Floor clauses: Also a nightmare for British residents in Spain
It is estimated that around 200.000 British residents in Spain own properties with mortgages containing floor clauses that could be claimed at courts.
Mortgage floor clauses were declared as ‘abusive’ by the CJEU in December 2016 and last February the Spanish Supreme upheld this decision of the European Court and forced banks to pay back to their clients what they overpaid for their mortgage contracts affected by said clauses.
Among the affected are not only Spaniard, but also foreigners because the Spanish real estate market attracts numerous buyers from foreign countries, such as the United Kingdom, France or Germany.
Britons are the foreign buyers most affected by the floor clauses, both residents in Spain and non-residents. It is estimated that there are about 500,000 britons owning properties in Spain and, of the 300,000 residing in this country, it is estimated that 20,000 have mortgage floor clauses worth 7.000 euros average.
In addition, there is the possibility of claiming for the expenses of formalization of the said mortgages as well, that is to say, expenses like notary, property appraisal and the Tax on Documented Legal Actions (IAJD). These fees used to be paid by the client but now, under the CJEU and Spanish High Court rulings, they can be paid back by the bank in the same way as the floor clause claims.
In 2015, Britons accounted for 21% of property sales in the Spanish market, 42% more than the previous year, concentrated in areas such as Alicante or the Andalusian Costa del Sol.
The largest number of British residents in Spain affected by the floor clauses is located in Andalusia. 25% of these British residents, about 5,000, live in this region, followed by Catalonia with 4,000 (20%), and the Community of Madrid with 3,200 affected (16%).
These citizens have a greater feeling of legal uncertainty: the lack of knowledge of the Spanish banking legislation is compounded by the fears of Brexit affecting the equity value of their properties, because since the Brexit referendum the pound has fallen in value by 11% with regards to euro and 17% compared to the dollar.
As per the taxation consequences of the British exit from the EU, given that the amounts obtained by the applicants will be taxed by the Income Tax in the Spanish Tax Agency, there is less uncertainty, since the double-taxation agreements between Spain and the UK are bilateral, apart from the EU.
However, floor clauses are not the only legal problem British citizens owning properties in Spain are facing. Other 100.000 investors from the UK are affected by the turnkey deposit claims. Thus, in January the First Instance Court number 1 from Murcia accepted the joint claim from fifteen British buyers and they were given back 402,350 euros of what they paid for non-received properties.
Henceforth, many of these British citizens are claiming legal counselling to shield their properties in Spain. Providing them with as much information as possible on how to claim their money at court or the kind of procedures to be followed in these cases, will bring them legal certainty for their investments, both present and future, in Spain.
Del Canto Chambers’ Editorial Board