<<FURTHER TO THE RESOLUTION ISSUED BY THE GENERAL DIRECTORATE OF PUBLIC REGISTRIES AND NOTARIES ON 21 OCTOBER 2014 CANCELLING THE REGISTRATION OF A DEED OF MULTI-OWNERSHIP RELINQUISHMENT>>
This first sets out to analyse the Resolution of the General Directorate of Public Registries and Notaries in relation to the unilateral relinquishment and abandonment of “multi-ownership” rights in a strict sense, as it is rotational enjoyment rights to which the Resolution specifically relates. The second part of this article will, in light of this Resolution and of other applicable regulations, analyse the same kind of unilateral, abdicative relinquishment as regards other legal structures under which rights of rotational enjoyment of property for tourist use have historically been created.
The economic crisis, new better and cheaper offers or simply age, have led some owners of rotational enjoyment rights (in any of its forms) to come to the decision to terminate their right, of their own volition and without any relevant legal motive, with a view –in some cases – to recovering whatever part of the original investment they may be entitled to get back (or at least the part relating to the rights not enjoyed), or simply to give up and withdraw from their right without taking into consideration the will of the party who transferred such a right (developer of the scheme or seller as the case may be), of the remaining owners or of the company in charge of maintenance of the system, with the sole intention to give up their obligations. The question is, is this legally possible in Spain?
– Some owners, sometimes with an opportunistic spirit or merely intending to recover the money they invested, have simply attempted to terminate their contract alleging reasons which had been more or less made up or lacked the legal relevance required to constitute grounds for termination. These are instances of TERMINATION and are not the subject of these notes.
–What we are going to analyse here is not a termination but a waiver or, more accurately, a UNILATERAL WITHDRAWAL.
The European Business Organisation of the Sector RDO (Resort Development Organisation), being aware of the existence of real problems relating to age, physical condition, economic situation as a result of the current crisis or other situations of need as opposed to opportunism, is encouraging its affiliates to implement the so-called “exit routes” which, in an orderly manner and in the most part safeguarding the rights of all parties involved insofar as it may be possible not to seriously detriment the remaining parties’ rights (including the remaining owners of rotational enjoyment rights), allow the owners to “become released” from their rights in cases of urgent necessity by being replaced either in all or in part of their obligations as participants in the scheme.
Before trying to answer these questions, we must differentiate between several scenarios based on the nature of the right conferred:
- Multi-Ownership in a strict sense. The possibility of using the term “multi-ownership” or any other term containing the word “ownership has since the appearance of the Spanish Act 42/1998 been eradicated in absolute terms outside the transitional rules. The Resolution we are going to examine refers to this specific case, and we will see whether its conclusions can also apply to other situations.
- The rights –of a very diverse nature– constituted before Act 42/1998, which existed before the enactment of the latter and have continued to preserve their nature and their duration under transitional rules without any other requirement than their public registration.
- Rotational Enjoyment Rights, whether of a personal or of an in-rem nature, constituted under Spanish legislation after the aforementioned Act 42/1998 and under the Act currently in force.
- Personal Rights (generally of an associative nature) constituted at any time under foreign legislation and permitted by the rules of international private law.
ABDICATIVE RELINQUISHMENT IN A MULTI-OWNERSHIP SCHEME.
The Resolution of the General Directorate of Public Registries and Notaries (hereinafter referred to as DGRN) dated 21st October 2014 addresses directly the issue of unilateral abdicative relinquishment, i.e. without the consent of the person who sold the right or the remaining holders of rights over the same property or the Community of Owners or the company in charge of maintenance, thus intending to avoid payment of the annual fee and disregarding the possible detriment which may be thereby caused to the remaining owners, who still want to enjoy their right and do not wish to lose it.
One last clarification before studying the case to which the aforementioned Resolution of 28th October 2014 refers: we need to examine the effect of this decision of the public administrative body whose role is to regulate public land and companies registries and the role of public Notaries.
The decision of this Administration Body (which reports to the Ministry of Justice) is not a Court Judgement or a final resolution and it does not preclude the parties from resorting to court action to resolve their controversies. It simply relates to the possible ‘registrability’ with the Land Registry of the resulting ownership after the relinquishment has taken place in the event that such a relinquishment is rendered valid and enforceable. In any event, this Resolution of the DGRN can be finally appealed against at the courts of justice which, in that case, will have the last word.
The above notwithstanding, the value of the aforementioned Resolution should be acknowledged. For its high legal quality: They have “auctoritas”, their conclusions influence the basis of judicial decisions and it is well known that the facts, even if merely statistical, confirm that their decisions are not usually appealed in Court and, if they are, they are usually confirmed.
We will therefore examine its arguments. As mentioned, the resolution relates to the relinquishment of a “multi-ownership or community of multi-ownership” right which involves the joint acquisition by several persons of an aliquot share in the full ownership of one or several accommodation units, albeit referring to a specific week: the unit is not physically or legally divided but is acquired by several persons jointly (every acquisition normally refers to a 1/51 or 1/52 share of ownership of the full element) and, in accordance with the rules by which the relationships between the co-owners of the property are governed –which they accept upon purchasing-, every one of them may use the unit during a certain annual period, normally one week, which at the same time involves the obligation of all the owners to bear the maintenance costs, from utilities to the replacement of furniture and the cleaning and maintenance of the services required for a proper enjoyment thereof, by payment of the “annual maintenance fee”. In a multi-ownership system, the purchaser obtains full ownership, not for a specific period of time but indefinitely (ad perpetuam), and such a right can be transferred (sale, gift, inheritance, etc).
Legal systems of multi-ownership necessarily date back to before the enactment of Act 42/199, whereupon they became prohibited. However, those systems constituted and existing prior to that date would continue as before until their termination by virtue of any legal reason of agreement in order not to damage the acquired rights, although they were normally acquired for an indefinite duration or in perpetuity, for which purpose the aforementioned Act lays down the obligation to comply with certain adjective requirements (public registration). Indeed, given the year of purchase (always before 1998, without prejudice to those who bought their “week” from a former owner –whether the seller was the developer, the marketer or any third party), the current owners have naturally become older persons and have children who do not want the same holiday destinations or just do not want to use the product anymore.
In addition, when the owners reach a certain age they either have some physical inability to use and enjoy their week or simply, as a result of the economic crisis –which reduces to the minimum the possibilities of resale to a third party-, feel the need (and others want to take the opportunity) to get rid of their multi-ownership, even without any compensation, for the main or exclusive purpose of being released from payment of their share on a yearly basis.
It must be pointed out that, in most cases, the fees in this “multi-ownership” system are calculated by, and arise from, the decision of all the co-owners, who in their annual general meetings approve a budget which must include all that which is necessary for maintenance of the resort, its units and facilities, etc. And, naturally, such expenses must be covered from the income generated, fundamentally, by the fees paid by the co-owners. That is, it is not a company that imposes on everyone the price of the maintenance service, but a decision democratically made by all the co-owners through the exercise of their voting rights.
What happens, therefore, when an owner wants to, and in fact does, relinquish, abandon or abdicate their right with the intention to forget about any obligation? In other words, such a relinquishment being valid, who bears or must bear the detriment arising out of such a unilateral decision which is often made against the will of the remaining co-owners?
This is the question and the answer –in legal terms – to which the Resolution analysed in this article relates.
The Resolution rests on the basis of the legal validity of the abdicative relinquishment and abandonment power attributed to the holder of a right as a means to terminate a right, as well as the possibility of having such a unilateral relinquishment entered on the Land Registry where it relates to rights in rem. Such a relinquishment is contained in several articles of the Civil Code, which is cited in the Resolution itself, but there are limits to the exercise of a right which, as also mentioned therein, are fundamentally contained in articles 5 and 6 of the Civil Code. These limits are, fundamentally, as follows:
- Not to be contrary to law or to public order.
- Not to be detrimental to third parties.
- The exercise of the right, as any other, must abide by the rules of good faith, and abuse of law is proscribed.
As literally stated in the resolution:
- Therefore, the question is not so much whether or not an owner can relinquish their own right as, in this case, whether or not “it is possible unilaterally to dispose of title to an undivided share of ownership which entails an implicit temporary right of exclusive and exclusionary use of an apartment:
- Which is part of a building in respect of which a ‘horizontal property’ (condominium) system has been established.
- The building, in turn, is included in a real estate development subject to the regime of article 24 of the Horizontal Property Act.
- Attached obligations are added to those indissolubly associated with the condominium and rotational enjoyment right and the apartment to which it relates as a private element of a building divided under a horizontal property regime.
It is therefore of interest at this point to determine what detriment, and to whom, is caused by the relinquishment and abandonment of this right and, therefore, by the termination of the obligations it entails, such as payment of the annual fee due by the abdicating multi-owner.
Despite the fact that this is a situation by which all rotational enjoyment schemes are currently affected (whatever the legal structure =system= under which they are operated), we must at this point focus on the subject of the Resolution, which only refers to the relinquishment of a “multi-ownership” right, without prejudice to analysing in this article the same question in respect of the remaining systems, at least the main ones.
In order to determine whether any detriment has been or may be caused to third parties, the first thing the Resolution does is identify the possible damaged parties. These are, prima facie, all the owners of the same apartment (formally divided into 52 shares), together with the remaining owners of the 52 shares in the other apartments held on a multi-ownership basis and all the owners of properties in the resort.
Therefore, the holders of the analysed multi-ownership right participate in three superimposed communities as follows:
- The multi-ownership community in respect of an accommodation unit or in respect of all the units operated under such a system in the same resort, whose purpose is the maintenance of all the apartments operated on a multi-ownership basis and the communal areas and facilities appurtenant thereto and the provision of the services which allow its members to enjoy their week.
- The community of owners created by virtue of the ‘horizontal division’ (ordinary community of horizontal property owners); and
- Finally, albeit not always in the not-so-frequent case of the “real estate development”, the one sometimes commonly referred to as “supra-community”.
It is important to note at this point that these communities do not have a legal personality of their own. Therefore, it is the members of these communities who may be, and in effect are, prima facie, the parties directly affected and possibly damaged by one of the co-owners’ relinquishment and subsequent abandonment of their obligations.
THE RESOLUTION OF THE DGRN
(Facts in dispute and legal considerations)
FACTS IN DISPUTE:
The spouses JMMJ and DNVC purchased from O.G., S.A., full ownership title to 1 share out of 52 in an apartment to be operated as an “apartment for tourist use included in a tourist resort”. The remaining 51 shares in that apartment, therefore, had been or were in the process of being sold to as many persons. Additionally, as a faculty inherent in such ownership, each holder of a 1/52 share of the apartment was entitled to occupy it –as tourist accommodation– during one week each year.
In addition to paying the acquisition price of such a share, the purchasers of that ownership share in the apartment undertook –as did all the other co-owners– to maintain the apartment fit for use and occupation and to such end pay an annual “maintenance” fee, which included the provision of tourist services to the apartment and the resort. As the right was acquired in perpetuity, the inherent rights and obligations would also exist for the same indefinite period of time, whether the right was still held by the promoter, by the first purchaser or by anyone replacing the latter as owner by any title whatsoever, inheritance included.
All the co-owners maintained these services as a community, for which purpose a general meeting of owners (whom we will refer to as “multi-owners”) was called which prepared the budgets and approved them by majority. The expenses budgeted for and approved by the general meeting of owners were then distributed on a pro rata basis among all the multi-owners, obviously taking into account the kind of unit of which they were co-owners (e.g. its floor area, number of bedrooms or quality standards).
This was the annual fee which every owner had to pay to the community, and to stop paying it has been, in our judgement, the reason why the above-named spouses “unilaterally abandoned their ownership share”. That is, by giving up their ownership share in the apartment, they were released from the obligation to pay the annual fee.
FORMALITIES OF THE RELINQUISHMENT:
1.- The RELINQUISHING spouses signed a notarised statement which was authorised by the Notary in the exercise of his notarising role, thus sanctioning its legality. In this statement, the spouses purely, simply and unconditionally relinquished their ownership; i.e. they abdicated it. In a manner of speaking, they abandoned their ownership as “sovereigns” thereof and, therefore, needed not obtain anybody’s consent to do so.
2.- Not needing to obtain any third party’s consent to their abdicative relinquishment involved, in the relinquishers’ judgement, that they were thereby released from their obligations to the community of owners of the apartment, to the community of all the apartment owners on a multi-ownership basis and to all the owners of apartments, business premises, etc of the whole building (Horizontal Property Community and Supra-Community).
The public instrument executed by the aforementioned spouses is a more than sufficient means to relinquish ownership and its registration with the Land Registry is not mandatory, nor is the previous registration of ownership. But what the relinquishers certainly wanted was for their full relinquishment to be publicly noted –by having their right entered on the Land Registry–, and to such end they filed the public instrument with the Land Registry of Alcoy.
3.- Like the Notary, the Registrar must for the sole purpose of authorising the registration determine whether the act is legal and can therefore be entered on the Register. This was denied by the Registrar because the relinquishment of one’s own right may not be accepted (in summary) if it is detrimental to third parties, unless the latter give their consent or, at least, are served notice of the relinquishment so that they can oppose it or take whatever legal action they may deem appropriate.
LEGAL GROUNDS OF THE DGRN’S RESOLUTION.
The Resolution admits the legal precepts contained in the Land Registrar’s report in respect of: (i) the admissibility of the abdicative relinquishment and abandonment as a means of termination of the rights; (ii) that the limits of the relinquishment are good faith and the prohibition of abuse of law; (iii) the specific content of ownership rights in buildings divided horizontally and in real estate developments; (iv) the co-owners’ and community members’ right to challenge any agreements they may consider prejudicial; (v) the analogous application of civil partnership regulations in the event of termination as a result of a partner’s relinquishment, which is demanded to be done in good faith and notified to the remaining partners; (vi) similarly, the analogous application of the rules of the Code of Commerce whereby the partners of a partnership or limited partnership may oppose the dissolution requested by one only partner acting in bad faith; (vii) Rules and Regulations of Companies Registry which demand that consent must be obtained from all the co participants and, in relation to the registration of one member’s separation in an economic interest group where there is a fair reason, this must be notified to the remaining members; (viii) the requirement that fifteen days elapse without any opposition and, where there is opposition, that the decision be made by the courts; and (ix) the provisions of the Economic Interest Groups Act, which lay down the right of every member to separate from the Group where there is a fair reason or where consent has been given by the remaining members, it being considered that the member’s will to separate –of which they shall serve three months’ notice- constitutes fair reason if the Group was constituted for an indefinite period of time.
In summary, the aforementioned Resolution establishes and supports that:
A.- Considering that the multi-ownership right or week relates to a triple community (the community of holders of title to multi-ownership rights, the horizontal community of the building and the supra-community of the real estate development), it is necessary to examine whether such a unilateral relinquishment by a multi-owner can be detrimental to the remaining multi-owners or to the remaining members of said three communities.
B.- It must be taken into account and determined whether the abandoned right is to become the property of the State (an issue in which jurists do not share the same criterion but which the DGRN does not agree with in this case) or it should accrue to, or be proportionally distributed among, the remaining “multi-owners”.
C.- Would such a “proportional accrual” of the abandoned rights to the remaining “multi-owners” create new obligations for the latter (and in fact it would) which may be detrimental to them without even being informed so that they can express their opposition?
D.- The DGRN confirms that such a relinquishment generates new obligations for the community members whose rights have accrued by reason of the relinquishment and considers that (literally) “The debts of the community –both the horizontal community and the sub-community of rotational enjoyment right holders– are, in fact, debts of the owners or co-holders, as the former have no legal personality (22.1 & .2 and 24 Horizontal Property Act).
E.- Right to challenge.- Considering that both the relinquishing community member and the remaining members to whom such a relinquishment may be prejudicial are not strictly, as aforesaid, unrelated third parties –as they are part of the same communities–, the relinquishing members must, if not obtain the remaining members’ consent, at least notify them of their relinquishment so that they can legally express their opposition.
In this sense, the Resolution states: “consequently, in accordance with article 1705 of the Civil Code, the relinquishment whose registration is being requested shall, at least – as a preliminary step which must be strictly observed for the entry to be made-, be communicated to the remaining owners or co-holders so that they can challenge it through the Courts and apply for appropriate cautionary measures if they consider that the relinquishment is not valid by reason of its being done in bad faith (and bad faith exists, as stated by article 1706, not only where the relinquishing person attempts to benefit from it but also where they attempt to transfer the cost, «which should be communal»);or, in any event, to whatever decisions they may see fit in defence of their own interests (relinquishment of ownership by other members as well, abandonment of the building or sale to a better manager by the remaining owners or sole owner, etc)…Indeed, this case, as opposed to the former, is not only a problem of assumption of personal liability for general expenses, but a mandatory transfer of the relinquishing member’s share to all the remaining members on the basis of their own coefficient.
On the other hand, by way of a conclusion, the Resolution states that:
- Our legal system recognises the relinquishment right and, as mentioned in relation to article 1706 of the Code, good faith «only bans those forms of exercising it which show a total disregard for the interests of others» (co-participants). Therefore, if it is valid and effective and therefore meets all the requirements provided for by Law, no reason justifies the imposition of limitations which undermine it.
- Moreover, relinquishment in cases like this («rectius», abandonment) is not only an expression of the owner’s freedom (as happens where there is a sole owner) and, therefore, of the disposal powers inherent in the concept of ownership, but also a faculty of the owner as a correlate of the civil and constitutional legal principle of not being perpetually bound, in this case, by the charges of an administration the management of which they do not control (as their ownership or co-ownership, at least in respect of the communal elements, is incorporated as a part into the wider «corpus» of an organization of a higher order which contains it).
- The above is without prejudice to the relinquisher’s right, if they fail to obtain consent from the other owners or co-holders’ or if the latter oppose the relinquishment, to resort to the Courts in order to request (after the adoption, where applicable, of appropriate precautionary measures to enervate the unfavourable effects of article 38 of the Mortgage Act) that a Judgement be rendered declaring that the relinquishment is lawful and thereby obtain sufficient title for registration.
The consequence of the foregoing can be summarised as follows:
- The right, in principle, can be relinquished.
- The relinquishing party must inform those to whom the relinquishment may be detrimental; in principle, the remaining co-owners of the same unit.
- In the event of opposition to the relinquishment, it will be the Courts’ responsibility to rule on its validity. Where there is no opposition, the relinquished right shall accrue to the remaining co-owners.
NEXT: Unilateral, abdicative relinquishment as regards other legal structures under which rights of rotational enjoyment of property for tourist use have historically been created
Francisco J. Lizarza
Marbella, January of 2015