella: http://www.drumelia.com/2766-golden-visa-real-estate-investor-visa.html

Plagio Panascho Media (page 53): https://issuu.com/panashcomedia/docs/plm_issue_11_light

Plagio by Spanish law firm: http://www.dfdiaz.com/practice/immigration-law

Plagio by Spanish law firm: http://privatiaconsulting.com/index.php/component/k2/item/21

Plagio by San Sebatian Houses: http://sansebastianhouses.com/english/ENnoticias.html

Plagio by Mr Nuttall, Steve Charles (undated, unsigned): http://www.hondonvalleyproperties.com/pages/EN/listProperties.asp?ACT=New&Custom=166&QN=167

http://www.goldvisasspain.com/our-services

http://www.goldvisasspain.com/faq

Plagio by Investor-Visa UK: http://investor-visa.co.uk/spanish-golden-visa-program-in-2016-news-666/

Plagio by Spanish law firm VCCR Consultores: http://vccrconsultores.com/es/news/18-cambios-en-el-modelo-de-declaracion-de-iva

My original article published on the 8th November 2.013 (ranking number one in Google): Investor´s Guide to Golden Visa Law

 

  • Non-Residents: Six Advantages of Making a Will in Spain

 

Plagio by Spanish Solutions (Orihuela, Alicante): http://www.spanishsolutions.net/blog/legal-issues-in-spain/why-should-you-make-a-spanish-will/

Plagio by Spanish law firm Carbray from 2.016 (unsigned): http://www.carbray.es/making-will-spain/

Plagio June 2.014: http://www.balearic-properties.com/blog/2014/06/make-spanish-will/

Plagio from Spanish law firm Fernando González-Martín & Partners (Marbella): https://www.legalservices.es/english/inheritance-probate-in-spain/will-in-spain/

http://www.spainlegal.es/en/servicios/117-inheritance--probate-in-spain

Plagio by Spanish law firm Aniorte – Laakso (Torrevieja, Alicante) :http://www.aniorte-laakso.com/nuevaweb/sin-categoria/inheritance-law/espanjalainen-testamentti/

Plagio by Spanish law firm Lourdes Fernandez Abogados: http://www.fernandezabogado.es/en/2017/05/20/do-i-need-spanish-will/

Plagio by Spanish lawyer Maria Elena Lino Garcia: https://www.facebook.com/Galiciapropertylawyers/

My original article from September 2.009: Non-Residents: Six Advantages of Making a Will in Spain

A revamped version from 8th August 2.012 (ranking number one in Google): Non-Residents: Six Advantages of Making a Will in Spain

 

  • Nota Simple Explained

 

Plagio by Drumelia estates Marbella: http://www.drumelia.com/2832-nota-simple-property-registry-filing.html

Plagios (undated, unsigned):

http://www.discovercostacalida.info/nota-simpla/

http://www.answers.uk.com/services/spainproperty.html

Plagio by Naranja Properties real estet agency (Costa Blanca): http://naranjaspain.es/homes-for-sale-in-arenales-del-sol-costa-blanca.html

Original article from 8th of April 2.013 (ranking number one in Google): Nota Simple Explained

 

  • Reclaiming back your off-plan Bank Guarantee deposits: Supreme Court Rulings

 

Plagio by Brenda McAllister from Spanish law firm Legal Logic Abogados (Deposit Reclaim Spain): https://depositreclaimspain.com/2016/06/17/high-court-rulings/

Original article from 8th April 2.015 (ranking number one in Google): Supreme Court Rulings on Bank Guarantees

 

Conclusion

Plagiarising content in today’s world of internet is downright stupid (as in flat electroencephalogram stupid). Catching people is as easy as copying and pasting chunks of my own articles into Google’s search engine and the plagiarized text will surely pop up.

Why risk getting tangled in criminal prosecution when you can simply credit the author and move on? Beats me every time. 

 

Well, me morals is low. But me ethics is high.” Cynthia Payne.

Cynthia Payne was an English Madame and party hostess who made the headlines in the 1970s and 1980s, when she was acquitted of running a cathouse in a southwestern suburb of London.

 

Please note the information provided in this article is of general interest only and is not to be construed or intended as substitute for professional legal advice. This article may be posted freely in websites or other social media so long as the author is duly credited. Plagiarizing, whether in whole or in part, this article without crediting the author may result in criminal prosecution. VOV.

2.010 and 2.016 © Raymundo Larraín Nesbitt. All rights reserved.

... Read more

Off-Plan Bank Guarantees and Supreme Court Rulings – Payback Time

Raymundo Larraín Nesbitt, June, 8. 2016

By Raymundo Larraín Nesbitt
Lawyer – Abogado
8th of June 2016

 

Introduction

A fortnight ago the BBC News published in its Business section an enticing article which has garnered much attention from the media. It relates to Spanish bank guarantees and the payout that is potentially due to thousands of off-plan buyers (mostly British).

The article quotes as source a Barcelona-based law firm which estimates that up to 100,000 UK off-plan buyers were due payouts to the tune of £20,000 per investor. The law firm quotes a Supreme Court ruling of the 21st December 2.015 which established the joint liability of banks (and developers) on refunding off-plan stage payments. The article then goes on to explain that Britons could be owed as much as £2bn. The article compares the situation Spanish banks are now facing to the PPI scandal that engulfed UK high street lenders forcing them to set aside billions of pounds in claims as a result of mis-sold financial services.

I will resist the urge to introduce a wedge and mention here how I was harassed day in and day out with phone calls and text messages, whilst working in the UK, offering me 100% guaranteed PPI claims. The fact of the matter is that I knew I did not qualify but that did not stop the buzz. Do not expect a repeat PPI scenario unfolding in Spain anytime soon.

Setting the Record Straight

Long story short, well over a year ago, in the 1Q 2015, I wrote an article titled “Supreme Court Rulings on Bank Guarantees”. This article was published on the 8th of April 2.015 in Spanish Property Insight, which coincidentally also happens to be a Barcelona-based company.

This long article (over 3,000 words) was the first to analyse in painstaking detail a number of recent Supreme Court rulings that shaped our understanding on how off-plan bank guarantees work in Spain. The article collates a number of legal changes; chief amongst them is the joint liability of banks (along with developers) when no bank guarantees had been issued (or had been wrongly issued) to off-plan buyers.

In layman´s terms this translates into now, for the first time ever, being able to claim directly from banks where off-plan deposits were paid into even when no bank guarantee was issued to a buyer by the developer (as is mandatory by law 57/68). I highlighted repeatedly the legal significance of this change brought about by the Supreme Court in my text.

This, coupled with the fact the Supreme Court had made it clear that the statutory limitation to litigate is now 15 years, effectively moved the goal posts for thousands of off-plan buyers which previously had been barred from litigation for legal reasons I explain below. Please note I avoid at all times using the term ‘investors’, as does the BBC article, for legal reasons I also care to explain further below.

Thousands of new-build buyers which had NOT been issued a mandatory bank guarantee safeguarding their interim deposits, as is mandatory per Law 57/1968, and to which the litigation door was previously tightly shut, found the door left ajar almost in a beckoning manner by way of the recent Supreme Court rulings. These were uncharted waters for us all.

The significance of the legal rulings I analysed early on in 2.015 is threefold:

  • You could now litigate for a full refund of your off-plan stage payments (plus legal interests) despite never have been issued a bank guarantee (or been issued an incorrect or partial one).
  • The statutory limitation was confirmed to be 15 years as from the first payment.
  • Unlike before you could now litigate and file a claim against the lender skipping the developer altogether. This was previously not an option as I highlighted in multiple litigation articles of mine at the time (back in 2.008). This change has associated two major benefits: you save yourself protracted litigation time chasing a developer and most significantly you can now file a claim directly against a bank, which has money, leaving aside developers which in most instances had gone under (so there was little to no chance to recover the funds as their assets had been legally seized by creditors who were first in the pecking order following insolvency procedures).

 

I even went the extra mile writing a bullet point section, as a recap, collating all the legal changes I had examined throughout multiple Supreme Court rulings for ease of comprehension.

So as can be surmised from my 2.015 article, the ruling of the 21st December 2.015 the BBC article quotes is not the first and most certainly not the last. It is in fact one more in a long string of positive Supreme Court rulings which clearly favor consumer interests (off-plan buyers). Again please note I do not use the term ‘investor’. Moreover, I concluded stressing in my article the strong pro-consumer bias the Supreme Court has manifested in its rulings. These rulings set jurisprudence, meaning lower courts are bound by them.

To close, I would like to mention I do not know where the catchy headline of “100,000 UK investors” being owed payouts comes from; but frankly I would be highly surprised if even a tenth qualifies. This figure seems way over optimistic to my mind.

Unfortunately, after my positive spin, comes the reality check.

The Damper

Despite the warm fuzzy tone the BBC article exudes, the road to recover off-plan deposits is long; it is by no means a cakewalk. First of all, banks are not going to roll over handing payouts left, right and centre to Britons. Anyone expecting that is naïve and simply deluding themselves.

Knowing lenders, they are going to put up one heck of a fight, Supreme Court rulings or not. Anyone expecting a payout as in the UK with the PPI scandal is in for a sore disappointment. I am certain it hasn’t even crossed Spanish banks´ minds to set aside billions of pounds, unlike their UK counterparts, for these payouts.  And there are multiple reasons for it which I go on to explain.

Banks will make use of the legal defence developers had to counter claims as they are in fact in the same legal position. In my 2.008 litigation article I gave a list of ten reasons why your case could be thrown out of court. I will list some of them below:

  1. You can only litigate if you legally terminated (or cancelled) the off-plan purchase contract before a developer attained what is known as a Licence of First Occupation. The reasons to excercise a cancellation must have been a serious breach of contract not a whim i.e. the property was being delivered significantly after the contractually binding date for completion. If you did not cancel your contract legally before a LFO was attained your case is doomed, period. It is almost guaranteed the judge will rule against you. It doesn´t matter if the property was completed properly at a later date (with LFO issued) so long as the off-plan buyer terminated the contract legally before the developer attained a LFO.
  2. Only consumers or buyers of good faith qualify for a payout. Investors are expressly ruled out. Hence why I give so much importance above to the terms that are used. This is explained because in Spain Consumer law is very protective. The European Court of Justice (ECJ) has done a sterling job as well over the last years protecting consumers at large from abusive contract terms (i.e. mortgage-related claims on abusive mortgage clauses). On the other hand, the law takes for granted that investors are financially savvy and need no protection so they are excluded from the benefits offered by Law 57/68 (bank guarantees law). So who qualifies as an investor in the eyes of a Spanish judge? An off-plan buyer that buys several properties with the intention of reselling them at a higher price will be seen as an investor (i.e. also known as ´flipping´ properties which was very popular and lucrative at the height of the property bubble). E-mails sent to your estate agent claiming you are looking for an attractive investment with high potential (rental) yields can also be construed as that of an investor. Bottom line, the language, the number of properties bought and the use you are going to give the properties is relevant to be qualified as an investor or not.
  3. Lenders must have been ‘aware’ the funds deposited with them were destined to buy an off-plan property in compliance with terms of law 57/68.
  4. To claim successfully a refund, an off-plan buyer must be able to supply to a law court prove of having made ALL stage payments (including the initial reservation deposit that strikes the property off the market). Any money that cannot be proved to have been deposited with the bank can simply not be claimed back. In the past there have been serious issues on wiring funds overseas using intermediary companies (i.e. currency forwarding companies or even real estate agents’ accounts) grouped transfers for economies of scale (to get better exchange rates) and it is nigh impossible to prove part of those funds belong to a given client. Many cases have been dismissed at court because lawyers were unable to prove that part of those bulk transfers belonged to their client. Obviously this is not an issue when Mr. Smith, for example, wired his funds from his account at Barclays UK over to Cajasur Spain. Also it may prove challenging for some buyers to retrieve bank records of transfers that were made well over a decade ago.
  5. The statutory limitation is 15 years as from the time the first payment was made. Some cases will now be time-barred i.e. those who bought in 2.001 or before.
  6. Losing a court case in Spain means the case cannot be considered again.
  7. Losing may also mean that you are liable to pay the lawyer’s fees, procedural costs and legal interests of the OTHER party (besides your own set of legal fees). So when someone cold-calls you offering you litigation on a ‘no-win, no-fee’ basis that sounds too-good-to-be-true make sure you are not getting a raw deal. Because even if you do not end up paying the legal fees of your own lawyer as plaintiff, you may be forced by the court to pay the legal fees, procedural costs and legal interests of the defendant (the bank). And banks have a notorious penchant for hiring expensive lawyers.
  8. As mentioned above, lenders are not just going to roll over allowing buyers to walk all over them demanding huge payouts. In all likelihood they will follow an attrition war that in their eyes will hopefully prove too expensive and time-consuming for a plaintiff leading them to throw the towel eventually. You can expect protracted litigation that will drag on for several years. Do not expect a swift out-of-court settlement on this matter – won’t happen.

Practical example on who qualifies for litigation now; what has changed

As a case in point, and to avoid esoterics, I put forward a practical example:

Mr and Mrs Fatebringer set down a deposit to buy off-plan property in Spain in 2003. They wire over funds from a UK account under their own names over to a (Spanish) bank designated by the developer in their Private Purchase Contract. No bank guarantees were handed over to the couple safeguarding their deposits as would be mandatory under the provisions of law 57/68. For whatever reason the development is never completed (i.e. Building Licence is not forthcoming). The developer eventually goes under and files for creditor protection (insolvency).

  • Situation pre-Supreme Court rulings

 

 Lawyers would have advised the couple that no legal action could be taken against the bank as lenders are not responsible for handing over bank guarantees (that is the developer´s duty). Such cases were quickly dismissed by judges at the time. Lawyers will have also advised them not to take action against a developer teetering on the brink of bankruptcy as in all likelihood all its assets are frozen or legally seized (lawyers would have verified this point). Bottom line, this couple will have lost all the savings (stage payments) they paid into the Spanish bank. Litigation was pointless as it was a case of throwing good money after bad. Normally off-plan deposits equated to approximately 40% of the value of a new-build property; a substantial amount.

  • Situation post-Supreme Court rulings

 

 Following new jurisprudence from the highest court in the land, Mr and Mrs Fatebringer may now take legal action, despite never been handed a bank guarantee, directly against the bank that held their funds. They have a window of 15 years as from the first payment (which was in 2.003). It is likely the bank will fight them off in court but will lose eventually. To qualify for a payout the couple must comply with the points I lay above under the heading ‘The Damper’.

Conclusion

Litigation is a serious matter and should not be taken light-heartedly. Reckless litigation offered by ambulance chasers often leads to expensive legal bills.

Shop around, look for a reputable litigation law firm that has experience and request a preliminary assessment on your matter to determine success odds (fees may apply). A case-by-case approach ought to be taken, there are no one-size-fits-all solutions. Be wary of law firms claiming to guarantee 100% litigation success rate – no such thing exists. The outcome on legal procedures is always uncertain and caution is key.

All things said, the litigation prospects for thousands of off-plan buyers, who were previously barred from litigation, is looking brighter than ever. The success odds have dramatically improved through the recent actions taken by Spain’s Supreme Court. Thousands of property buyers now, for the first time, stand a good chance at court to recover all their monies plus legal interests if they are resolute and committed to success.

The gates of reckoning stand open, for now.

Trust, like reputation, is hard to earn, but easy to lose.

 

Larraín Nesbitt Lawyers, small on fees, big on service.

Larraín Nesbitt Lawyers is a law firm specialized in conveyancing, inheritance, taxation, and litigation. We will be very pleased to discuss your matter with you. You can contact us by e-mail at info@larrainnesbitt.com, by telephone on (+34) 952 19 22 88 or by completing our contact form.

Legal services Larraín Nesbitt Lawyers can offer you

 

Related articles

 

Please note the information provided in this article is of general interest only and is not to be construed or intended as substitute for professional legal advice. This article may be posted freely in websites or other social media so long as the author is duly credited. Plagiarizing, whether in whole or in part, this article without crediting the author may result in criminal prosecution. VOV.

2.016 © Raymundo Larraín Nesbitt. All rights reserved.

 

... Read more

Limiting Liability in Spain

Raymundo Larraín Nesbitt, November, 8. 2015

By Raymundo Larraín Nesbitt
Lawyer – Abogado
8th of November 2015

Photo credit: Flickr.

Following up on last month’s article, Filing for Personal Bankruptcy in Spain (popularly dubbed as ‘Second Opportunity Law’), I have written this other one which aims to delve further on the matter and gives a few pro tips on how to limit one’s own personal liability should things pan out the wrong way.

The topic of this article will be the mitigation of personal liability on trading. I will gloss below over the main legal changes. I won’t include traditional legal solutions, such as traders incorporating limited liability companies, as they are more than covered elsewhere.

Introduction

After eight years of severe recession, which has left in its wake five million unemployed and an anemic economy, it has dawned on many that the road to recovery passes through self-employment. Madrid’s central government has smelled the coffee and is busy spreading the gospel on passing new laws to incentivize entrepreneurship.

To better grasp the extent and scope of the new reforms I am forced to sidetrack and make a brief historic recap on personal liability. Traditionally Spain’s legislation has been anything but lenient on self-starters. The outdated nineteenth-century regulation on personal liability is found in both Spain’s Civil Code (S.C.C.) and Mercantile Code and is punishing compared to the modern take of fellow EU countries.

Article 1911 of the S.C.C. stipulates the liability of a private person is personal and unlimited, liable with all his assets now and in the future. Put simply, it institutes unlimited personal liability. If to this you add that effectively (*) there are no statute of limitations on mortgage-backed loans (the most frequent type of asset-based loan employed to fund startups in Spain) you have a potent recipe for disaster as it allows creditors unfettered access to borrower’s assets (current and future). Article 6 of the Mercantile Code rules likewise on the liability of married sole traders.

(*) Whilst it is true the S.C.C. rules the statute of limitations is twenty years on mortgage-backed debts the fact is this time frame can be renewed at any point from scratch making it, in practice, non-time-barred. A pristine example of a nineteenth-century anachronistic bias in favour of lenders.

It is generally accepted that only 50% of businesses survive the first year and of these 90% fail within the following five years. Stigmatizing young entrepreneurs who fail by socially branding them as financial pariahs is obtuse and short-sighted. Failure is required to succeed and laws in Spain should exercise a higher degree of flexibility allowing businesspersons to recover financially from mistakes within a reasonable timeframe i.e. five years; life is not black or white. Failure and success are intimately entwined. Oftentimes only through multiple blunders does one achieve success as it follows a series of trial and errors. Success is a by-product of failure.

It is counterproductive to place a lifetime financial millstone on entrepreneurs who fail with rolled-up interests to boot creating a debt spiral of which there is no escape. A business failure in Spain means you won’t (normally) get a second chance as personal liability is unlimited and in most instances not subject to a statute of limitations. This creates a perverse incentive NOT to start your own business and rather play it safe by working for someone else. I simply cannot stress enough how wrong and detrimental this is to the broader economy. Lawmakers are sending out the wrong message: risk-taking is bad.

This goes on to explain why it comes as no surprise that most youngsters in Spain are reluctant to start their own companies (understatement). Speaking from personal anecdote, most of my foreign friends, especially American and British, had in mind setting up their own businesses early on from a young age. After having worked for others, learning the ropes of the trade, most took the leap of faith starting their own companies. In stark contrast, from all my Spanish acquaintances and friends only a small handful ended up setting a business. And of them, none went to college… One concludes grimly that the more educated you are in Spain, the less inclined you will be to start your own business out of fear of failing; which is simply crazy and a perfect good waste of human talent. Squandering talent is an opportunity cost a modern economy can ill afford if it wants to stay ahead in the game and be competitive.

What makes countries’ economies powerful and vibrant are young, and not-so-young, businesspeople willing to put at stake their own assets to create a new business venture in pursuit of a dream. It is in my opinion a risk-taking mentality which drives economies forward and make countries great in their own right i.e. U.S. or U.K.

To further this purpose, governments, politicians and lawmakers at large should enable this by paving the way, cutting through unnecessary red tape and streamlining procedures for entrepreneurs to succeed. For it is these who will create jobs and push the economy forward, not the state. Governments will then be able to reap the profits through non-confiscatory tax collection and reallocation of resources where necessary.

Governments should at no time undertake the responsibility of job creation which must be left to the private sector. Laws do not create jobs. Unfortunately in Spain, this has not been the case historically and regulation is heavily biased towards lenders which act detrimentally to those seeking to start their own business and who refuse to rely on government handouts. The majority of young people starting out in Spain unsurprisingly harbour no ambition of creating their own business and seek working for someone else; preferably in the public sector as civil servants (mainly because they cannot be dismissed and income is guaranteed).

A prolonged eight-year recession has – fortunately – managed to break the gridlock and change this herd mentality. Faced with bleak job perspectives qualified young Spaniards are migrating in mass abroad (the UK being the favourite hotspot). Those who have not flocked abroad have been ‘forced’ to set up their own business in Spain as it has dawned on them they can no longer afford to wait sine die to find a job.

Moreover, Spain’s central and regional governments have wisely taken this on board and are busy toning down the administrative maze by helping entrepreneurs cut through the red tape, removing legal hurdles, subsidizing them or even going as far as cutting their losses by means of limiting their personal liability on trading debts on approving new legislation.

It is in one of these new laws, and its impact on personal liability, I will now centre on.

Law 14/2013, of 27th of September, in Support of Entrepreneurs

Law 14/2013 goal is to incentivize and foster an entrepreneurial mentality on introducing a batch of measures. It has been popularly dubbed as the ‘Golden Visa Law‘.

For this article’s sake, I will only focus on the single measure which arguably mitigates personal liability following Art. 8: by creating a legal mesh on a trader’s main home shielding it against creditors.

This law also creates the figure of a ‘Limited Liability Entrepreneur’ or ERL for short.

An entrepreneur, or ERL, can now protect his main home from creditors in Spain providing all the following criteria are met (this is not an exhaustive list):

• Property must be his main home (therefore, by definition, an entrepreneur must be resident in Spain to benefit from this protection).
• Property’s value cannot exceed €350,000 or €450,000 in cities with over one million inhabitants. This value is attained by multiplying the cadastral value by the local Tax Office’s coefficient. More on how to calculate this in my article La Complementaria or Bargain-Hunter Tax (under the heading ‘Pre-Emptive Measures’). It should be noted that this value is effectively well below the market value of a property.
• Lodge ERL status at both Land and Mercantile Registries.
• Debt-protection wards only against credits linked directly to trading activities.
• Detailed accounting must be lodged at the Mercantile Registry year-on-year. Failure to comply (lodge the accounts) within a given deadline (seven months as from fiscal year end) causes immunity loss in favour of debt-collection agencies.

Extent of liability: fully discharged*. Main home cannot be subject to creditor action i.e. it is embargo-free. The Land Registrar will now turn down any application (derived from trading activities) to embargo a legally earmarked property.

*Exception: Non-trading debts. Debts in the hands of public authorities, such as the Tax Office or Social Security, are still subject of action on the designated property i.e. embargoes.

Effects: as from the 29th of September 2.013.

What does this mean?

Put simply, it means the law, for the first time in well over a century, allows businesspersons to protect their main house from business debts. If a trader fulfils the requisites laid out above he can effectively create a legal firewall that insulates his property against claims arising from trading debts. Creditors are barred from seizing his main home to auction it off and recoup their debts. This is a first-timer.

What can a lawyer do for you?

Following this new regulation, a lawyer can weave a protection on your main home cocooning it against creditors. A failing business venture no longer need translate to businesspersons losing their main homes to creditors.

Conclusion

This law is a step in the right direction. Its overarching effort is commendable as it manages to single-handedly dent a legal monolithic block (unlimited personal liability) which had been widely accepted as immutable for well over a century; perhaps in due time this crevice will be expanded upon by other modern laws. Although these changes, viewed from Main Street, may seem altogether trivial, from a legal perspective they are a huge leap qualitatively; nothing short of a legal breakthrough or inflection point on personal liability.

However, I feel compelled to level a few criticisms. For starters the benefits (strictly from a personal liability mitigation point of view) are paltry compared to the array of new obligations it sets forth to fulfil the law’s protection. In other words, it is jarringly one-sided as the protection offered is scant compared to the number of responsibilities one must comply with to take advantage of it. Almost to the point of much ado about nothing, but ultimately not quite.

Another obvious criticism, aside from having only one measure to mitigate personal liability, is that it sets a value on the main dwelling which, to top it off, is not that high for Spanish standards. Perhaps it would have been wiser not to establish any value at all on a main house or at the very least set a much higher figure i.e. €1,000,000.

Additionally, what happens in cases when the property is held under joint names? Does the law protect only the share on the property that belongs to the partner which trades or both? What happens in cases where partners do not have separation of assets but a community of goods (co-ownership)? Does the other partner need to expressly consent this benefit or else is it over understood as it benefits them too? Many questions arise that can only be replied to by judges through rulings.

Still, despite its flaws and shortcomings, this law is better than nothing and must be welcomed. Kudos to lawmakers. There is still a lot of work to be done by ironing out pesky regional inconsistencies and building upon this legal breach to widen the gap and help self-starters to be up on their feet sooner; and most certainly not to pillory entrepreneurs financially for the remainder of their lifetime on having tried and failed.

From a practical point of view, leaving esoterics aside, this law translates into entrepreneurs sleeping at night soundly in the safe knowledge that their main dwelling is legally ring-fenced and cannot be embargoed or repossessed on the back of trading debts; particularly assuaging to those with underage children or who are single parents.

Failure is so important. We speak about success all the time. It is the ability to resist failure or use failure that often leads to greater success. I’ve met people who don’t want to try for fear of failing.” – J.K. Rowling.

British novelist best known as the author of the Harry Potter fantasy series. Single parent high-achiever.

Larraín Nesbitt Lawyers, small on fees, big on service.

Larraín Nesbitt Lawyers is a law firm specialized in inheritance, conveyancing, taxation and litigation. We will be very pleased to discuss your matter with you. You can contact us by e-mail at info@larrainnesbitt.com, by telephone on (+34) 952 19 22 88 or by completing our contact form.

Related articles

 

Please note the information provided in this article is of general interest only and is not to be construed or intended as substitute for professional legal advice. This article may be posted freely in websites or other social media so long as the author is duly credited. Plagiarizing, whether in whole or in part, this article without crediting the author may result in criminal prosecution. No delusional politicians or elephants were harmed on writing this article. VOV.

2.015 © Raymundo Larraín Nesbitt. All rights reserved.

... Read more

Supreme Court Rulings on Bank Guarantees

Raymundo Larraín Nesbitt, April, 8. 2015

By Raymundo Larraín Nesbitt
Lawyer – Abogado
8th of April 2015

 

Introduction

It has rained a lot since I first wrote my article on bank guarantees on the 12th of November 2008. At the time of writing it the property bubble had just collapsed and we were witnessing a tidal wave of litigation against failing developers. The property honeymoon, which lasted over eight years, had come to an abrupt end. Credit dried-up almost overnight with the banking crisis that originated in America’s sub-prime market leading us to an unprecedented global credit-crunch which aftermath we are still enduring.

When lenders pulled the plug they left property developers on free fall; reeling developers scrambled to makes ends meet and complete pending developments. Buyers, investors and property flippers in general frantically pulled out in baying hordes escaping a falling house of cards. The musical chairs game was over. Scores of off-plan buyers, which had purchased off-plan property in good faith, found themselves trapped in the ensuing mayhem. Most, not all, had their stage payments guaranteed by a safety net known as ‘Bank Guarantees’ which are ruled by Law 57/68 (for further in-depth information on what bank guarantees are, please read my revamped article Bank Guarantees in Spain Explained with an Example Document, from the 8th of April 2013).

Conveyance lawyers found themselves swamped left, right and centre by clients trying to execute bank guarantees as developers were teetering on the verge of bankruptcy with developments being stalled with no realistic hope of completion post-credit-crunch. However on trying to execute these, theoretically a straightforward matter, we found that we were forced to litigate against insurance companies and lenders which had guaranteed buyer’s new-build deposits despite Law’s 57/68 clear wording.

The legal outcome of these litigation cases in first hearings were a mixed bag, to say the least, although most were won at second hearings (on appeal). A few cases were appealed to the Supreme Court, which is Spain’s highest court of law. These appeals take on average several years to be heard (five plus). The Supreme Court’s rulings bind all lower courts in the land as they set jurisprudence when a string of two or more rulings rule on a particular matter in an identical manner.

Seven years on the Supreme Court has now had the opportunity to release very interesting pro-consumer rulings on bank guarantees that are both protective and positive to off-plan buyers’ interests. The purpose of this article is to update what I had previously written on the matter in light of the recent high court rulings which open up new venues for litigation to off-plan buyers, irrespective of whether they were handed or not a bank guarantee; it no longer matters as I explain below.

EDIT July 2016: It is advisable this article is read in tandem with this other one:

Off-Plan Bank Guarantees and Supreme Court Rulings – Payback Time – 8th June 2016

Bank Guarantees – Definition

Bank guarantees are a legal tool devised to secure off-plan buyer’s stage payments (including the initial reservation deposit that strikes the property off the market) should a property not be delivered on time or should a developer file for bankruptcy.

A bank guarantee may take the form of an insurance policy or an ad hoc bank guarantee to safeguard buyer’s anticipated deposits until a property is built and deemed to be legally completed and fit for human habitation (when the planning department of a town hall issues what is known as a Licence of First Occupation, LFO for short).

Following article 4 of Law 57/1968, bank guarantees only become null and void when two conditions are met:

1. As from the time a developer attains a Licence of First Occupation from the town hall’s planning department.

2. The developer makes the new-build property available to a buyer (as in physically handing it over to him).

Artículo cuarto

Expedida la cédula de habitabilidad por la Delegación Provincial del Ministerio de la Vivienda y acreditada por el promotor la entrega de la vivienda al comprador, se cancelarán las garantías otorgadas por la Entidad aseguradora o avalista.

Bank Guarantees – Legal Overview

It is compulsory for developers to hand out bank guarantees to off-plan buyers to safeguard their deposits acting as a safety net. These obligations derive from two regulations:

I.    Law 57/1968, of the 27th of July of Anticipated Deposits paid in the Construction and Sale of Properties (popularly dubbed as the “Bank Guarantee law”).

II.    First Final Disposition of Law 38/1999, of 5th of November of Construction (Spain’s Building Act). This law amends Law 57/68; a buyer can claim his full deposit plus legal interest (but not the 6% interest that Law 57/68 mentions; this has been overruled by this new law).

 

Supreme Court Rulings

 

The following Supreme Court rulings are relevant because they establish pointers that change and shape the way we have known bank guarantees to work in practice. These rulings set jurisprudence, meaning all lower courts are bound by them.

•    STS 499/2013

Establishes that handing a bank guarantee is regarded as an essential element in an off-plan purchase providing two elements are met:

i.- The property isn’t finished yet; still under construction.
ii.-The property is not apt to be handed over and dwelled i.e. no Licence of First Occupation has been attained.

Handing a bank guarantee is essential to the point that is considered as just cause to cancel a Private Purchase Contract in its own right on non-compliance ex article 1.124 of the Spanish Civil Code (SCC, for short). Failure of a lender or insurance company in not handing them out allows a buyer to legally withdraw from the contract by cancelling it and claiming back his deposit plus all interests due in full (accrued up until the time he is effectively refunded the anticipated deposits).

Before these rulings it was unclear on whether a bank guarantee was regarded as an essential element of the contract with enough entity unto itself to actually justify suing for cancellation exclusively on the grounds of a lack of bank guarantees.

In my litigation article (first published in 2008), Ten Reasons Why Your Case Against a Developer can be Thrown out of Court in Spain, I specifically mentioned as the sixth point not to litigate on grounds of a lack of bank guarantee as the case could be dismissed (based in litigation experience). In light of the recent Supreme Court rulings this advice no longer holds true and one can indeed litigate against a lender requesting a full refund of deposits despite there being no bank guarantee. Additionally one can terminate an off-plan purchase if no bank guarantees are supplied by a developer.

Other like-minded Supreme Court rulings: SSTS 25th of October 2011, rec. 588/2008, 10th of December 2012 2012, rec.1044/2010, 11th of April 2013, rec.1637/2010, and 7th of May 2014, rec. 828/2012.

•    STS 2391/2014

The insured amounts are the full amounts understood as the initial reservation deposit you pay at the estate agency plus all the anticipated funds prior to completion at the Notary Public. The reason on why this is relevant is because even if an insurance policy or a bank guarantee stipulate that the amount guaranteed is less than what was actually paid by the buyer the Supreme Court upholds that it is in fact the full anticipated amount paid up until the time of completion that is guaranteed; in other words, all the monies paid prior to completion at the Notary Public. This is a consumer right enshrined by article 7 of Law 57/68.

This is particularly relevant because often lenders or insurance companies actually guaranteed less than what was actually paid for by a buyer. So there were nagging doubts on whether the full amount could be claimed upon (plus legal interests) despite the restrictive wording of some bank guarantees. Moreover even if a buyer agrees, for whatever reason, to have insured an amount which is less than what he’s actually paid for the Supreme Court considers that a buyer cannot waive his consumer rights enshrined in Law 57/68 and regards any such agreement as null and void

Other like-minded rulings: SSTS of 3rd of July 476/2013, rec. 254/2011, and 25th of November 2014, rec.1176/2013.

•    STS 275/2015

Following article 2 of Law 57/68 it is the exclusive obligation of a developer to place all the anticipated funds received by off-plan purchasers in a special account that the developer must open ad hoc.

In accordance with article 7 of Law 57/68 it establishes that it cannot be imposed on a buyer to deposit these anticipated amounts in a special account. In other words the full refund of off-plan deposits to a buyer cannot be conditioned to the fact that a buyer has deposited said amounts in a special account as it is exclusively the developer’s obligation; not a buyer’s.

•    STS 426/2015

It makes it clear that a breach of article 1.2 of Law 57/68 (handing a bank guarantee to an off-the-plan buyer) has a statutory claim period of 15 years ex article 1.964 of the Spanish Civil Code. The limitation period used to be less.

The relevance of this is that buyers who purchased off-plan and were never given a bank guarantee can now claim their deposits from the lender where the monies were being paid into. Regardless of whether their developer is already under insolvency proceedings or not; it doesn’t matter. In other words, off-plan buyers would be claiming from a lender which – presumably – has money; not from a bankrupt developer. The timeline to do this is 15 years to be counted as from the time the deposits aren’t refunded on grounds of a lack of bank guarantee. I know for a fact many people are caught in this dire situation.

•    STS 429/2015

This ruling makes it clear that a buyer can sue a lender, or insurance company, first without having to sue a developer as a pre-requisite. They are all jointly and severally liable for the breach. The significance of this is that when we sued a lender or insurance company they would oppose at court that the developer had to be sued first. The Supreme Court now establishes that this is no longer needed and that litigation lawyers can sue lenders or insurance companies without any need to sue a developer first. This is relevant because most developers are on the brink of insolvency (if not bankrupted already) so what’s critical is to chase the party that has funds and is able to refund a buyer in full.

Other like-minded Supreme Court rulings: SSTS 3rd of July 2013, rec. 254/2011 and 2391/2014 of 7th of May 2014, rec. 828/2012.

 

Special Focus on Off-Plan Buyer’s Cancellation Rights

 

Rulings 2391/2014 and fundamentally 429/2015 are pivotal as they introduce a major milestone regarding contract cancellation. They make it clear that any and all off-plan purchase contracts subject to Law 57/68 are out with the scope of article 1.124 of the Spanish Civil Code (which rules on contract cancellation due to breach of contract and applies to all civil contracts in general). These new rulings break the line of jurisprudence established by the Supreme Court (STS of 9th of June 1986) which construed article 3 of Law 57/1968 (new-build contract termination).

Article 1.124 of the Spanish Civil Code required in off-plan contracts that a contractual breach was studied carefully to ascertain whether a breach was regarded as important or not. If it actually frustrated the goal pursued in the contract itself (‘frustración del fin contractual’). This required that lawyers reasoned with great care why terminating a new-build contract was justified – this is no longer the case.

The Supreme Court has performed legal microsurgery extricating Law 57/68 from the sphere of action of article 1.124 of the SCC. The change is extraordinarily relevant from a legal point of view (nothing short of groundbreaking). Up until recently lawyers recommended that a buyer had to wait a ‘reasonable’ time after the date set in the Private Purchase Contract (PPC) to complete to sue for breach of contract. The Supreme Court’s jurisprudence establishes that off-plan purchase contracts subject to Law 57/68 now work as automatic contractual resolutions. There is no longer a need to justify in a lawsuit if the breach is relevant or not as it operates automatically. The most common breach is when a developer delivers a property late; after the date set in the PPC.

In my litigation article from 2012, Ten Reasons Why Your Case Against a Developer can be Thrown out of Court in Spain, I advised would-be litigants on my first point that they should wait prudently at least six to nine months after the contractually scheduled delivery date of a property to sue for breach of contract and demand a full refund of their deposits (plus interests). This was done so that a law court did not dismiss the case ab initio without even examining its merit, as was the case in 2008.

The relevance of this change in criteria by the Supreme Court, and other recent like-minded rulings, is that off-plan buyers are no longer required to wait a prudent timeline before terminating their off-plan contracts. They can in fact litigate as from the very next day set in the Private Purchase Contract to deliver the property. Providing they do so in good faith, which the Supreme Court regards as essential to balance the opposing interests of both parties to the contract.

E.g. an English couple buy a two-bedroom off-plan property in 2015 with a delivery date in the PPC set as the 4th of August 2017. If the property is not ready by the 4th of August 2017 they can terminate the contract and request a full refund of their deposit plus interests on the following day. Before this major change this couple would have had to wait to at least February/April 2018 before terminating their contract besides having to justify in great detail the contract cancellation so that a judge approved it.

Whilst this may seem rather one-sided in favour of buyers, it is in fact tempered by article 3 of Law 57/68 which allows developers to cancel a PPC and sue a buyer for non-performance when they skip or pay late just one stage payment in an off-plan purchase in tandem with article 1.504 of the SCC. The Supreme Court understands it is not lopsided as there is equilibrium to both opposing interests in Law 57/68; they can both resort to an automatic contractual resolution given the case.

Personally I would take this with a pinch of salt. The ‘good faith’ limitation on exercising a buyer’s automatic cancellation right introduces a grey area that is fairly relevant. Having acted on behalf of developers I can clearly see how a developer’s lawyer can drive a wedge, and latch onto it, modulating or exploiting it in a developer’s interest by creating a shadow of a doubt in a judge’s mind.

Bullet Points

The following pointers can be gleaned from the above Supreme Court rulings.

• Bank guarantees are regarded as an essential contractual element in off-plan purchases. If none are supplied by a developer, a buyer can resolve a contract and demand full refund of his stage payments plus interests.
A buyer can still sue a lender for his deposits even if no bank guarantee was handed over (joint liability of banks).
• Bank guarantees only expire upon meeting two conditions: when a Licence of First Occupation is attained by a developer and when the developer is able to hand over the property to the buyer. Expiration dates on bank guarantees are null and void.
• It is the exclusive obligation of a developer to open and set up a special account where all stage payments will be deposited for safekeeping interim the building process.
• 15-year limitation period to file a lawsuit (statute of limitations).
• The insured amounts are all the anticipated deposits (stage payments) paid by a buyer prior to completion (including the initial reservation deposit paid to the estate agent) regardless of the amounts secured in a bank guarantee’s wording (which may be less).
• An off-plan buyer cannot waive the consumer rights enshrined in Law 57/68. And even if he does agree to waive them, the agreement is considered null and void.
• Developers and lenders (or insurance companies) are jointly and severally liable for safeguarding a buyer’s anticipated deposits (stage payments). Meaning a buyer can sue a lender or insurance company first without any need to sue a developer beforehand and be forced to wait for the outcome (as most developers are bankrupt nowadays). This significantly cuts down litigation time and ensures a refund as lenders or insurance companies have liquidity or else they would not be trading (subject to supervision by regulatory bodies that ensure minimum liquidity ratios).
• Any extension to the scheduled delivery of a property set in the PPC requires a written addendum that a buyer must sign in agreement. It does not suffice that one is notified of the extension; it must be signed by the buyer.
• A buyer can terminate the contract on the following day stipulated in a PPC as the scheduled delivery date of the property (automatic contractual resolution) in the event of late delivery. The developer must be formally notified (by recorded delivery). It is imperative this is done in good faith; otherwise the cancellation may be dismissed by a law court.

Spain’s Supreme Court Rulings on Bank Guarantees – Conclusion

The gist of this article is to highlight Spain’s Supreme Court sensitivity towards off-plan buyer’s plights. Its rulings are remarkably pro-consumer in off-plan purchases and are setting the stage for lower courts in future litigation. This is very promising and welcome news for new-build buyers wishing to litigate on grounds of a Law 57/68 breach. Even in cases where a bank guarantee was never supplied a buyer can still sue for a full refund of his deposit plus legal interest providing the 15-year statutory limitation has not elapsed.

Law 57/1968 is a pre-constitutional law that is now forty seven years old. It was widely held as ‘revolutionary’ at the time as it pioneered consumer rights in Spain when these were not regulated by law (Spain was still under a dictatorship). Five decades on it is undeniable that it is in urgent need of a reform given the importance the construction sector has in Spain’s overall economy and the widespread predominance of consumer rights which are prevalent in modern democratic societies.

Lawyers exist to protect us from other lawyers.

 

Larraín Nesbitt Lawyers, small on fees, big on service.

Larraín Nesbitt Lawyers is a law firm specialized in conveyancing, taxation, inheritance, and litigation. We will be very pleased to discuss your matter with you. You can contact us by e-mail at info@larrainnesbitt.com, by telephone on (+34) 952 19 22 88 or by completing our contact form.

 

Legal services Larraín Nesbitt Lawyers can offer you

 

Related articles

 

Please note the information provided in this article is of general interest only and is not to be construed or intended as substitute for professional legal advice. This article may be posted freely in websites or other social media so long as the author is duly credited. Plagiarizing, whether in whole or in part, this article without crediting the author may result in criminal prosecution. VOV.

2.015 © Raymundo Larraín Nesbitt. All rights reserved.

... Read more

Tenant Eviction in Spain

Raymundo Larraín Nesbitt, June, 8. 2014

What do you do if your tenants stop paying the rent? Regular contributor Raymundo Larraín Nesbitt gives a sweeping legal overview on evicting tenants in Spain, emphasising the pro-landlord change of trend in recent court rulings and legislation.

By Raymundo Larraín Nesbitt
Lawyer – Abogado
8th of June 2014

 

Original article from December 2.007

 

Introduction

Spanish judges are increasingly ruling more and more pro-landlord. More significantly, the introduction of new game-changing laws, such as Law 4/2013 of Measures to Increase the Flexibility and Foster the Rental Market described further below, have supplied the legal tools with which to bolster the defense of landlord’s interests.

It has finally dawned on the Government, and society at large, that steps needed to be taken to ensure and protect landlord’s interests so as to foster a dynamic letting’s market. As I have extensively covered in previous articles over the last decade, Spain’s rental market is chronically sluggish in stark contrast to fellow European countries which boast a booming mature letting market for all the right reasons (i.e. The United Kingdom). I like quoting the statistic that only 17% of Spain’s properties are rented as opposed to the European Union’s 30% on average. This figure clearly shows better than any other Spain’s national obsession with property ownership ranking only second to football; and frankly I’m not entirely sure on the latter.

Landlords are understandably reluctant to rent out properties in fear of Spain’s clumsy and protracted eviction laws that place tenants at the heart of their interests neglecting the former. This may have been amply justified fifty years ago when tenants were indeed the weak link in a torn society coming to terms with itself after a crude civil war, but this doesn’t hold up a candle in today’s world.

Protecting Landlords

Make no mistake, landlords are the weak link when it comes to rental in Spain; they are by a long shot the ones needing all the legal protection they can muster in today’s deceptive world. Non-paying tenants cause severe consequences to landlords which may even lead to a bank repossession as many are reliant on the rental to cover the mortgage instalments.

Broadly speaking landlord protection can be achieved twofold; both privately and publicly.

Privately, it requires the landlord to proactively adopt a series of measures to bolster and reassert his rights. This is covered in the below section “Renting in Spain Successfully”.

Publicly, it requires a concerted effort from all government institutions and factual powers to make it happen. This is covered in the below section “Tenancy Legal Framework”.

A lawyer can help a landlord on both counts.

A. Renting in Spain Successfully

Without going into detail a landlord may adopt the following measures, abetted by a lawyer, to pre-empt letting problems (chiefly non-paying tenants):

  1. Tenant vetting. Prospective candidates ought to be carefully screened to weed out unsuitable profiles. Haphazard screening can only spell future problems
  2. Arbitrage Clause
  3. Rental Insurance
  4. Rental Bank Guarantee
  5. Lodging the Tenancy Agreement at the Land Registry

The above-listed tips are already elaborated in detail in a specific article I wrote on the matter: Letting in Spain: The Safe Way. On pro-actively following these simple pointers, dictated mainly by common sense, a landlord ensures himself a sharp increase in the chances of successfully renting out his property hassle-free.

B. Tenancy Legal Framework

Urban Rental laws compromise a general backbone, constituted by Law 29/1994 or LAU for short, which in turn is constantly being fleshed out by newer laws. These new stream of laws introduce significant nuances to the point of changing the rules of engagement.

1. Law 29/1994, of 24th November

Spain’s Tenancy Act, or LAU, lays out the general legal framework for all rental contracts in Spain drafted after the first of January 1995. This law sets out the legal obligations for both landlord and tenant. The law is skewed towards tenants but less so than the laws it superseded.

2. New Laws

The Government has finally smelled the coffee and has been busy enacting batch after batch of new laws to bolster and uphold landlord’s rights since the ‘recession’ began in 2008. The initial set of laws proved reasonably ineffective in practice as they constituted half-hearted attempts which barely dented the existing status quo. The Government probably thought optimistically it would be a short-lived recession and the changes were more of a cosmetic nature geared towards making the headlines and wooing a growing discontent electorate than attempting to make a real change. However as the recession persistently endured over time, biting deeper into society’s core, it soon became evident that more decisive laws were required. And so newer laws proved to be more adept at streamlining eviction proceedings; resolutely addressing key issues which had traditionally held back fast proceedings. On average a tenant eviction is still taking three to nine months depending on how clogged a law court is.

The change in trend is evident, both from a technical point of view as well as by the unprecedented interest shown in the defense of landlord’s interests. The Government seeks in the protection of landlords a means to an end. By protecting landlords it seeks to foster a healthy rental market. The underlying logic is to gently nudge undecided property owners sitting on the fence and make them feel safer so they will be increasingly tempted to take a dip and become landlords.

The huge demand for housing (at an affordable price), besides a chronically sluggish rental market, goes a long way to explain the Government’s newfound interest in passing new laws that boldly attempt to address the matter for the first time by – ironically – protecting landlords as they hold the key (excuse the pun) to kick-start a more robust rental market. Although Spain currently has an oversupply of property it is not priced correctly to meet the huge latent demand for both rental and acquisition.

Examples of such new national laws are:

  • Law 19/2009 of Measures to Foster and Streamline Rental Proceedings
  • Law 37/2011 of Measures to Expedite Eviction Proceedings (so-called “Express Eviction Law”)
  • Law 4/2013 of Measures to Increase the Flexibility and Foster the Rental Market

 

The last bullet point, Law 4/2013, epitomises like none other the change in trend on how landlord’s problems are perceived by public institutions. This landmark law was purposefully devised and enacted to counter Spain’s chronically languishing rental market enabling the means to help it become dynamic in line with other more mature fellow European countries’. It introduces a bevy of legal novelties all of which can be read in detail in my article New Measures to Bolster Spain’s Ailing Rental Market, from the 30th of June 2013. Only time will tell if it achieved, or not, its self-declared goal.

New legislation, both national and regional, is increasingly becoming more proficient at tackling the real issues at hand that traditionally plagued landlords (i.e. protracted eviction proceedings). These have held back for far too long the development of a more mature rental market in Spain. This new wave of laws is setting the benchmark by making renting altogether safer, for both residents and non-residents alike, paving the way for a more vigorous and healthy letting market.

 

Landlord’s Not-To-Do List

 

Disgruntled landlords should at no time attempt to follow any of the below in Spain least the want to be remanded into custody and be the subject of criminal proceedings instigated by their own tenants. Besides, on following the below a landlord substantially weakens his own legal position in the event of an eviction procedure.

1. Shut-off utilities (water & electricity). Landlords often feel the urge of doing this on their tenant falling in arrears. Your tenant can report you to the police on shutting off the utilities. This may be labelled as either coercion or harassment or both. Your tenant can prosecute you criminally on doing this. So you may want to think twice before doing it. If the utilities are in the name of the landlord, and he stops paying them on purpose to mount pressure on a non-paying tenant, he can equally be prosecuted as it’s legally equated to the physical shut-off of utilities. The landlord will be forced to pay for all the expenses associated to reconnecting his property to the utility service (several hundred pounds) as well as paying the belated invoices and delay interests. For all the reasons outlined, this is not a recommended option. Moreover, it may expose a landlord to be included in a Debtor’s List (“Fichero de Morosos”).

2. Changing the locks or locking a tenant out. Same as above, it may be regarded as either coercion or harassment or both and you may be prosecuted for this.

3. Non-sanctioned tenant eviction. Landlords may feel tempted to take justice into their own hands and break-in their own property assisted by a square-jawed six-foot acquaintance as back-up. This is seldom a bright idea and may land you and your ‘friend’ in a Spanish jail for unlawful entry (trespassing). The only – legal – way to evict a non-paying tenant is to hire a lawyer and initiate a formal eviction procedure through a Spanish law court. New laws have been enacted to help speed up the eviction procedure i.e. Express Eviction law.

4. Entering a property on a ‘routine’ inspection. Although it may be highly tempting to take a quick peak from time to time, especially after a noisy summer party that kept the whole neighbourhood up until the wee hours of the morning, it is hardly a good idea. Landlords often cannot stand the fact they are forbidden from accessing their own property in Spain if it’s not without the prior – written – permission of their tenant. You simply need their permission, following Spain’s Tenancy Act, regardless if they are up-to-date or not with their let.

5. Throwing tenants’ possessions away or threatening them. Self-explanatory.

 

Conclusion to Evicting Tenants in Spain

The tide has finally turned in favour of landlords. After having spent years criticising how reactive laws and public institutions were in general towards the growing problem of non-paying tenants (specifically post-credit-crunch) the trend is clearly changing now. Landmark reforms such as 2013’s law are resolutely paving the way to streamline eviction procedures. Judges are now more receptive towards landlord’s plights and are taking a clearer stance defending them. Let us hope this marks the inflection point from which a new, more robust, rental market emerges in Spain.

To close, a lawyer can support you twofold; by both assisting you to pre-empt most tenancy issues as well as to oversee a tenant eviction procedure.

 

Larraín Nesbitt Lawyers, small on fees, big on service.

Larraín Nesbitt Lawyers is a law firm specialized in taxation, inheritance, conveyancing, and litigation. We will be very pleased to discuss your matter with you. You can contact us by e-mail at info@larrainnesbitt.com, by telephone on (+34) 952 19 22 88 or by completing our contact form.

 

Legal services Larraín Nesbitt Lawyers can offer you

 

Related articles

 

Please note the information provided in this article is of general interest only and is not to be construed or intended as substitute for professional legal advice. This article may be posted freely in websites or other social media so long as the author is duly credited. Plagiarising, whether in whole or in part, this article without crediting the author may result in criminal prosecution. VOV.

2.007 and 2.014 © Raymundo Larraín Nesbitt. All rights reserved.

... Read more

Spanish Creditors Pursuing Debts Abroad

Raymundo Larraín Nesbitt, May, 8. 2014

Spanish lenders are getting better at pursuing debts across European borders. Solicitor Raymundo Larraín Nesbitt gives a legal overview on how rulings from EU Member States can be enforced in other Member States on civil and commercial matters following either a European Enforcement Order (EEO) or Council Regulation EC No. 44/2001.

By Raymundo Larraín Nesbitt
Lawyer – Abogado
8th of May 2014

 

 

The European Enforcement Order (EEO) and Recognition and Execution of EU Member State Rulings (EC No. 44/2001)

I am always surprised by comments made by European non-residents regarding their sense of impunity on defaulting, for example, a Spanish mortgage loan agreement. Some debtors harbour the impression that Spanish creditors either cannot pursue their home countries’ assets or else that they will lack the necessary commitment to allocate resources and time to the task. Whilst this may be true in some cases (small amounts owed) the truth is that this is a serious error of judgement which may come back to haunt them for the remainder of their life. This blunder may stem from their lack of knowledge on how European legislation and its implementation work out in practice.

After the rampant property folly of the past decade, fueled by ultra-low interest rates and easy credit, it comes as no surprise that thousands of borrowers are struggling to make ends meet in Spain or even find themselves trapped in negative equity with Spanish real estate. This situation has been aggravated compounded by the strengthening of the Euro against other currencies (Sterling Pound), high levels of unemployment, 2008’s financial meltdown, post-credit-crunch (liquidity shortage; the lowest on record on a fifty-year period), falling property prices across the board and finally amid sovereign-debt concerns.

Scores of non-residents have been unwittingly caught by the above negative scenario in Spain and have decided to flee the country so as not to face their financial commitments. As a result they may now find their home assets jeopardised (even their main abode) under the threat of Spanish creditors actively pursuing debts abroad using European legislation.

Having in mind specifically British and Irish nationals, I’ve written this short article to explain just how a legal matter arising in Spain may affect you and your family’s assets back home. Examples of such are:

• Defaulting on mortgage loan instalments on a second home in Spain.
• Falling in arrears with your Community of Owners.
• Outstanding amounts owed to developers on buying off-plan property (forced completion).
• Unpaid personal loans.
• Pursuing negative equity abroad: post-auction shortfall on Spanish bank repossessed property.

I must add that recent Spanish lower court rulings (not legally binding) are increasingly reluctant to the idea of pursuing borrowers for negative equity following a social outcry on grounds of the unfairness of an alleged rigged procedural system biased towards lenders. Should this trend catch on by higher courts and become consolidated it may eventually put an end to pursuing negative equity abroad. In the interim UK courts may take into account these low court Spanish rulings on deciding whether or not to refuse an EEO in such cases.

European Legislation

It soon became apparent in a close-knit Europe that legal cooperation is essential to facilitate free-trade commerce. Member States cannot afford in today’s world to shut themselves out going independent (much less stand alone and disjointed before the fledgling shadow of looming expansionist threats from territory-hungry countries led by power-lusted leaders fixated on a bygone era).

Having this in mind European legislators have wisely devised two legal mechanisms to streamline and implement swift legal procedures within Europe given all the cross-border legal issues that arose each year. These set of laws cover only well-defined civil and commercial matters.

i. The first one is Council Regulation (EC) Nº 44/2001, of 22nd of December 2000. Broadly speaking, this is used for court rulings which are deemed final and cannot be appealed. This procedure requires intermediate proceedings known as “exequatur” to be enforced which makes it more cumbersome and time-consuming than the one outlined below. It is hands down the more convoluted of the two which largely explains why lenders and creditors in general are more prone to use the below-listed EEO instead. In any case it has been superseded by Regulation (EC) 1215/2012 which shall apply to all legal proceedings instituted after the 10th of January 2015 and, amongst other key novelties, its main highlight features the abolition of the exequatur procedure.

ii. The second mechanism is the European Enforcement Order (EEO) Council Regulation (EC) 805/2004, of 21 April 2004. The EEO was devised some years later as a streamlined version of EC No. 44/2001 for uncontested claims and where a claim for the payment of a specific sum of money had fallen due. This procedure does not require an “exequatur”. It has proved wildly popular with Spanish lenders pursuing mortgage-related claims abroad for the reasons I explain further below in detail.

The above two legal mechanisms are binding laws for all Member States (except Denmark) including the United Kingdom (England & Wales, Scotland) and the Republic of Ireland.

 

Pursuing a Spanish Debt in the United Kingdom or in the Republic of Ireland

 

I. Council Regulation (EC) Nº 44/2001, of 22nd of December 2000

It boldly tackles the issue of recognising fellow EU member’s court rulings and enforce them in other EU Member States. The purpose of this regulation is to have these binding rulings directly applicable within the EU without any special procedure being required. By virtue of a principle of trust these rulings would be automatically and ‘immediately’ enforceable in another Member State without the law court being given the chance to review or challenge the foreign ruling being executed. In practice it takes several months, under a year, hinging upon the complexity of each case.

So basically there is almost no possibility for a UK or Irish High Court of Justice (Court of Session would be Scotland’s equivalent) to raise its own motion on grounds for non-enforcement or review of the matter at hand. Exceptions would be following Article 34 if the foreign ruling goes against the Public Order of the Member State being requested to recognise and execute the fellow EU Member State ruling or if the defendant has not been notified correctly of the legal proceedings being held against him.

Where to Sue?

As a general rule the criteria to sue someone, in accordance with Article 2 of this law, would be their domicile. So for example if you are domiciled in England, you ought to be sued in England & Wales, not in Spain.

However, for particular matters this general rule is waived i.e. repossessions

Case Study on Spanish Mortgages and Bank Repossessions

A mortgage against Spanish real estate is in legal terms a “Derecho Real” or right in rem. Following the above Council regulation, in Article 22 it stipulates that:

“The following courts shall have exclusive jurisdiction, regardless of domicile:

1. In proceedings which have as their object rights in rem in immovable property or tenancies of immovable property, the courts of the Member State in which the property is situated”

Following the above, a Spanish bank would sue you in Spain on defaulting a mortgage loan as the underlying property (immovable asset) is located in Spain.

On slipping into arrears on your Spanish mortgage, lenders may start to take legal action against you after three months (Law 1/2013). A lender will wait until you are technically labelled as “moroso” (defaulter) which takes place after 90 days of non-payment. For more details on a repossession procedure please follow my link on Bank Repossessions in Spain.

All those who sign a Spanish Mortgage deed, whether as borrowers or acting as guarantors (“avalistas”), may be held personally and unlimitedly liable for the mortgage loan with all their assets, both now and in the future, in compliance with Article 1911 of the Spanish Civil Code and specifically with Article 105 of the Spanish Mortgage Act.

Almost all Spanish Mortgage deeds establish that for legal notification purposes the borrower will be notified at the Spanish address on which the mortgage has been placed against, as it’s logical. This means that if you live for example in Ireland and your bank knows your Irish address and even spams you regularly with letters offering you additional non-requested financial services on repossessing you they would only notify you by recorded delivery at the mortgaged Spanish address. The fact that you receive no notification in Ireland or in the UK from the Spanish lender on initiating repossession proceedings, despite them knowing your home country’s address, does not invalidate the repossession procedure in any way. It will suffice prove of the lender having sent you by registered post notification of the start of legal proceedings against you.

Following my article on repossessions a lender would sue you in Spain. There is honestly little that can be done on falling into arrears other than paying all the owed amounts lump sum. These amounts may be considerable, as after 3 months of arrears the lender may tag on the bank’s lawyers fees (ranging between €10,000 – €15,000), court agent’s fees (several thousand), default compounded interest (ranging typically between 15-25% pa) as well as the arrears themselves.

You can at anytime stall a repossession procedure before there’s a ruling so long as you lodge the full requested amount lump sum before the court ruling hearing your case. Make sure you pay the correct amounts requesting from your lender a full breakdown of what’s owed calculated on a given date. Assistance by a Spanish lawyer is highly advisable.

Once a lender has attained a ruling against the borrower, which spans on average 1-3 years given how clogged law courts are in Spain, there are two possible outcomes:

a) If a lender adjudicates itself the property post-auction and there is an excess of equity the matter is settled and no-one will pursue you abroad.
b) The second option, likely the most common for technical procedural reasons explained in detail in my article on Spanish bank repossessions, is that post-auction there’s a shortfall on the amounts owed to a lender. Hinging solely on a lender’s decision (which will have a direct correlation on the amount owed by a borrower and any assets he owns within Europe) they may decide to pursue him for the shortfall in his home country.

Pursuing a debtor back at home

This is when Council Regulation 44/2001 comes into play. To follow this legal procedure, a Spanish ruling must be final, meaning it cannot be appealed to a higher court in Spain. As outlined above, there are very few reasons to appeal a repossession procedure as the matter is normally straightforward – the borrower has breached his fundamental obligation of servicing his mortgage repayments on time.

The lender will hire a local law firm to have the Spanish ruling recognised and executed in the borrower’s European home country. Some lenders may however decide to sell on their credit rights to a third party, such as a debt-collecting agency, who will from then onwards carry out a relentless chase up.

Some lenders are sending out nasty letters prior to obtaining a firm ruling in Spain. They are doing this to scare you into paying what’s owed hoping to avoid a protracted repossession procedure in Spain; it’s a bluff really as they cannot seize your home country’s assets until they have a ruling in Spain which is final (which takes on average 1-3 years).

Embargo and Execution

An embargo can only be placed on the portion of the house owned by the borrower. So if the property is owned jointly along with someone else and he/she did not sign the Spanish Mortgage deed, the charge only affects the borrower’s share. A sale of the house can be forced judicially if necessary (Oder for Sale). Bailiffs will embargo your worldly possessions to satisfy the debt.

If there is a first charge against the property, from a UK bank for example, the Spanish creditor’s charge will rank second place in priority.

Wages can also be embargoed leaving aside only the legal minimum stipulated by your home country laws. They will be paid directly to your creditor (Attachment of Earnings Order, AEO).

Bank deposits can also be frozen to satisfy the debt.

 

II. European Enforcement Order (EEO). Council Regulation (EC) 805/2004, of 21 April 2004

 

This Regulation offers significant advantages to creditors when compared with the exequatur procedure provided for in EC No. 44/2001 outlined above. Spanish lenders in particular are adept at employing EEOs as it has proved itself to be the swifter mechanism of the two as it does not require a ruling to be final (as opposed to EC No. 44/2001 which does and therefore takes longer to attain) nor is an exequatur required. In a nutshell the EEO greatly accelerates and simplifies access to enforcement in a Member State in which enforcement is sought by abolishing the exequatur (intermediate proceedings) thus saving time and expense.

EEOs are devised for uncontested claims where payment of a specific sum of money has fallen due. It proves ideal to chase secured debts such as those arising from mortgage-related debts.

Concept of Uncontested Claim

Pursuant to Article 3 a claim shall be regarded as “uncontested” if:

• the debtor has expressly agreed to it by admission or by means of a settlement which has been approved by a court or concluded before a court in the course of proceedings; or
• the debtor has never objected to it in the course of the court proceedings; or
• the debtor has not appeared or been represented at a court hearing regarding that claim after having initially objected to the claim in the course of the court proceedings; or
• the debtor has expressly agreed to it in an authentic instrument (i.e. a Mortgage deed witnessed by a Notary public).

Contesting a EEO

The competent court in the enforcing Member State may, subject to certain conditions, refuse to enforce a judgment if it is irreconcilable with an earlier judgment given in any Member State or in a third country. In certain cases, it can also stay or limit enforcement.

This is why I specifically mentioned earlier on that it’s important to keep tabs on the budding trend followed by Spanish law courts to dismiss chasing mortgage defaulters on grounds of negative equity borne by post-auction properties.

Pursuing a debtor in Spain

Likewise Spanish law firms are hired regularly by fellow European law firms and creditors to pursue assets located in Spain belonging to debtors using EEOs or else Council Regulation 44/2001. It works both ways as it’s a two-way street i.e. British creditors can enforce a EEO in Spain.

Conclusion: pursuing debts abroad is feasible albeit remains a matter of practicality

The urban legend that Spanish creditors cannot pursue, within the scope of the EU, debts abroad must be unreservedly quashed. Spanish creditors can and will pursue outstanding debts in the United Kingdom or in the Republic of Ireland. Another matter is if it is worth their while depending on the amounts owed. Bottom line is that it hinges really on a matter of practicality. In some cases it will be worth it and in others it won’t. On the former I strongly suggest hiring a lawyer to defend your interests.

It may take its time for a Spanish creditor albeit if they are resolute, and you own assets abroad, they’ll have their way eventually. And vive-versa, any British or Irish creditor can and will benefit from instigating European legislation to pursue and secure assets held in Spain by a debtor.

We know the costs of Europe. What are the benefits?” – Nigel Farage.

British politician and leader of the UK Independence Party (UKIP)

Larraín Nesbitt Lawyers, small on fees, big on service.

Larraín Nesbitt Lawyers is a law firm specialized in inheritance, conveyancing, taxation and litigation. We will be very pleased to discuss your matter with you. You can contact us by e-mail at info@larrainnesbitt.com, by telephone on (+34) 952 19 22 88 or by completing our contact form.

Legal services Larraín Nesbitt Lawyers can offer you

 

Related articles

 

Please note the information provided in this article is of general interest only and is not to be construed or intended as substitute for professional legal advice. This article may be posted freely in websites or other social media so long as the author is duly credited. Plagiarising, whether in whole or in part, this article without crediting the author may result in criminal prosecution. VOV.

2.014 © Raymundo Larraín Nesbitt. All rights reserved.

... Read more

10 reasons why your case against a developer may be thrown out of court in Spain

Raymundo Larraín Nesbitt, September, 8. 2012

A lawyer will previously endeavour to reach a satisfactory settlement with the other party, resorting to litigation only as last option. Having reached a point in time whereby it is apparent that the only path left is to litigate, one should consider a number of cases in which it is unadvisable to sue on certain grounds as the ruling will most likely turn against the plaintiff – you.

By Raymundo Larraín Nesbitt
Lawyer – Abogado
8th of September 2012

 

Original article from 30th September 2.008

 

Introduction

This article should not be construed as a defence of developer’s interests, but rather as a cautionary tale to dissuade potential plaintiffs from engaging reckless litigation which may leave them seriously out-of-pocket.

The following points are by no means to be taken in any particular order or even as a closed list.

1. Suing close to the scheduled delivery date of an off-plan property

If you sue too close to the scheduled delivery date of the property your case may be dismissed. Some people mistakenly think that they can sue a developer as soon as he fails to comply with the obligation of delivering a property within a certain stipulated deadline worded in their Private Purchase Contracts (henceforth PPC). A reasonable timeline for litigation, as a general rule, would be 6 months after the deadline set in the PPC to deliver the property but cases differ depending upon different circumstances. There may be automatic extensions in the PPC granting a developer a grace period of, for example, three months. These must be expressly accepted by the purchaser. If you do accept them then the delivery date is pulled back accordingly so they must be taken on board on calculating the amended delivery date. It does not suffice that you receive a letter informing you of the grace period – you must accept it.

EDIT May 2015: Spain’s Supreme Court has changed this and allows it on suing on off-plan properties relating to bank guarantees. Please read my article (Spain’s) Supreme Court Rulings on Bank Guarantees for more details.

2. Suing when a Force Majeure has taken place

This second point is related to the above. If you happen to sue a developer who can allege a cause of Force Majeure such as hard rain, general strikes, adverse or extreme meteorological conditions etc. If the developer can successfully prove in court that a Force Majeure took place during the construction period then he will be allowed legally to offset the lost days on calculating the delivery date which will be pulled backward.

3. Suing when a LFO has already been granted

A First Occupancy Licence (LFO) is a licence which is issued by the town hall where the property is located and which verifies the development fully complies with the original Building Licence (BL) granted by said town hall as well as complying fully with all Planning laws. Upon the granting of a LFO by the town hall the dwelling is regarded as legal and fully fit for human dwelling. It is considered as already too late to pull out and litigate once the LFO has been granted as under law the developer is regarded as having complied fully with his main obligation of handing over the property. Additionally if a judge considers that a development has been granted validly the administrative Licence of First Occupancy by means of a special administrative procedure known as Administrative Silence Rule (ASR) from the town hall or there is a general consensus on this point then it is not wise to sue. If a LFO is obtained through the ASR it is just as valid as a normal one obtained expressly through a town hall under Spanish Administrative Law. It is pointless to challenge an ASR licence as it is perfectly legal in our legal system, providing it wasn’t obtained breaching any planning laws.

4. Suing for breach of contract when you are likewise at fault

If you sue a developer for breach of contract when you in turn have not been complying with the fundamental obligation of paying him regular instalments or stage payments as set forth in the PPC. The judge will consider that you cannot allege the developer being in a breach of contract when you have previously breached the PPC yourself. In fact, you are the one at fault as your main obligation as a purchaser is to always pay in time according to the contracts’ clauses.

5. Suing on non-essential grounds

If the reason why you file a law suit is not deemed as ‘essential’ by a judge i.e.

– You sue a developer because on doing the snagging list you realise that the promised ‘commanding view over the sea’ is not so and all you have from your terrace is a flimsy view of your neighbour’s back garden brick wall.

-The infinity swimming pool and state-of-the-art sport facilities have not been built to the promised standards – or even worse, not built at all.

This lawsuit will most likely fail if you are trying to pull out and claim back on your full stage payments only because of this. Only if the PPC included a specific clause by which the sea views were regarded as essential to you would you be allowed to pull out and claim for a full refund successfully without being penalised. A different matter altogether would be if you sue post completion seeking compensation on the lost view. The question would be really if it’s worthwhile to pursue litigation in such a case. Perhaps it would be wiser to negotiate and agree on a suitable compensation such as free installation of a/c or even negotiate a reasonable price reduction upon completion.

6. Suing on grounds of a lack of a Bank Guarantee

If you feel tempted to sue a developer because he has not provided you with the mandatory Bank Guarantee on buying an off-plan you will most likely lose. One cannot cancel a contract and demand full payment of your stage payments on such grounds.

EDIT May 2015: Spain’s Supreme Court has changed this and allows it on suing on off-plan properties relating to bank guarantees. Please read my article (Spain’s) Supreme Court Rulings on Bank Guarantees for more details.

7. Suing without being regarded as a consumer

It is important to take notice than when you buy a significant amount of off-plan properties, i.e. three, you may no longer be regarded by the judge as a consumer but rather as a shrewd professional businessman or businesswoman. This is important because it will mean you will no longer be under the protection of Spain’s’ favourable Consumer laws. Consumer laws are an effective tool at times to mount pressure on developers.

8. Suing on excessive compensation grounds

On suing in Spain one must bear in mind that the legal system is very different from that of Case Law which exists in English-speaking countries. One of the major differences regards claiming on compensation. Unlike the United Kingdom or the U.S. whereby a judge may award you a huge compensation, this is very unlikely in Spain. A lawyer ought to be cautious on suing as being overambitious may be counterproductive. This may imply that for example if the lawyer over requests compensation the judge can actually sentence that the plaintiff has to share in the legal expenses of the court procedure despite having won the hearing. Whereas if the plaintiff had in fact been less ambitious it would have not backfired on him and the judge may have sentenced that it is the defendant who actually has to pay for all the plaintiff’s legal expenses (both lawyer and procurador). Spanish judges have a wide margin of subjectivity to construe when it comes to establishing capital appreciation or depreciation of a dwelling or on claiming moral damages or damages in a broad sense.

9. Suing lacking the necessary documents to prove your petition

It is necessary the plaintiff gathers a sufficient amount of documents prior to litigating. The documents which the plaintiff should have available are namely a copy of the original Private Purchase Contract and all original invoices of the stage payments or bank statements including the initial reservation fee. The invoices of bank statements proving the transfer of funds are of paramount importance as in fact the whole law suit will hinge on them.

10. Suing using the wrong legal procedure

This occurs when you sue a developer following a Criminal procedure when you should have followed instead a Civil on. In this case you will have wasted considerable time and money following a wrong venue.

In Conclusion

As a drawing conclusion, it is not advisable in general to sue a developer which has no assets under his name as the funds spent in a lawsuit would be a complete waste of both money & time. In short it would be putting good money after bad. That is why on suing it is the advisable your litigation lawyer locates and secures assets lodged under the developers’ name and requests from a judge, if needed be, to place a provisional charge on them (embargo) on suing. This will effectively avoid the developer selling off these assets as they now have a legal hold placed on them. This encumbrance will ensure your financial interests depending on the ruling’s outcome.

Litigation should never be taken light-heartedly and it is necessary that a lawyer expert in litigation analyses your legal situation to determine if litigation is really a worthwhile option for you. Professional lawyers will always layout clearly your legal options and let you decide which one to take.

“Pleitos tengas y los ganes” – Gipsy curse.

Loosely translated as “May you find yourself in many (legal) problems and win (but at a great cost to you)”.

Larraín Nesbitt Lawyers, small on fees, big on service.

Larraín Nesbitt Lawyers is a law firm specialized in litigation, conveyancing, taxation and inheritance. We will be very pleased to discuss your matter with you. You can contact us by e-mail at info@larrainnesbitt.com, by telephone on (+34) 952 19 22 88 or by completing our contact form.

Legal services Larraín Nesbitt Lawyers can offer you

 

Related articles

 

Please note the information provided in this article is of general interest only and is not to be construed or intended as substitute for professional legal advice. This article may be posted freely in websites or other social media so long as the author is duly credited. Plagiarizing, whether in whole or in part, this article without crediting the author may result in criminal prosecution. VOV.


2.008 and 2.012 © Raymundo Larraín Nesbitt. All rights reserved.

... Read more

Is Litigation Against Spanish Developers Worthwhile?

Raymundo Larraín Nesbitt, May, 23. 2008

A lawyer will previously endeavour to reach a satisfactory settlement with the other party, resorting to litigation only as last option. Having reached a point in time whereby it is apparent that the only path left is to litigate, one should consider a number of cases in which it is unadvisable to sue on certain grounds as the ruling will most likely turn against the plaintiff – you.

By Raymundo Larraín Nesbitt
Lawyer – Abogado
23rd of May 2008

 

Original article from the 23rd May 2.008

 

Introduction

All those who purchased off-plan property in Spain and who unfortunately do not have a valid Bank Guarantee or Insurance Policy securing their stage payments stand to lose their funds if their developer files for bankruptcy. This potential threat of insolvency has soared at an alarming rate during the first quarter of 2008.

With many developers in breach of contract for not delivering properties in time (or with no hope of delivering them at all!), there’s an interesting debate on whether it’s a good idea to start a litigation process with the purpose of seeking the return of the deposits paid plus, perhaps, a possible compensation. Those that say it’s a bad idea to do so claim that developers are penniless, and will not be able to return the funds even if there’s a favourable court ruling. They even go as far as claiming that “no one has ever received their deposit back from a developer”. In this article we explain why these claims are false, and that litigating is not only a possibility but in many cases the only option left for many off-plan buyers who have not been able to complete on their property.

 

Litigation: A last Resort

Litigation should only be used always as last resort. Lawyers endeavour to negotiate on behalf of clients a reasonable settlement with the developer prior to going to court. This avoids lengthy and protracted legal proceedings thus saving both time and money. Unfortunately this is not always feasible, particularly with some developers.

Typical Cases

The following examples sum up what we encounter in our day-to-day legal practice:

  1. Mr White purchased an off-plan property. According to the contract’s clauses the developer was obliged to hand over the property in two years time. Five years on, the development remains unfinished because, due to planning illegalities, the developers have not attained either a Building Licence or a Licence of First Occupation which are granted by the local town hall. Mr White cannot complete on the property as no bank, other than the developer’s, is willing to grant him a mortgage because the development lacks the required administrative licences.

    Mr White is concerned on his interim payments which amount up to 50.000 GBP (almost his life savings) and he has no Bank guarantee securing his stage payments. Therefore, in the event that the developer folds-up, Mr White would be likely to lose his down payments in full.

    Mr White, after trying to negotiate a refund of his payments with the developer to no avail, is tempted to file a law suit against the developer. However, he has been told that the developer is undergoing serious cash flow problems and that even if he hired a litigation lawyer he wouldn’t recover any amount of money. So he thinks “Why put good money after bad paying litigation fees & expenses?”
  1. Mr Grey purchased what he thought was an off-plan property as an overseas summer home for his family. It has now turned out that unbeknownst to him, he was actually misled to purchase an aparthotel or an apartamento turístico".He has since found out that this type of property has its own laws governing it, making it altogether unsuitable as a summer home.

 

5 Top Misconceptions about Litigating Against Spanish Developers

 

Both Mr White and Mr Grey are now desperately trying to find out what is their best course of action in order to find a solution to their problems. Therefore, they ask friends or acquaintances on what to do on their particular case, but the truth is that there is no substitute for professional independent legal advice.


I have gathered a list of the most common misconceptions that are widely spread.


1.    Instead of taking the developer to court, it’s better to just wait and do nothing.


This is really just burying your head in the sand and hoping that things will somehow sort themselves out. The risk is that, if there are no issued Bank Guarantees – or Insurance Policy – and time goes by there is an increased risk that eventually the developer may file for bankruptcy. Nowadays, all too frequently, you see newspaper headlines stating how developers are increasingly filing for bankruptcy.

Returning to our first example, if Mr White were to act as such in his case, he is likely to lose all of his stage payments.
What happens if a developer files for bankruptcy?

In accordance with Law 57/68 a purchaser can claim on their bank guarantee or insurance policy during the construction process, as they are executive titles which secure their interim payments. If they don’t have the guarantees or insurance they stand to lose all their down payments.

That is why if you do not have a bank guarantee, on filing a law suit, a litigation lawyer will request provisionally for a hold to be placed on the developer’s assets until the final ruling. This stops the developer from selling these assets and they act as a sort of guarantee (it isn’t really a guarantee in the sense of a bank guarantee) to recover the stage payments at a later date. The judge has to decide on whether they will allow it or not. The plaintiff’s lawyer will have to prove not only that his client has a case but also that the developer is undergoing a delicate financial situation which may lead him to insolvency in the future.

On seizing the developer’s assets the judge will request that you place an amount of funds in court as a guarantee for the developers’ frozen assets. This amount varies for a standard off-plan purchase in proportion to the value of the assets requested to be frozen. The aforementioned amount is refunded to yourself when the final ruling is published, which puts an end to litigation (long before the assets are sold off in a public auction). However, if your lawyer loses the case these funds may be used by the defendant as guarantee. A further non-refundable amount of approximately €2,500 will have to be paid as well as associated expenses on executing the developer’s assets (auction appraisal, execution procedure, barrister fees etc).

However, in many cases the developer’s bank accounts are frozen (with funds in them) or out-of-court settlements are reached before the ruling, so there is no need to provide the guarantee on the developers’ frozen assets because the stage payments may be obtained by other means.


It is important to understand and distinguish two different concepts: cash flow and assets.


Although a developer may be experiencing a cash flow problem due to the recent credit crunch, one must not forego the fact that they normally own a sizeable portfolio of real estate assets.

On filing a law suit against the developer, the litigation lawyer will request that some of these assets are frozen on behalf of his client, to secure his financial interests. This allows the creditor to be positioned higher up in the creditor’s ladder in the event of a receivership although he will not be regarded as a privileged or secured creditor under Spanish law. In the event of the developer filing for bankruptcy for whatever reason, if some of his assets have already been frozen, they help to position you higher on the creditor’s list. This means that even if the developer enters into liquidation, Mr White will be able to recover his money or part of it at a later date. However, this can take many years depending on the complexity of the receivership.


2.    Completion without a LFO is illegal.


This is a common misconception. Completion on a property, before a Spanish Notary Public without a LFO is legal in Spain and the property will be lodged under your name at the land registry. However, it is not legal to occupy/live in a property without the mandatory administrative LFO. So basically you legally own a dwelling which is uninhabitable legally until the LFO is granted by the town hall.

This discussion about the LFO is not directly linked to the litigation process, but it has to do with determining whether you should complete on a finished property without a LFO or, on the contrary, litigate.


What exactly is a Licence of First Occupation and why is it so important?


Upon the granting of the Certificate of End of Construction, the Developer may apply for a Licence of First Occupation (LFO). The LFO is a document which the Town Hall grants and states that the development fully complies with the original Building Licence that was granted by the Town Hall, as well as complying fully with all Planning laws. The inspection to grant this Licence is carried out by Town Hall technicians that certify that the dwelling fully complies with health, access, security, planning and construction laws and is deemed fully fit for human dwelling. No one can speed up the granting of a LFO; attainting it depends solely on the Town Hall’s civil servants.


What are the associated problems of completing on a property without a LFO?


Although it is legal to complete in such a case, it has numerous legal and practical drawbacks which ought to be highlighted by your lawyer to aid you in making an informed decision. To name a few:


•    Primarily, you will not be able to take out a mortgage on the property or remortgage it - if needed be - by any bank other than the developers.
•    You will not be able to benefit from the official utility supplies; only from the developers supplies (water and electricity) with all the associated problems this has, namely that you may be cut off at any time as it’s the developer who is paying for it and if they go into receivership you will be cut off. Besides this, the developers’ electrical supply doesn’t have the same strength and power surges are fairly common if simultaneously turning on various electrical appliances.
•    Any future prospective purchaser, or their lawyer, will haggle with you and only pay a lower purchase price if you lack a LFO. In a resale, the purchasers in turn will undergo the same problems to secure finance by means of a mortgage loan. Lack of a LFO implies that you are actually reducing the base of potential purchasers for your resale.
•    If there are planning issues, the town hall can set a charge against the property and you as the new owner –and not the developer- may be held liable to pay the fine for the planning illegality.


So, should I complete without a LFO if I lack a Bank Guarantee?


Generally it is not advisable to do so. However, there are some exceptions to this general rule. Until completion the property belongs to the developer. So if you still have not completed and the developer becomes insolvent the property lodged under his name may be seized by the developers’ bank or any other creditor that places a charge on it at the land registry. If you have no Bank Guarantee and afore happens it is then very likely you will forfeit your down payments.

In cases in which there is a significant delay in granting the LFO, the development complies fully with all the required planning permissions, there’s no ruling affecting the building licences due to planning problems, and there is a high risk of the developer filing for bankruptcy, the short answer would be yes. In this particular scenario, litigating is not recommended. The property will be now lodged under your name at the land registry. You will still have to wait until the LFO is granted but at least now there is no risk of you losing your funds if the developer becomes bankrupt.

However, cases differ and require a case by case study by your lawyer.

 

3.    Litigation fees are very expensive in Spain and that you need at least £15,000 to litigate.


This is untrue. Litigation, in a court of First Ruling (Primera Instancia) often averages less than half the said amount. These fees already include the procuradors’ fees (Barrister).


4.    Litigation takes on average 20 years in Spain until you obtain the final ruling.

This is also untrue. The timescale for the first ruling ranges typically between 12 and 15 months. Depending on whether this ruling is appealed, this would set back the whole process approximately a further 9 months until the second hearing. On obtaining this final ruling, in the event that the seized developer’s assets need to be executed to obtain a refund a new procedure will be started. This is not always the case. The total legal procedure, from the time of filing the law suit until the stage payments are actually refunded, may last approximately three and a half years if execution is involved, if not then much less. The legal system in Spain is slow so patience is required.

In some cases, out-of-court-settlements are reached with the developer, thus avoiding lengthy procedures.

5.    Hearsay has it that no one has had their deposit returned from developers by means of litigation.


This is untrue. We confirm that our law firm has recovered client's deposits from various developers, in many cases by means of litigation. Often these rumours are spread by people who have vested interests in others not litigating for various reasons.


Conclusion


A lack of Bank Guarantee coupled in with no Building Licence or LFO attained due to serious planning issues is the scenario in which purchasers are potentially more likely to lose their full deposits. Developers are increasingly more reluctant to refund deposits regardless if they are in a clear breach of contract quite simply because they do not have the funds. In such cases in which developers are very late in delivering properties as per the Private Purchase Contract’s clause, litigation is often the only means to recover the deposits, even in a scenario in which the developer is likely to file for bankruptcy (*according to statistics, there has been a rise of 78.6% in Spanish bankruptcies during the first quarter of 2008 of which 45.7% are from the construction and property industry).


*. Source: Daily Financial newspaper Cinco Días (06-05-2008)

Larraín Nesbitt Lawyers, small on fees, big on service.

Larraín Nesbitt Lawyers is a law firm specialized in litigation, conveyancing, taxation and inheritance. We will be very pleased to discuss your matter with you. You can contact us by e-mail at info@larrainnesbitt.com, by telephone on (+34) 952 19 22 88 or by completing our contact form.

Legal services Larraín Nesbitt Lawyers can offer you

 

Related articles

 

Please note the information provided in this article is of general interest only and is not to be construed or intended as substitute for professional legal advice. This article may be posted freely in websites or other social media so long as the author is duly credited. Plagiarizing, whether in whole or in part, this article without crediting the author may result in criminal prosecution. VOV.

2.008 © Raymundo Larraín Nesbitt. All rights reserved.

 

... Read more

How to Evict a Tenant who is not Paying the Rent

Raymundo Larraín Nesbitt, December, 17. 2007

Blog post copyrighted © 2007. Plagiarism will be criminally prosecuted.

By Raymundo Larrain Nesbitt
17th of December 2007

 

Non-paying tenants have become a real problem for landlords who rent out their Spanish property, a problem which seems to have been aggravated after August’s credit crunch. While the first thought of a distressed landlord is to lock the tenant out, or shut off the utilities, this is considered illegal by the Spanish Authorities and may lead the landlord to face criminal charges plus the payment of compensation to the tenant. If trying to reach an amicable agreement with the tenant fails, the only feasible option left to a landlord is to start an eviction process through a Spanish Court of Justice. Although the Spanish authorities have promised to enact a new ruling next year which will reduce the eviction time to only two months, currently an eviction of a non paying tenant takes anything between 10 to 18 months (typically one year).

The loss of rental income during this period of time can leave the landlord in bad financial shape, and things may turn uglier if the rental is partly being used to pay off a mortgage: if the monthly payments are not met, the bank could repossess the property. A horror story that many a landlord can be faced with.

What to do

The first signs of warning should be triggered once you’ve verified your tenant is two or three weeks late in the rental payment. With no delay, the first step will be to send the tenant a registered letter (“burofax”) giving him a reasonable deadline to pay the rental due (two weeks suffices). A lawyer should be able to arrange this for you for a reasonable fee.

Trying to reach an amicable agreement.

We are still in the early stages where we are trying to reach an amicable agreement, as starting an eviction process through a Spanish court of justice should only be really used as a last resort. Eviction processes take long, and the tenant can remain (and will probably do so) in the property until the eviction order is issued. Landlords, therefore, should note that reaching an amicable agreement is in the best of their interest, even though this may involve, in many cases, relinquishing a few months rent. Not many landlords are happy with doing this, but it should be noted that the debt is rarely recovered (tenants usually declare themselves bankrupt after an eviction process), and the longer the tenant remains in the property, the bigger the financial loss is going to be.

Some unscrupulous tenants even request from the landlord an amount of money in order to vacate the property, which is in our opinion outrageous and should never be agreed upon.

If trying to reach an amicable agreement fails, there’s no other option but to initiate an eviction process.

 

Can’t I just lock them out or cut-off the utilities and force them out this way ?

The problem in cutting off the utilities, or changing the locks to the property is that the landlord may be subject of having a criminal proceeding being filed against him.

Changing the locks without the tenant’s permission can be considered either coercion (delito de coacciones) or unlawful entry (delito de allanamiento de morada), or both. These acts are punishable under the Spanish Penal Code. There is ample Jurisprudence on the matter, and as an example we can cite the Supreme Court ruling of the 28th February 2000 (rec 4642/1998).

If the landlord decides to cut off the utility supply, either directly or indirectly (not paying the invoices), he may also be prosecuted for this act, as it is equally regarded as coercion

In addition to this, the landlord will be breaching the rental contract and this weakens his legal position before a court on claiming eviction.
In any case, the debtor before the utility companies is the owner of the property, never the tenant. Any unpaid utility invoices will go against the property. The landlord will have to pay for all the expenses associated to reconnecting his property to the utility services as well as paying the invoices and any delay interests. For all the reasons outlined, this is not a recommended option.

The eviction process

If you have failed to reach an amicable settlement, you will then have to hire a lawyer and initiate what is known as a “juicio de desahucio”, or simply put, an eviction process. The lawyer will have to wait in some cases 4 months of unpaid rental before being able to file a lawsuit. An eviction process is actually quite slow and takes anything from 10 to 18 months (typically one year) until the tenant is effectively vacated from the property by the law enforcement agents.

An eviction process requires a solicitor and the assistance of a procurador, who acts as a conveyor belt between the lawyer in charge of the matter and the law court, does not belong to any law firm and under Spanish law it is compulsory to employ his services on litigation. A lawyer will typically charge you around 1,500 € in legal fees, plus an extra charge of 700 € in Procurador fees. Other costs may involve those of a locksmith.

The law suit is filed by your lawyer in a court where the property is located.

The Debt

The priority for the landlord should be in many cases to recover the possession of the property and vacate the tenant, not to recover the lost rental income prior or simultaneous to the possession. The reason being is that the tenant may use to their advantage several legal mechanisms to delay such payment. These delay tactics allow the tenant to stay even longer in the property at the landlord’s expense. For this reason, the lawyer’s priority should be first to vacate the tenant, and only then to recover the lost rental. These are two separate and distinct legal actions from a procedural point of view.

The landlord can withhold the compulsory one month deposit, normally kept by the real estate agency until the end of the tenancy contract, to make up for the unpaid rental.

Strategies of the Tenant to Delay the Process

On letting properties in Spain, the landlord should be made aware of the numerous professional debtors there are which are very knowledgeable on Spanish Rental Law. These professional deadbeats profit on the biased Spanish laws which are devised to protect tenants, not landlords. They are very common on the coastal areas.

Tenants may choose to refuse to acknowledge all communications sent from the law court compelling them to pay the rental and interests due on the amounts owed. They can actually stall a process by alleging they were not notified in due form.

They can also carry out what is known as “enervación” by which the landlord has to forcefully grant them an opportunity to pay up before the judgment. Even if the landlord refuses payment they can deposit the amount owed at the court and the landlord is forced to continue the rental agreement. This forfeits the legal action taken. However, the tenant can resort to the “enervación” only once. Should they fail to pay a second time this will lead ultimately to an eviction.

The law court will issue an eviction order (lanzamiento) after the positive ruling from the judge sentence. The police will arrive at the property to force the tenant physically to vacate it along with all his personal belongings. You will then recover the possession of the property from that day and will be free to rent it out again.

How can I rent out my property safely?

The widespread fear of landlords not being able to vacate swiftly their defaulting tenants is justified. This helps to explain why there is a huge pool of empty properties in Spain which would be let if the laws were addressed efficiently.

On our next article, Landlord: Keys to Successful Rental Income, we deliver useful tips on how a property can be rented out safely securing your rental income.

What the future holds

There is a vast pool of properties in Spain which are not let due to landlord’s fear of unpaid rental, and the slowness of our eviction process. The good news is that the Government, having realized the importance of lets in our society as an effective alternative to purchasing property, has decided to take action. Plans to pass a new bill on eviction procedures sometime next year was announced on September 28th. This will prove most beneficial, as will speed up significantly the eviction process.

Also, as from 2008, ten new Juzgados de Primera Instancia (First Ruling Courts of Justice) will be created which will handle only eviction procedures. One of these will be located in the Málaga province and will cover all the Costa del Sol.

Do you have a tenant you need to evict from your property?

According to statistics, landlords take an average of 7 months to start an eviction process. Don’t wait any longer. Act now! 

 

Larraín Nesbitt Lawyers, small on fees, big on service.

Larraín Nesbitt Lawyers is a law firm specialized in litigation, conveyancing, taxation, and inheritance. We will be very pleased to discuss your matter with you. You can contact us by e-mail at info@larrainnesbitt.com, by telephone on (+34) 952 19 22 88 or by completing our contact form.

Legal & Tax services available from Larraín Nesbitt Lawyers:

Tenant Eviction Service

 

... Read more
1