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New regulations in Spain governing banking contracts for mortgages

On March 15th, a new Law 5/2019 was adopted to regulate immovable property credit contracts.  That is to say, mortgage transactions for the purchase of residential immovable property.  These new regulations align Spanish legislation with the provisions laid down under the European Directive.

Regarding entry into force, it should be noted that the new regulations entered into force as from June 16th 2019.

 

New regulations in Spain governing banking contracts for mortgages

 

This new Law aims to fully protect the consumer or mortgage borrower, and is of an imperative nature.  That is to say, all terms and conditions that financial entities may negotiate or impose not in compliance with the regulations established in the new mortgage law, shall be declared null and void.

 

Procedures and timeframes for signing new mortgages

 The consumer should receive all pre-contractual documentation at least ten days in advance of signing the public deeds for the loan.  The ten-day period is essential, if there is evidence that a mortgage has been signed without allowing this timeframe, it shall be declared null and void. Therefore, all documentation related to the loan shall be provided at least 10 days prior to signature of the mortgage.

During the aforementioned ten-day period (the time period which should elapse from the official submission of the pre-contractual documentation to signature of the corresponding public deeds) the client should seek prior free advice from the notary public.  The notary public shall provide information regarding the specific clauses contained in the European Standardised Information Sheet-ESIS (Ficha Europea de Información Normalizada-FEIN) and the Standardised Warning Sheet (Ficha de Advertencia Estandarizada- FiAE) on an individual basis, and will draw up the minutes thereof, as proof of the advice provided and affirmation that the borrower has understood and accepts the content of the documents.

The aim of the European Standardised Information Sheet-ESIS (Ficha Europea de Información Normalizada-FEIN) is to provide more clarity and understandability to the pre-contractual or financial information which the consumer should receive at least ten days in advance of signature.  We will outline and discuss the key elements.

Once the notarial act corresponding to the pre-contractual consultation has been signed and drafted, the so-called contractual phase begins, during which the purchase and mortgage deeds are signed, generally simultaneously.

Therefore, it is necessary to attend the notary on two separate days, firstly to receive information and advice, and secondly for signature of the contract.  Regarding this aspect and given the inconvenience that attending a notary on two separate days may cause for foreign purchasers not residing in Spain, together with the requirement of compliance with the timeframes previous to signature, we must highlight the fact that by granting power of attorney, duly limited, the appointed representative or attorney can carry out both the pre-contractual consultation, and signature of the mortgage deeds on your behalf.  At MSG LEGAL our lawyers with expertise in Property Law can advise you on this particular point, integrated in our Conveyancing service in Spain.

 

Documentation that should be provided by the financial entity to consumer and submitted to the Notary

 During the phase prior to the pre-contractual consultation, and of course, the mortgage signature, the financial entity must submit the newly required documentation.  As mentioned above, said documentation comprises the European Standardised Information Sheet-ESIS (Ficha Europea de Información Normalizada-FEIN), and the Standardised Warning Sheet (Ficha de Advertencia Estandarizada- FiAE).

The ESIS (FIEN) document contains personalised information regarding the credit agreement (such as the interest rate the creditor will charge, the amount, duration and currency of the loan), whereas the Standard Warnings Sheet (FiAE) document contains details of the clauses (such as the conditions for early repayment, or the distribution of expenses associated with the loan).

The financial entity should also provide an illustrative amortisation table indicating the interest rate of the loan, in addition to the amount and periodicity of the repayment instalments, and a simulation of how the interest rate of the mortgage instalments may vary according to a range of scenarios of interest rate fluctuation.

Finally, the document should reflect the expenses associated with the public deeds for the loan.

All of this information shall be submitted electronically by the financial entity to the notary.

 

Insurance

 As a general rule, the law prohibits tying practices in connection with granting and contracting mortgages.  However, it does permit the application of discounts between the differential of borrowing rates and each product contracted.

In the case of home insurance, the consumer or beneficiary may present an insurance policy from another company, granted that the conditions are the same or improved, and the financial entity will have to accept such a policy without worsening the loan conditions offered.

 

Fees

 Arrangement or completion fee.  This fee is not prohibited by law.

Fees for changing or modifying the terms and conditions of mortgages.  If the change or modification is carried out by subrogation or transfer to another financial entity, or by contract substitution with the existing entity, the fees shall not exceed 0.15% of the capital repaid in advance during the first three years of the contract term.

Following that period, financial entities are not entitled to charge any fees.

 Exit or closure fees.  If the consumer wishes to return all or part of the loan before the agreed term, the law states that in the case of fixed rate mortgages the fee shall not exceed 2% of the capital paid in advance, not the pending amount, during the first ten years, and as from the tenth year onwards, the fee shall not exceed 1.5%.  In the case of variable mortgage rates, the fee shall not exceed 0.25% of the capital paid in advance during the first three years of the contract term, or 0.15% of the capital paid during the first five years.

 

Expert Advice

 A very important aspect to consider is how the expenses generated in connection with signature of the public deeds for the credit agreement should now be distributed.

Until the new regulations entered into force, the consumer was liable for payment of fees corresponding to the Administrative Agency, Notary, Land Registry and mortgage valuation.  As from June 16th the financial entity is liable for payment of Administrative Agency and Notary fees, and the Land Registry fees for the inscription of the property.  The consumer is liable for payment of the mortgage valuation and may use the Authorised Appraisal Company/Surveyor of their choice, there is no requirement to use the same company as the financial entity with which the mortgage is signed.

Stamp Duty on the loan shall be payable by the financial entity.

 

At MSG LEGAL as expert lawyers in the field of Property, and as part of our CONVEYANCE service, we can provide you with comprehensive advice on contracting and formalising mortgage loans.

We will carry out a detailed assessment to protect your interests and assure that all terms and conditions established under the new mortgage law are complied with.  Equally, we can act on your behalf with Power of Attorney during the entire process of formalising the loan.

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.

 

msg.legal

 

Important amendments affecting holiday rentals and horizontal property owners in Spain

On March 6th 2019 the Spanish Government approved important legislative amendments which have modified significant aspects of lease contracts, norms of the Associations of Property Owners, and holiday rentals.  We explained the significant impact of these amendments to various areas of Spanish Property Law in our article of December 22nd 2018 ‘Important reform to Urban Lease Law in Spain’.

 In this article we shall be focusing more specifically on the amendments directly affecting dwellings designated for holiday rental.

 

Important amendments affecting holiday rentals and horizontal property owners in Spain

 

Regarding holiday rental, Urban Lease Law (LAU) was modified together with the regulations governing how the Associations of Property Owners (LPH) may operate:

 

When is a lease to be understood to be a Holiday Apartment rental?

The characterisation of a lease being a holiday rental, is no longer determined by the circumstance of the property being let or advertised via tourism channels, but via the regional regulations governing the area in which the property is located.  These regulations determine whether or not a property is considered to be designated for holiday rental.

 

The regulations governing the Costa Blanca fall under Law 15/2018 of the Region of Valencia, that defines holiday rentals as dwellings which are transferred in their entirety for a price, on a regular basis, under the terms of immediate availability, and for touristic, holiday or leisure purposes. 

 

This aspect is extremely important, given that the Urban Lease Law (LAU) is not applicable to holiday rentals, therefore, the corresponding contracts and the regulation of the rentals (deposits, penalty, cancelation and waiver clauses etc.) may be freely determined by the property owners.  Therefore, the handling is totally different from that of a ‘standard’ lease contract, and we advise that you seek legal advice from a lawyer with expertise in Property Law to advise you accordingly.

 

Restriction of use under the  Association of Property Owner norms

Motions proposed by the Association of Property Owners to limit or determine the conditions of holiday rental now only require a favourable vote of three fifths of the total number of property owners.  Previously, for these kinds of decisions a unanimous favourable vote was required, a situation that evidently lead to deadlock issues.  That is to say, if one property owner renting his or her property out for tourism purposes were to oppose the motion, it could not be adopted.

A very important feature of this reform is that it now also permits, with the same three-fifths majority vote, the possibility of adopting a motion that establishes special service charge quotas or an increment in the share of common fees for the property in which the activity is carried out, provided that these amendments do not entail an increase exceeding 20%.

 

Expert Advice

 

For property owners that have already been carrying out Holiday Rental activity

Neither of these types of agreements, whether the limitation of holiday rental activity by the Association of Property Owners, or the increase of the Association fees for the property in which said activity is carried out, shall have a retroactive effect.  That is to say, that those property owners whom previous to entry into force of the Law of March 6th 2019 were already carrying out holiday rental activity in a correct manner, shall not be affected by any subsequent limitations agreed by the Association of Property Owners.

 

For the Associations of Property Owners that approve the abovementioned limitations

It shall be necessary, once any limitations by Association of Property Owners are approved, that such an agreement is registered with the Land Registry.  This is to assure that possible future acquirers of any property forming part of the Association of Property Owners, shall be bound by the approved limitations.

 

As we have mentioned previously, at MSG Legal as highly experienced lawyers specialising in Property Law, we can advise and assist you in any matter regarding holiday rental activity, whether from the point of view of an owner renting out a property for holiday purposes (drawing up holiday rental contracts, acknowledgement of pre-existing activity to adopted limitations etc.), or from the point of view of an Association of Property Owners interested in adopting limitations (advice and assistance for the preparation of Assemblies, registration of the adopted motions etc.).

 

 

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.

 

msg.legal

EU Family Residence Card or EU residence card in Spain

In this article, we are going to provide you with information regarding the EU Family Residence Card, also known as the EU Residence Card. We will also clarify the purpose of the card and whom is entitled to request it.

 

EU Family Residence Card or EU residence card in Spain

 

Firstly, we would like to reiterate the following regarding EU citizens according to both the Spanish and EU regulations in force:

Citizenship of the Union confers on every citizen of the Union a primary and individual right to move and reside freely within the territory of the Member States, subject to the limitations and conditions laid down in the Treaty and to the measures adopted to give it effect.

 The community regime is not only applicable to EU citizens, but also to nationals of the States constituting the European Economic Area (EEA EFTA). That is to say, Iceland, Liechtenstein, and Norway together with citizens of Switzerland. All citizens of the latter countries are granted the same freedoms as those of EU Member States. Therefore, their family members could benefit from obtaining the EU Family Residence Card.

 

The family relationships that satisfy the requirements to request the EU Card are the following:

  • A spouse, as long as the marital requirements or declaration of nullity of the marital tie such as divorce, legal separation or marriage annulment are satisfied
  • A partner with whom an EU citizen has formed a union equivalent to marriage, duly registered at an established public registry of an EU Member State or a State belonging to the European Economic Area
  • A child, whom is the direct descendant of an EU citizen or of his or her spouse or partner, under the age of twenty-one or in the case of being older than twenty-one, a dependent member of the household
  • Any family member whom in their country of origin is dependent on, or lives with an EU citizen. Proof of living together shall be understood to be valid if duly certified to be of a period of at least 24 months in the country of origin
  • Any family member, whom due to serious health reasons or disability, strictly requires an EU citizen to be in charge of his or her personal care

 

Supporting Documents required to request the EU Residence Card

Correct presentation of the supporting documents to your application is a key aspect to obtaining your EU residence card, which is why we advise you to consult and seek the assistance of a lawyer with expertise in Immigration Law at this point.

In general terms, and in accordance with article 8.3 of RD 240/2007, The EU Residence Card application should be presented together with the following supporting documents:

  • The official application form (EX–19) in duplicate, duly filled in and signed by the family member of the EU citizen
  • The original valid and non-expired passport of the applicant. In the scenario that his or her passport has expired, it is necessary to provide a copy of the passport together with the renewal request
  • Documentation providing proof, in this case, duly translated and apostilled or legalised, of the existence of a family tie, marriage or registered union that grants the right to the card (e.g. Marriage or Birth Certificate…)
  • Certificate of Registration of the family member whom is citizen of an EU Member State or citizen of a State party to the Agreement on the European Economic Area, whom the applicantis accompanying or joining
  • Documentation providing proof (only in those cases where applicable), that the applicant of the card is dependent on a citizen of an EU Member State or citizen of a State partyto the Agreement on the European Economic Area (e.g. descendants over twenty-one years of age)
  • Three recent passport sized photographs taken on a white background
  • In the case that the applicant is not currently working or carrying out professional activity in Spain, it is necessary to provide:
    • Proof of public or private healthcare insurance, contracted in Spain, or in another country, as long as the insurance provides coverage in Spain during the period of residence, and is equivalent to that provided by the NHS. We would advise you to contract the insurance for a period of at least one year
    • Documentation providing proof of sufficient financial resources to maintain the EU citizen and his or her family members during the period of residence in Spain. It is possible to certify this by any legally acceptable means or evidence. For this aspect of the application it is important to consult a lawyer with expertise in Immigration Law, hence assuring that the correct the evidence to prove sufficient financial resources is presented to the Spanish authorities. Failure to present proof of sufficient financial resources are the main grounds for refusal of EU Residence Cards

 

The application procedure

  • The family member of the EU citizen must submit the application in person
  • It is necessary to make a prior online appointment with the corresponding Foreign Office in order to present the application
  • The place of submission shall be the Foreign Office of the province where the applicant plans to reside, or at the corresponding Police Station
  • The deadline for submission is of three months as from the last date of entry into Spain. When presenting your application, you will be provided with a receipt certifying that it has been submitted, this is sufficient proof of legal residence until the card is issued
  • It is necessary to pay a fee (via Form 790-Code 012) and before the EU Family Residence card is issued
  • The EU Family Residence card should be issued within a period of three months as from that date of submission of the application
  • The EU Family Residence card is valid for a period of 5 years as from the date of issue

 

Expert Advice

When submitting documents from another country they must be translated into Spanish or the co-official language of the territory within the country in which the application is submitted. On the other hand, all foreign public documents must be previously legalised by the consular Office in Spain with power of jurisdiction in the country where document was issued.

 

As we explained earlier, we strongly advise you to seek the advice and assistance of an expert lawyer, given the diverse regulations governing these kinds of procedures, and due to the fact that the correct preparation and presentation of the documentation is fundamental to the success of your application.

At MSG LEGAL we are at your disposal for any guidance or assistance you may require regarding the application procedure for your EU Residency card or any other services you may require in order to regularise your residency situation in Spain, for both Community citizens and non-Community citizens.

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.

msg.legal

 

Important reform to Urban Lease Law in Spain. New duration periods.

April 2019 update on Housing and Urban Lease Law in Spain

We are updating this article (v.3) due to a new amendment approved by the Government on legislation applicable to property lease contracts.

On March 6th 2019, Royal Decree Law 7/2019 came into force, under which important amendments were introduced to Housing and Urban Lease Law in Spain.

The varying Decrees adopted by the current Spanish government result in a challenging scenario regarding the application of the laws in force, considering the date of signature of any given lease contract.

Broadly speaking, and by way of example, listed below are the different scenarios by which a contract can be regulated since December 2018 (in order to highlight the impact of the varying regulations, we have provided data regarding the minimum lease contract duration per contract date):

Lease contracts signed between January 1st 1995 and June 6th 2013 (Law 24/95).  Minimum term of five years.

Lease contracts signed between June 7th 2013 and December 19th 2018 (Law 4/13).  Minimum term of three years.

Lease contracts signed between December 20th 2018 and January 22nd 2019 (Royal Decree Law 21/18).  Minimum term of five years.

Lease contracts signed between January 23rd 2019 and March 6th 2019 (Law 4/13).  Minimum term of three years.

Lease contracts signed as from March 7th 2019 (Royal Decree Law 7/19).  Minimum term of five years.

It must be taken into consideration that the varying regulations do not only affect the minimum duration of lease contracts, but also a number of important aspects regarding the different ways in which contracts are treated depending on their date of signature.  This particularly affects lease contracts signed between December 18th 2018 and March 7th 2019.

At MSG LEGAL as highly experienced lawyers specialising in Property Law, we are at your disposal to advise and assist you with any doubts you may have regarding the interpretation of your property lease contracts, whether the focus of your enquiry is from the point of view of a property owner, or that of a tenant.

 

Update to our article posted on the 23rd of January 2019. Subsequent repeal to the reform on Urban Lease Law in Spain.

We are updating this article due to the publication of the Directive on January 22nd 2019, to repeal Royal Decree-Law 21/2018 of 14th of December on Urgent Measures regarding Housing and Urban Lease Law.

In this regard, it should be taken into account that the repeal to the Royal Decree-Law 21/2018 results in its validity and sustainability to all effects during the period as from the 19th of December 2018 to the 22nd of January 2019, thus contracts signed during this period shall remain fully in force according to Law.

At MSG LEGAL as highly experienced lawyers specialising in Property Law, we are at your disposal to advise and assist you with any doubts you may have regarding the interpretation of lease contracts signed between the 19th of December 2018 to the 22nd of January 2019.

 

On the 14th of December 2018 (under Decree 21/2018) specific amendments were made to the regulations in force governing urban leases in Spain (Law 29/1994), hereinafter LAU. Here at MSG LEGAL as Property Lawyers experts we would like to provide you with our professional opinion regarding the possible scenarios that could arise from these amendments.

 

Property Solicitors. New Spanish Law modifying Legislation on lease terms.

 

The main measures, and those by which all leasing contracts signed as from the 19th of December 2018 shall be governed, are the following:

Duration of contracts for properties intended as the main residence of the tenant

In general, they shall (with the lessor’s consent) be of a longer duration.  The minimum legal period in which the tenant may remain in the leased property shall increase (technically called Mandatory Extension):

  • In the case that the lessor is Natural Person, the term of contract shall be increased to a minimum period of five years (previously three years)
  • In the case that the lessor is a Legal Person (a business or company), the term of contract shall be increased to a minimum period of seven years (previously three years)

Likewise, the duration of the denominated tacit renewal shall be increased.  Tacit renewal means that once the legal duration of the contract has finalised, independently of whether the term of contract is of 5 or 7 years, if neither of the two parties formally notifies the other of their intention to renew (Art.10 LAU), the lease contract shall be compulsorily extended to a further term of three years (previously one year).

As explained above, this modification shall be applied to property leases intended for main residence, that is to say, property leases for the purpose of use as a permanent home for the tenant, and in practice the term of rent established in the contract shall be immaterial. Irrespectively of the term of contract agreed, it shall be possible to extend the lease up to a maximum period of five years, if the tenant so desires.

Deposit and additional Guarantees

The lessor shall not be able to demand more than three monthly rental payments from the tenant in concept of the deposit and additional guarantees.  That is to say, given that the legal deposit amount for leasing a dwelling shall be no more than the equivalent of one monthly rental payment, if the lessor opts to request an additional guarantee, this shall not exceed the equivalent of two monthly rental payments. Therefore, the sum of the deposit plus the additional guarantee shall not exceed three monthly rental payments. Previous to the amendment there was no limit established for a maximum amount of the additional guarantee.

Evictions due to unpaid rent or breach of contract

Once a judgement has been obtained for the eviction procedure, it is possible to suspend the sentence for a period of one month (that is to say, to oblige the tenant to move out of the property) if the tenant should be found to be in a particular situation of vulnerability.

Expert advice

Decree 21/2018 also establishes an important amendment which directly affects owners of properties designated for holiday rental.  Specifically, the Horizontal Property Act, and in particular it stipulates that the Association of Property Owners, by means of a 3/5 majority vote of the total number of property owners, shall be able to restrict such activity or increase the Association fees corresponding to the dwelling in which holiday rental is carried out.

At MSG LEGAL as highly experienced lawyers specialising in Property Law, we are at your disposal to advise and assist you, whether in capacity as a lessor, as a tenant, or as an owner of a property designated for holiday rentals, and we can resolve any doubts that you may have following the implementation and entry into force as from the 19th of December 2018, of these important amendments to the property leasing regime in Spain.

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.

msg.legal

Registry in the Municipal Census (Padrón Municipal) for foreign citizens

 

In this blog we will explain exactly what the Municipal Census or ‘Padrón Municipal’ is, the obligation that exists to register, the procedure to follow in order to do so, and the documentation required.  We would also like to highlight the benefits obtained following registry.

As we have explained previously, the Census or ‘Padrón’ is the registry that attests residency and constitutes the address of each resident of a particular District for all administrative purposes.

 

Registry in the Municipal Census (Padrón Municipal) for foreign citizens  in the Costa Blanca

 

As explained above, Registry in the Municipal Census constitutes proof of residency in the district, and of the primary place of residence or domicile therein.  Nonetheless it is important to point out that it does not constitute proof of legal residency in Spain neither does it confer any rights not provided for under the legislation in force.

Spanish legislation stipulates that all persons who live in Spain are obliged to be registered in the Census of the district of their primary residence.

In any event, proof of registry in the Census is required for the following:

  • To request the card entitling you to medical care in Spain
  • To exchange a driving license in the case of a convention existing with your country of birth
  • To carry out the necessary procedures to enrol children in schools

Necessary documentation and requirements

Registry in the Census should be done in the district in which the citizen primarily resides.  This procedure is free of charge.

In order to proceed with registration, foreign citizens must present both their original passport and a photocopy of their passport, together with their Certificate of Registration as an EU Citizen (given that they hold this certificate), or in the case of non-community citizens, a valid identity document issued by a Spanish authority.

Additionally, in order to prove a domicile to be a primary place of residence, it shall be necessary to provide evidence, such as:

  • Property Title Deeds
  • A property lease contract
  • Permission from the property owner to register under the address in the Municipal Census, together with a photocopy of his or her Identity Card, passport or any other valid proof of identity
  • In some City Councils other means of proof of property ownership are acceptable, such as recent bills for supplies and amenities (water, gas, electricity, etc.)

Expert Advice

Registry in the Municipal Census of districts in the Region of Valencia, including all districts within the Costa Blanca area among others, also provides additional benefits to those described above for citizens.  These include for example benefits of a fiscal nature with regard to inheritance, and certain tax deductions when acquiring a property for primary residence.

At MSG LEGAL we can offer you the combination of services provided by our lawyers with expertise in Property Law, together with those provided by our lawyers with expertise in Immigration Law, for the purpose of protecting your rights in their entirety, or we can simply clarify any doubts you may have regarding the procedure and effects of registry in the Spanish Municipal Census.

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.

msg.legal

 

Settling residency status in Spain before Brexit. The importance of EU Registration for British Citizens.

Britain and the European Community will officially sever ties on 29th of March 2019, without prejudice to the transition period, during which Britain will continue to be bound by certain European Community framework until December 2020.

The period set by both parties to regulate and harmonise the above-mentioned divorce settlement, has resolved little or nothing to date. Particularly on such significant and relevant issues as the right to freedom of movement for British Citizens in the European Economic Area, and for EU citizens in Britain. This situation remains unresolved, resulting in those concerned possessing a considerable lack of information on the matter.

 

ESSENTIAL BREXIT PREPARATION FOR UK NATIONALS LIVING IN SPAIN

 

Here at MSG LEGAL we would like to provide you with our professional opinion regarding the possible scenarios that could arise from these changes in circumstances, and the legal and administrative solutions in place. Always focusing our advice and solutions towards those British citizens residing in Spanish territory, or those that are in the process of acquiring property in Spain and may require clarity and assurance regarding how their legal situation in Spain could be affected by the changes that lie ahead.

Above all we advise you to remain calm, your current legal status will not turn into a situation of irregularity overnight.

Firstly, it is important to establish that current Spanish policy on immigration law lays down procedures to MODIFY THE LEAVE TO REMAIN REGIME, OR LEGAL STATUS, for Community citizens residing in Spain. In particular the regulations provide for the loss of EU citizenship, due to for example changes in family circumstances (separation or death, among others). For these cases the regulations provide for a transition in residency status from EU citizenship to non-EU citizenship, adapting the situation of a citizen from the EU regime to the national regime, thus protecting residency rights.

Therefore, in the worst case scenario, whereby Britain withdraws from the EU without acceding to alternative international or bilateral treaties with Spain, which would enable British citizens to continue to enjoy their current rights, a change of residency status would be feasible for those affected, by means of an application to change their legal status.

In order to do so, it is of vital importance to prove legal RESIDENCY IN SPAIN, and this must be done via the CERTIFICATE OF REGISTRATION AS AN EU CITIZEN.

The reality is that a high percentage of British citizens residing in Spain have not applied for this certificate, some due to unawareness, others due to the misperception that obtaining a NIE grants them accreditation of legal residency. That is not the case. In reality those EU citizens residing in Spain that do not have a Certificate of Registration as an EU Citizen, are not considered to be resident.

For that reason, it is fundamental that you apply for and obtain your Certificate of Registration as an EU Citizen. It is without a doubt the only document that officially accredits residency, thus enabling you, when the time comes, to modify your legal status from that of an EU citizen to that of a non-EU citizen.

At MSG LEGAL we can advise you on how to obtain your CERTIFICATE OF PERMANENT RESIDENCE AS AN EU CITIZEN, and handle your application. We will assist you throughout the process to ensure that it is accurate and meets all validity requirements, together with the translation and correct presentation of the necessary supporting documents.

Expert advice

The certificate of permanent residence is of a compulsory nature for those citizens wishing to reside in Spanish territory for a period that exceeds three months.

The deadline for submission is of three months as from the last date of entry into Spain.

At MSG LEGAL we can offer you the combination of services provided by our lawyers with expertise in Property Law, together with those provided by our lawyers with expertise in Immigration Law, for the purpose of protecting your rights in their entirety. This applies as much to citizens that currently reside in Spain, as to those that are in the process of acquiring a property in Spain whom may wish to seek advice regarding their legal status in Spain as UK citizens.

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.

msg.legal

Purchasing property in Spain. Differences between the surface area recorded at the Land Registry, the Cadastre… and the reality.

In preparation for purchasing a property in Spain, particularly when purchasing a rural property, it is not uncommon to come across discrepancies between data concerning the property surface and boundaries recorded at the Land Registry, the Cadastre, and the effective surface area of the property.

In this article, as experts in the field of PROPERTY LAW here at MSG Legal, we are going to examine the situations in which you may encounter discrepancies between physical descriptions and registry data for a single property, and to provide you with advice regarding which legal tools and instruments are available to settle these kind of issues.

 

Purchasing property in Spain. Differences between the surface area recorded at the Land Registry, the Cadastre

 

Firstly, we must be aware that two official Registries coexist in Spain, and that they originally acted independently. This has lead to it not being uncommon to encounter discrepancies between physical descriptions of a property (the surface area and boundaries of a property).

These two registries are:

The Land Registry, which falls under the Ministry of Justice, and is the Registry that plays the important role in the Spanish real estate system of ensuring protection of the rights recorded. That is to say, it is in charge of protecting the rights of property owners, providing official confirmation regarding title deeds.

The Real Estate Cadastre, which falls under the Treasury Department, and is a registry of an administrative nature, contains the Description and Title Plans of properties, and is responsible for providing information to the Tax Authorities for the purpose of Property Tax collection.

As we pointed out earlier, the explanation as to why there are mismatches between the data of the two Registries lies in them having existed independently. Furthermore, It was the property owner that provided the descriptive data, giving rise to discrepancies between data and descriptions. For this reason the Spanish government has, over years, established corrective measures to unify and harmonise data, the most recent and most significant measure being LAW 13/2015.

Since Law (2015) entered into force, when carrying out any real estate transaction, it is an essential requirement to follow the procedure in place to coordinate data registered at the Land Registry and the Cadastre, and to adapt the registered data to the physical reality of the property. Property owners, or new owners holding property in Spain, are required to coordinate the descriptive data registered at the Cadastre and the Land Registry, when recording data at these Registries such as consolidations, partitions…

The Regulations provide for a number of legal remedies to settle possible existing discrepancies, courses of action that we can advise you on here at MSG Legal:

  • Registry of georeferenced images
  • Amending registry or cadastral descriptions
  • Registry of building annexes, improvements or new constructions on a property
  • Registration procedure for demarcation
  • Cancellation of registry data concerning liens or encumbrances, extinguished due to term limitation, expiry or non-use

Expert advice

Property owners can voluntarily decide to initiate the procedure to coordinate records at the Land Registry and the Cadastre with the physical reality of a property. This will provide legal certainty that your property is duly identified, and will ensure full coordination between the Cadastre and the Land Registry. As a result your property will be revalued in view of a future sale.

On the other hand, a correct CONVEYANCING service carried out by a lawyer with expertise in property law, would imply checking the records at the Land Registry and the Cadastre as a standard security measure to purchasing property in Spain. This is in order to detect any possible discrepancies, and If required, provide you with the corrective legal measures available under legislation, with the aim of ensuring that your purchase is safe and aligned with the physical reality of the property.

At MSG we can resolve any doubts you may have regarding discrepancies between the descriptions recorded at the Cadastre and the Land Registry, as well as coordinating the alignment of the physical reality of the property with these records. Our lawyers, with expertise in property law will provide you with personalised advise according to the particularities of your specific case.

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.

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Renting. Claiming compensation in the event of early termination by the tenant.

One of the issues that raises most concern when renting a property, whether from the point of view of the landlord or the tenant, is how to address a situation where the tenant unilaterally decides to terminate the lease agreement early. In other words, when the tenant decides to vacate the property and therefore ceases to pay the agreed rent, before the end of the agreed term of rent.

Needless to say, conflicts of interests arise from these kind of situations where on one hand the tenant decides to withdraw from the agreement early and unilaterally (as we will explain later, there is no obligation to justify termination of contract, it is only necessary to comply with a series of requirements established by law), and on the other hand the landlord faces hindered income prospects until finalisation of the term of contract.

 

Property law Costa Blanca Spain. Early termination rent.

 

In this blog we will explore how Spanish regulations provide for these kind of situations, the rights that both the tenant and the landlord have, and if applicable, how much compensation the landlord could claim if the tenant unilaterally opts for early termination of the lease agreement.

Current regulations on property leasing are contained in Law 24/94 on Urban Leases, and specifically the civil case law that we will explain here is regulated by art. 11 (amended by Law 4/2013), which establishes that the tenant may freely withdraw from the lease agreement provided that a series of specific requirements are met, additionally the parties may agree that the landlord shall receive compensation due to hindered contractual prospects.

Specifically the Law stipulates that:

“The tenant may withdraw from the lease agreement once a period of six months has elapsed, provided that the landlord is notified at least thirty days in advance. The parties may stipulate in the contract that in the event of withdrawal, the tenant shall compensate the landlord for the amount equivalent to a monthly rental payment for each remaining year of the agreed term of contract. For terms under one year the proportional amount of compensation shall be payable”.

This redrafting permits the tenant to unilaterally terminate the lease agreement, provided that a series of specific requirements are met, which are set forth below:

  • At least six months must have elapsed since the signing of the tenancy contract
  • The tenant is required to give notice of the decision to withdraw from the contract, at least one month in advance. Such notification shall be served via reliable means (Registered fax, notarial deed, email, provided that the means of notification is contemplated in the contract)
  • If the rental term agreed is longer than one year, the tenant shall pay a maximum amount of compensation equivalent to a monthly rental payment for each remaining year of the agreed term of contract
  • In order to request termination of contract, the tenant is not required to provide proof of just cause, or unexpected circumstances due to the economic crisis, or personal reasons, given that the only requirement is to serve formal notification, without prejudice, where applicable, to payment of compensation to the landlord.

Expert Advice

Drafting lease contract content is vitally important when establishing the amount of compensation applicable in the case of early termination. For example, not expressly stipulating in the contract that the compensation payable shall be the amount equivalent to a monthly rental payment, implies that there shall be no penalisation for any amount. This is due to the fact that the Law provides for this right as an option, and if not expressly stipulated in the contract, the correct interpretation is that there shall be NO penalisation (provided that the tenant complies with the legal requirements; giving notice 30 days in advance, and as long as at least six months must have elapsed since the signing of the tenancy contract).

As we have stated previously, the current regulations entered into force on the 6th June 2013, therefore, lease contracts signed previous to that date shall be dealt with in a different manner.

In order to protect your interests, as always, we strongly advise you to seek the assistance of a lawyer with expertise in the field of Property Law when negotiating, preparing and drawing up the lease contract, whether you are the tenant or the landlord. At MSG LEGAL we are at your disposal to resolve any doubts you may have regarding renting a dwelling (long term or holiday renting), business premises or any other matter regarding property rental on the Costa Blanca.

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.

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Non-Resident Income and Wealth Tax for property owners in Spain

One of the primary concerns when acquiring, purchasing or owning a property as a foreign citizen in Spain, is to understand the impact that taxation will have on a given situation.

The determining factor for the type of taxation applicable, is residential status. A taxpayer considered to be RESIDENT shall be subject to Personal Income Tax (IRPF), whereas a taxpayer considered to be NON-RESIDENT shall be subject to Non-Resident Personal Income Tax (IRNR).

 

 Property Spanish Taxes, Non resident.

 

Therefore, the first factor to decipher is how Spanish regulations establish that a citizen shall be considered to be resident for taxation purposes.

The current Regulations establish that a citizen shall be considered to be resident in Spain, given without distinction any of the following circumstances:

  1. Permanence on Spanish territory for 183 days or more per calendar year. In order to calculate the length of stay, occasional absences are counted, with the exception that fiscal residence in another country is certified. In the case of states or territories classified as tax havens, the Tax Authorities may require proof of residence in the given tax haven during 183 days of the calendar year.

When determining the length of stay, temporary periods in Spain shall not be calculated provided they are due to obligations falling under international agreements, such as cultural o humanitarian entitlements with the Spanish Public Authorities.

  1. Where the main core or base of business or professional activities or financial interests lay in Spain, directly or indirectly. Likewise, in the absence of proof to the contrary, it shall be considered that the taxpayer is resident in Spain if in accordance with the aforementioned criteria, his or her spouse (unless legally separated) or legally dependant children are resident in Spain.

A citizen shall be considered to be resident or non-resident throughout the calendar year, due to transfer of residence not interrupting the taxation period.

Taxation scenarios

From the range of revenue scenarios that could give rise to tax liability, we are only going to explore those that are directly related to the condition of being a property owner in Spain:

Due to owning a property in Spain

Spanish regulations establish that, non-resident taxpayers, owning urban real estate for their personal use on Spanish territory, shall be subject to Non-Resident Personal Income Tax (IRNR) for taxable income corresponding to that property.

Taxable income shall be the resulting amount after applying the corresponding coefficient to the cadastral value of the property (2% as a general rate and 1,1% for revised cadastral values). The cadastral value can be found on your annual Property Tax (IBI) receipt.

This tax should be settled in the calendar year following the date of accrual. For example, the amount payable for the calendar year of 2017, should be paid at the latest by the 31st of December 2018.

The proporcional amount shall be declared if you were not the owner of the property throughout the calendar year, or if during a period of time the property was leased.

Due to Taxable Profits deriving from property sale (capital gains)

Capital gains tax derives from the sale of a property. The taxable profit shall be taken into account as from the moment the property ownership is transferred.

In general terms, the taxable profit shall be established as the difference between the acquisition price and the sale price.

The acquisition price is comprised by the actual price for which the property was acquired, plus any expenses and taxes inherent to acquisition (excluding interest rates) that have been paid.

The transfer value is comprised by the actual price for which the property was sold, minus expenses and taxes inherent to acquisition, paid by the selling party.

The taxation rate applicable to the total amount of profit made shall be 19%.

The purchasing party, whether resident or not, shall be required to retain 3 percent of the total purchase price. This retention is a downpayment on behalf of the selling party for the capital gains tax corresponding to the property ownership transfer. The purchasing party shall provide the selling party with taxation Form 211 (as proof of the aforementioned payment) in order for the selling party to be able to deduct the retained amount from the total amount of taxable profit. If the amount retained proves to be more than the total amount payable, the difference shall be reimbursed.

The payment period is of three months, as from the deadline for the purchasing party to settle the capital gains retention (30 days following the sale date).

Expert advice

When a property is jointly owned, either due to marriage or other reasons, each and every part-owner shall be considered a taxpayer in his or her own right, and must therefore make a separate tax declaration.

At MSG Legal, as highly experienced lawyers specialising in Property Law and in safeguarding your interests when carrying out property purchase and sale transactions in Spain, we are at your disposal to provide you with advice on fiscal liability resulting from the purchase, sale or ownership of a property as a fiscally NON-RESIDENT citizen in Spain.

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.

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Rent to buy in Spain. Smart solution.

In this article we will analyse the rent to buy option. This stands out as an attractive option in the current climate where the Spanish property market is undergoing a freeze (mainly from a financial point of view) for the successful completion of purchase transactions, and with appealing advantages for both parties, the buyer and the seller.

 

Rent to buy in Spain, Costa Blanca

 

Essentially, we are faced with a type of leasing contract that provides the right to occupy a dwelling in exchange for rent, and under this contract as an ancillary provision the landlord  grants the tenant the right to acquire the leased dwelling, the terms and conditions being stipulated by mutual agreement.

This type of contract “Rent to buy,» historically derives from common law (rent to own). In the Spanish legal system there are no specific regulations governing these contracts, but we are faced with; the freedom to agree terms and conditions, regulations governing similar contracts (leasing and option to buy), together with developments in terms of case-law.

Specifically, The Spanish Supreme Court defines ‘rent to buy’ as an agreement whereby one party grants another the exclusive right to decide whether or not the main purchase contract shall be executed, the main features of the contract being:

  • To grant the potential buyer the right to unilaterally decide whether or not to proceed with the purchase option
  • To establish the subject of the agreement (being the leased property)
  • To fix a pre-established price for the future acquisition;
  • and, to determine the timeframe in which the purchase shall take place

The following provisions are accessory elements and may be freely agreed between the parties:

  • To establish a purchase option premium, that is to say an amount for the exclusive right to acquire the leased dwelling which shall be awarded to the landlord by the tenant potential buyer, or by contrast that this right shall be free of charge
  • Likewise, to establish that rental payments shall be considered as a downpayment to the final price, this is also negociable, not only as a totality but also as any percentage that the parties may decide to deduct from the final price

The advantages for the tenant-potential buyer under the let to buy regime would be, among others:

  • To be able to establish a pre-fixed maximum purchase price
  • To be able to decide whether or not to proceed with the purchase (i.e. depending on the fluctuation of market prices)
  • The rental payments are not lost funds
  • To be able to verify the quality and characteristics of the dwelling prior to purchase
  • To be able to get a feel of the neighbourhood and community prior to purchase

For the owner, and as stated in the title of this article ‘rent to buy’ implies the possibility to sell the property in the future whilst obtaining regular revenue (rent).

Expert Advice

Depending on the timeframe established for executing the purchase, together with how the interests of the owner and tenant-potential buyer are protected, it is possible to either agree on a fixed purchase price, or by contrast to choose between a range of formulas to adapt the final price to the period of time stipulated for the purchase to take effect, and the possible fluctuations that may occur within this timeframe to the property market in the area the dwelling is located. The negotiation and inclusion of these kind of provisions in let to buy contracts can lead to significant profits or losses when the purchase-sale goes through.

Appropriate advice from a legal professional with expertise in the field of Property Law can prevent risks when carrying out these kind of transactions, and protect your legal and financial interests, as much for property owners as for tenant-potential buyers.

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.

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