SO WHAT IS EXCHANGE?

Posted on 6 febrero, 2017 por lizarzablogesp

Exchange appeared some decades ago as an ideal formula to facilitate the occupation by tourists of accommodation units during their holidays.

It was very successful, as a relatively small disbursement allowed several members of the same family to enjoy their holidays in the place of their choice.

But tourists’ habits evolved rapidly as, while the “tourists-family unit” preferred and were in the habit of enjoying their holidays in the same place every year, the current trend is to choose a different destination each year, not only within the same country or the same continent, but anywhere else.

The Timeshare (or ‘Rotational Enjoyment’) Industry’s prompt response to the new trend was provided in the form of a new formula which was meant to satisfy that demand, namely the so-called “exchange”.

In very simple terms, exchange means facilitating or, rather, offering each year the possibility for an owner of timeshare in a specific resort to exchange temporarily, if they so wish, the unit inherent in their right of occupation for that of another person who, being in a similar circumstance, wishes to do so.

But such a basic concept is not real; that is, it does not mean that an agent puts two owners in contact who at a given time wish to exchange the respective units each one of them is entitled to use, as this is done through a system which allows hundreds of thousands of timeshare owners to gain access to a network in which such an exchange can be made effective, albeit among hundreds of thousands of people.

All of the above is true, as it is also true that this system has worked for decades.

But it is also important to be aware of the legal nature of such an exchange right, which has many a time been misinterpreted, often to achieve objectives other than those inherent in the legal concept itself.

In order to achieve those other objectives, it has sometimes been attempted to oversimplify the subject of the contract, with statements as simple as claiming that the exchange system entails an absolute obligation to provide a unit to enjoy the right of occupation in a new destination, on request by the user of the exchange system and in the place requested by them, without even having to make a reservation sufficiently in advance or considering other users’ concurrent requests.

Not only is this untrue but it is also impossible, as it is impossible for hundreds of units in hundreds of destinations in hundreds of countries to be available to any holder of an occupation right up until the day before the commencement of their occupation period. This may sound like an exaggeration, but quite a few times it has been understood, even by the courts, that such should be the case and that rules like those containing the phrase “subject to availability” were nothing short of a trick meant to justify the service provider’s lack of commitment, if not downright fraud. To that must be added the idiosyncrasy of each client wishing to exchange their right as, while last-minute exchange reservations are very common in certain countries, reserving well in advance is common practice in other countries, which increases the chances of having their preferences confirmed.

The first Timeshare Directive of 1994 did not define the objective scope of the exchange contract beyond describing it as a separate (or different) contract from the timeshare contract entered into with the promoter of the resort, in addition to the demand that certain information requirements be met.

All of it changed radically when Directive 2008/122/EC regulated this contract in more depth, starting with the very definition of the subject of the contract, in respect of which it is expressly stated that:

“An exchange contract is a contract by virtue of which a consumer affiliates, for valuable consideration, to an exchange system which allows them to enjoy an accommodation unit or other services in exchange for allowing other persons temporarily to enjoy the benefits inherent in the rights acquired by virtue of the consumer’s timeshare contract relating to property for tourist use”.

The Spanish Golden Century writer Baltasar Gracián said that “good things, if short, are twice as good”. The above definition of exchange abides by this principle, as in just a few words it defines the subject of the contract, who the parties to this contractual relationship are and what each such party’s obligations are.

1.- The actual subject of the contract is the provision of a service by a trader (“the exchange network”).

2.- The service provided by the trader consists of making available to the timeshare consumer or user the “system” which allows the exchange to take place. It is important to stress the word “system” contained in this legal definition of this kind of contracts for how it specifies the obligation of the exchange network. That is, the trader’s obligation is to set up and allow the use of the “system” or “medium” which will make the exchange possible.

3.- The consideration to be received by the trader –the exchange network– is the payment of the agreed price.

What is, therefore, the obligation of the exchange network?

Two kinds of obligations are differentiated in the classic dichotomy of obligations outlined by ancient Roman Law, by which European Law is influenced:

– Obligation to produce a result or specific obligation, whereby the trader undertakes to produce a result in favour of its counterparty (a consumer or user in this case). Therefore, if the result is not produced, the trader is in breach of its obligation to the consumer. A classic example of this is the obligation to hand over a certain item.

– Obligation relating to means or activity, whereby the trader undertakes to provide the means or to carry out the activity which is necessary for the consumer to obtain a result. In this case, the classic example would not be the handover of an item but the provision of a service.

Exchange being a “provision of services” as opposed to the handover of a “determined or determinable” thing, the system management network does not have the obligation to produce a result –what the consumer wants– but an obligation relating to the means and the activity which, in conjunction, will enable the client to obtain a result.

Therefore, the obligation of the exchange network is fulfilled by the establishment and maintenance of the “exchange system”, which among other things obligates it to classify the rights of occupation ceded by the timeshare owners for exchange within the system on the basis of equivalence criteria, which requires a very complex entrepreneurial activity because it must simultaneously relate to thousands of units in more or less demanded equivalent seasons of use (by reason of weather, festivities, cultural events, sports events, etc).

Such means and activity (system) entail, without limitation:

The affiliation tourist resorts, which means that the lawfulness and operability thereof must be verified.
Classifying the various tourist resorts by parameters of quality, services, facilities, accessibility, etc, as their legal rating in a country (hotel stars, apartment keys, etc) is not enough because, despite having common names, there are different rating criteria in each country.
Classification by season as aforesaid.
Maintenance of a “computer system”, with highly complex software which requires constant updating.
Attention to clients in various languages and, in effect, in virtually every country in the world.

This should not be perceived as something as simple as a “perfect business” which does not guarantee any result, because the result to be produced by the exchange network is the operability of the system which makes possible the exchange of the rights of occupation ceded to the exchange system by hundreds of thousands of people who do not know each other and will never meet.

Therefore, if the exchange network provides the service, the activity and the means to obtain a result, then the consumer can obtain the result by using the system in accordance with its own rules and regulations, fundamentally the reservation of the desired accommodation unit meeting the equivalence parameters of the right temporarily ceded by the consumer to the system so that it can be used by another consumer.

Confirmation of the exchange is certainly subject to the tourist principle known as “subject to availability”, which is not an undetermined legal concept but refers to the fact that reserving a unit in a specific season and a specific place will be usually achieved if done sufficiently in advance and taking into account that –as every affiliate to the system knows well– that they will be competing with other affiliates. If an affiliate wishes to reserve a unit in Spain on 15 July to use it on 15 August, they are very unlikely to succeed.

But in any event, and also by reason of the size of the system, which includes thousands upon thousands of rights capable of being exchanged every year, the affiliate will never be left without the possibility of choosing from hundreds of other alternative units. “Subject to availability” refers to one or various desired units, but there will always be hundreds of other rights which can be reserved and used.

This means that, while the exchange network has the mandatory obligation to ensure the operability of the “medium” or the “system” <<as per the definition of exchange right contained in Directive 2088/122/EC and in the Spanish Act 4/2012 of 6^th July and equivalent Acts of the other EU countries>>, we can say that the outcome, although not mandatory for the network, can always be obtained according to Spanish Law as if “variable” or “alternate” obligations were involved (article 1131 and related articles of the Civil Code).

Finally, as stated in the following transcription of a paragraph contained in the exchange contract to which Judgement 179/2014 of First Instance Court No. 1 of Palma de Mallorca relates: “exchange is made possible through a reservations programme, subject to its own rules and dependant on the number of affiliated resorts (which changes from one year to the next), on the holders of rights in the affiliated resorts who voluntarily cede their right on a temporary basis, and on the competition between them to obtain reservations (based on the rules of the programme). The task which the management company of this –fundamentally computerised– network is obligated to perform is to keep in operation, with all the material and human resources necessary, the computer system which makes the exchange possible but does not guarantee the desired result. In other words (says the Judge), “the exchange is not guaranteed”.

This last comment by the Judge is all the more important as, embracing the defendant network’s arguments, he accepts that guarantee of confirmation of the required exchange is not part of the subject of the contract or an obligation of the provider of such a service.

Francisco J. Lizarza

Spanish Lawyer

Marbella, 6th February 2017

B.SOLÍS, leading construction company on the Costa del Sol, bid to become the reference brand in reforms and new «turnkey» construction projects for tour operators and hospitality businesses through its Reforms & Hotels Division.

Posted on 30 enero, 2017 por lizarzablogesp

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Constructions B.SOLÍS is a Company, which combines tradition and estate of the art elements, which celebrates 30 years of uninterrupted experience in 2017. It currently has 150 highly skilled professionals, who bring their expertise and value added to the company, providing to its customers a comprehensive advice and Personal attention throughout all phases of the project. Its market positioning in a prime residential destination, represents a confidence for international investors and customers which demand high quality levels for its investments. This experience has let accomplished more than 500 projects across the country in all works typologies, such as large buildings (hotel, shopping, sports, health, etc.), private residential (25,000 homes), termination of assets for financial institutions and private clients, comprehensive reforms, underground car parks and civil work.

B.SOLÍS has developed more than 480 luxury villas, of which 140 units are located at most prestigious urbanisations such as La Zagaleta, Sierra Blanca, Guadalmina, Sotogrande or Los Flamingos.

The company is recognized for its extensive knowledge of the industry, technical solvency and structure to undertake works over € 80 mlls. As example, has carried out projects of great importance in terms of innovation and technical complexity, such as The Botanical Park Estepona, The Boulevard of San Pedro, The sports Centres GO FIT and one of its latest ongoing projects, an artificial lake in Casares collaborating with Crystal Lagoons.

Included in their portfolio is the construction and renovation of hotel chains and independent hotels as Marriott’s Playa Andaluza, The Westin La Quinta Golf Resort & SPA 5*, Tembo Hotel Fuerte Estepona 4*, Rincón Andaluz 3* or Buchinger Clinic among others. Nowadays, B.SOLÍS is executing the construction of a 5* GL Hotel in Estepona. Its experience in hotel projects ensures compliance with schedule deadlines, and minimal interference in daily operations of the hotel based on its high degree of specialization. The combination of good prospects for the tourism sector, and company strengths (track record, financial solvency, and aftersales service) place the Division Reforms & Hotels B.SOLÍS as an essential partner for projects on the Costa del Sol.

División Reformas & Hoteles Isabel.villada@bsolis.com Plaza Dª. Elvira 2. Urb. Aloha Pueblo,
Nueva Andalucía, 29660 Marbella (Málaga)
Tel.: 952 815 080 Fax: 952 817 385
http://www.bsolis.com

TAXATION OF DWELLING RENTALS AND CESSIONS

Posted on 25 abril, 2016 por lizarzablogesp

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It is very difficult to summarise the content of an article in its title, particularly where it refers to various situations and various rights, whether from a common or general point of view or from a legal point of view.

Therefore, when in this article we say “dwelling”, this must be interpreted in a very general sense as meaning an “enclosed, covered place which has been built =building= to be inhabited by persons”. And when we say rental of dwellings, it very generally means handing over the right to use or enjoy (occupation) that building to another person, from whom a consideration will be received. And all this applies whether building refers to what we call a flat, apartment, villa, terraced house, room, studio, etc., and whether it is located in a residential building, an apartment-hotel building, a hotel or a combination thereof.

But what matters for the purposes of this article, namely to determine the taxes payable by the owner on the rent received for the cession of such a habitable building, is the kind of “dwelling” involved or, rather, the intended use of that dwelling or how it is going to be used by its occupier, whether by virtue of an agreement between the parties or because it must be legally used for a specific purpose and none other.

SUMMARY

I.- RENTAL OF DWELLINGS (HABITUAL RESIDENCE).

From a legal point of view, where the intended use of dwelling is to be ceded by a person for a price or a rent to another person, who will occupy it, normally with their family, for the essential purpose of fulfilling the need to have living accommodation, this will be what Spanish Law simply (basically) defines as the “rental of a dwelling”.

II.- SEASONAL RENTAL OF DWELLINGS.

Where the dwelling (as a building) is ceded by a person to another person to fulfil the latter’s need to live in it not permanently but during a specific season, be it the summer season, the ski season, a school year during which a person will be attending college or a period during which a person has to move to certain place to do a temporary job, this is legally classified as a “rental for use other than as habitual dwelling-residence”.

III.- RENTAL OF TOURIST ACCOMMODATION UNITS.

In this case, whether the dwelling is a villa, a room, a studio, etc., which is part of a building or group of buildings located on land classified as (i) touristic land, or (ii) residential land whose use for tourism-related purposes is permitted, it is legally mandatory for the property to be used for tourism-related purposes, which entails an obligation to comply with two kinds of requirements, i.e. those relating to the unit itself and those relating to the “standard services of the tourism industry”.

IV.- RENTAL OF RESIDENTIAL DWELLINGS FOR TOURISM-RELATED PURPOSES.

This relates to dwellings located on “residential land” (not, therefore, on land earmarked for tourism-related purposes) which are used all year round or during specific periods as tourist accommodation units or for purposes relating thereto.

Consequently, this type of dwelling has to be operated as a tourist accommodation unit and is therefore required to include as an important element, in addition to the cession of the right to occupy the unit, the provision of other “standard services of the tourism industry”, even if these are minimum.

SUMMARY OF THE MAIN TAX OBLIGATIONS OF INDIVIDUALS WHO ARE NOT RESIDENT IN SPAIN BUT ARE RESIDENT IN THE EUROPEAN UNION (EU) AND, IN SOME CASES, IN THE EUROPEAN ECONOMIC AREA (EEA), IN RESPECT OF THE RENTS OBTAINED FROM THE RENTAL OR CESSION OF DWELLINGS OR UNITS TO THIRD PARTIES ACCORDING TO THEIR KIND OR INTENDED USE.

I.- RENTAL OF DWELLINGS (HABITUAL RESIDENCE).

1.- Each quarter of the calendar year during which such dwellings are or remain rented out, the non-resident individual lessor will have to file a tax return with the State Treasury in respect of the rents thereby obtained.

In the case of taxpayers residing in the EU or in EEA countries with which an effective exchange of information is in place, certain expenses may be deductible against the rental income (with certain limitations), such as loan interest, insurance, preservation and repair costs, I.B.I. -local rates-, agents’ commissions, legal expenses, amortisation of the building, etc.

The tax rate in this case would be 19% on the gain thus calculated for residents of the EU, Iceland and Norway, and 24% for the remaining taxpayers.

On the other hand, a small tax known as Actos Jurídicos Documentados (Documented Legal Acts -Stamp Duty-) is also payable, and its amount will depend on the length of the lease and on the rent agreed.

2.- If the dwelling is only used by the non-resident owner or is available to them all rear round, then the non-resident owner will have to pay tax on the “deemed income”, namely a tax which is not payable on any actual income but on an estimated, supposedly received income.

3.- Deposit on the Lease: This is not a tax, but there is a legal obligation for the lessor to demand from the tenant an amount equivalent to one month’s agreed rent as security for any damage which may be caused by the tenant. Such a deposit will have to be fully lodged by the lessor, within one month of the lease contract being entered into, with the Agencia de Vivienda y Rehabilitación (Housing and Rehabilitation Agency) of, in this case, the Junta de Andalucía, commonly known as AVRA for its initials. On termination of the lease, AVRA will refund the full deposit, without interest, to the lessor, and the latter shall in turn refund it to the tenant unless any damage needing to be repaired has been caused to the dwelling (but not because of failure to pay any rents).

If the lessor fails to lodge this deposit, then the lessor themselves -not the tenant- will be liable to pay surcharges ranging from 5% to 20% depending on the delay in paying the deposit after the above legal period has passed. If the deposit fails to be lodged and AVRA makes an inspection, penalties ranging from 50% to 150% of that amount can be imposed.

Important: As these rentals are meant to fulfil a permanent need of the tenant and the tenant’s family, the tenant will be obligated to respect the full period agreed on in the contract and to pay the rent for the whole period of the lease. Even if a dwelling of this nature has been rented out for a shorter period, the tenant may in their sole discretion extend the contract for up to three years -obviously provided that they pay the agreed rent- regardless of whether the lessor wishes to extend the contract for such a period or not.

II.- SEASONAL RENTAL OF DWELLINGS.

The taxes and tax obligations are fundamentally the same in the case of a dwelling for habitual use-residence and in the case of a seasonal rental of a dwelling, whether the latter is entered into for several months, for the whole year or for a longer period.

Therefore, the income actually obtained will be taxed during the rental period as described in paragraph 1 and the deemed income will be taxed in proportion to the period not being rented out as described in paragraph 2, both of SECTION I above.

DEPOSIT ON THE LEASE:

The amount of the Deposit in this case is not one month’s but two months’ rent, which in many cases is preposterous, disproportionate and unfair.

A seasonal lease can certainly last several months or over one year, but it is normally taken for a short period, often 15 to 20 days, one or two months, etc.

However, it will still be necessary in that case to lodge with the AVRA a deposit amounting to two months’ rent, to the point that the deposit will sometimes have to be refunded by reason of expiry of the lease before the legal period to lodge the deposit has expired.

Also payable in this case is the ‘Stamp Duty’ which, as mentioned, is normally a small amount, although it depends on the duration of the contract and on the rent agreed.

Important: The duration of the lease with this kind of rental is that agreed on by the parties, and neither party may demand an extension thereof.

III.- RENTAL OF TOURIST ACCOMMODATION UNITS.

Tourist accommodation establishments are those which offer accommodation to persons wishing to stay at them, normally for a certain number of days but also during longer periods. While their name and category vary slightly, they are normally classified in Spain as hotels, apartment-hotels, holiday apartment resorts, hostels, etc.

But the essential feature of tourist accommodation establishments is that, whatever the occupation period, the client is entitled to receive the “accommodation” service as such jointly with the services inherent in the tourism industry.

This introduction is intended to be of assistance in understanding the taxation of accommodation units which are individually owned by a person. An establishment -e.g. a hotel building with multiple accommodation units (apartments, villas, rooms)- may constitute one only property as a whole, but it may also be divided into various units by executing a Deed known as ‘Horizontal Division’ so that each resulting unit becomes an “independent” property from a legal point of view and, therefore, is registered as an independent property.

This is what has come to be known commercially as a “condo-hotel”, where a person can acquire ownership of a hotel room, an apartment of the apartment-hotel or a villa or a building such as a bungalow, which are accommodation units of the hotel, the apartment-hotel, the holiday apartment resort, etc. That is, from a legal point of view these units are not “dwellings” but tourist accommodation units.

The owner can obtain a rent from their accommodation unit in such tourist establishments, although they may under no circumstance do so directly by renting out or otherwise ceding the apartment to a third party, nor are they entitled, as owner, to simply occupy the unit.

A person who buys an accommodation unit which is part of a tourist establishment is not really a “consumer” but an “investor or business operator”.

What, then, can the owner of such an accommodation unit do?

The only thing they can do according to Law is to cede the unit to the hotel’s sole operating company, and the latter will pay the owner an agreed rent which will then de subject to tax on the profit thereby made in the form explained below.

When we say that the “accommodation unit” has to be fully ceded for each and every day of the year to the operating company, we say it because, according to Spanish Law, only one company is entitled to provide services to and operate the hotel or any other kind of tourist establishment.

This means that the sole operating company is the only company which can handle reservations for the units, accept guests, provide services to the latter and charge them a price for doing all this.

We must therefore reiterate that the owner of the accommodation unit may not admit anybody to occupy the unit and neither they nor their family may occupy the unit other than as guests who reserve, make a contract and pay the price charged for the occupation of that same unit. To give a graphic explanation: they will have to register as hotel guests, take the keys from the hotel receptionist and pay the unit price.

The consideration received by the owner of the unit is the rent they must receive from the sole operating company of the resort.

But the reader will have probably seen offers to purchase one of these units saying that they can “occupy their own unit for two or three months without paying anything and the operating company will pay them the agreed rent for the rest of the year”.

However, this not true from a legal or a taxation point of view, because the owner may occupy the unit as a guest for the maximum period allowed by Law “where the guest is also the owner” (not more than two months in the case of Andalucía) and they will also have to pay a rent, event it this is done by way of an offset payment.

Having made this long but necessary introduction, we must now go back to the purpose of this article, namely to know the taxes to be paid initially by a person who buys an “accommodation unit” and the taxes they will have to pay for using it personally during a certain period and, also, for obtaining a rent from the operating company in charge of marketing the unit.

1.- Taxes inherent in acquiring ownership of the “tourist accommodation unit”.

1.1.- IVA (VAT) is applicable in all of Spain except the Canary Islands, where this is replaced by a very similar tax albeit with much lower taxation rates.

The 21% I.V.A. payable on the selling price must be passed on by the seller of a tourist accommodation unit to the purchaser.

It is true, on the other hand, that as the purchaser does not purchase the unit for their personal use, they can apply for a refund of this I.V.A. the following year.

1.2.- Impuesto de Actos Jurídicos Documentados (Stamp Duty), the applicable rate of which depends on the part of Spain where the property is located and normally ranges from 0.75% to 2% (1.5% in Andalucía).

2.- Taxes inherent in the rental or other legal form of cession of the unit to the “sole operating company” against a consideration or, where applicable, to be offset in subsequent years.

2.1.- As the owner of the tourist accommodation unit cedes the unit, by virtue of a legal obligation, to the sole operator for the whole year, they must receive the rent agreed on with the operating company.

Such a rent received by a non-resident is subject to Income Tax at the rate of 19% in the case of taxpayers with residence in the European Union, Norway and Iceland and 24% for the remaining taxpayers. This tax must be filed and paid quarterly.

Normally, the payer of tax on the yield -operator- must make a withholding on account of the Non-Residents Income Tax (19% for residents on the EU and the EEA and 24% for the rest).

2.2.- On the other hand, the owner-lesser must pass on to the operating company I.V.A. at the general rate (21%) and they must file a VAT tax return -also quarterly-.

3.- Fiscal implications of occupation or use of the unit by its owner.

We mentioned earlier that the owner is not entitled to occupy the unit due to their holding title to the property as the owner thereof, as they have previously rented out or ceded the unit for “the whole year” to the operating company (article 42.2.2 LTA – Tourism Act of Andalucía -).

It is true, however, that the owner may occupy and use the unit during “not more than two months” (in the region of Andalucía, as per article 42.3.a LTA) as a guest, which entails an obligation on their part to pay the price of their stay, as any other guest, including in this case the obligation to add 10% I.V.A. as would be the case with any other guest. This I.V.A. is unrecoverable given that the owner is not in this case performing a professional or trading activity but merely acting as a consumer or user (guest).

But “payment” or “income” must not be confused with a transfer of money in one or other direction. It is possible, and very often the case, that the operating company which must pay an annual rent and I.V.A. to the owner for the cession of the unit during the whole year will only transfer to the owner the amount of the rent plus I.V.A. thereon albeit withholding the sum payable by the owner-guest for the time they have personally used the unit by way of an offset payment.

What happens if the tourist accommodation unit (often an apartment, bungalow or small villa) is used or occupied by, and available to, the owner of the unit during the whole year?

In this case, both the owner of the unit and the hotel operating company will be breaching very important rules relating to town planning, tourism and taxation. By way of an example:

1.- The operator of the tourist accommodation establishment may receive severe economic sanctions and the whole establishment may even be closed down.

2.- If no tax is paid on the cession -necessarily granted for valuable consideration- of the unit by the owner to the operating company and, inversely, if the hotel cedes a period of time (even on a de facto basis) for the owner to use gratuitously where a price should have been paid, both the operating company and the owner will be thereby failing to comply with their fiscal obligations.

3.- Finally, if the owner of the tourist accommodation unit lives in the unit or the unit remains available to the owner, it may well be considered that their unit has been transformed into a personal residence, which is a very serious breach of town planning regulations which may even result in the closure of the building. This is of the utmost importance, and the ‘Autonomous Communities’ (Regions) of Spain are going to great lengths in establishing legal regulations to crack down on the de facto conversion of tourist accommodation units into “residential homes”.

IV.- RENTAL OF RESIDENTIAL DWELLINGS FOR TOURISM-RELATED PURPOSES.

In another article published in this same blog http://wp.me/p2Zl8w-nI , we commented on the new regulations affecting private dwellings which, either permanently or during certain periods of the year only, were occupied by third parties against payment of a price and including the provision of some tourism-related services such as daily cleaning, meals, etc.

Such use of these dwellings (apartments, villas, etc.) located on residential land is regarded as a tourist services operation by reason of their including such ancillary services and, therefore, they must be registered with the Tourism Registry.

The operation of these dwellings for tourism-related purposes is certainly quite similar to the “seasonal rental” described in Section II above.

The taxation of the -actual or deemed- rents thereby obtained is as follows:

1.- If the property is operated all year round for tourism-related purposes, i.e. as tourist accommodation, then Income Tax will be payable by individuals residing in the EU, Norway and Iceland at the rate of 19% on the profit thereby obtained. The general rate for the remaining taxpayers will be 24%.

As this is a tourist accommodation activity, the owner must charge I.V.A. to the user at the reduced 10% rate which applies to the Tourism Industry.

In both cases, quarterly tax returns need to be filed in respect of these taxes.

2.- If the dwelling is only operated for tourism-related purposes during part of the year, the taxation (Income Tax on actual rent and I.V.A.) will be the same as that described in 1 above in proportion to the period of time during which the property has been used for such purpose.

As regards the periods during which the dwelling is not being operated, namely when it is being used by its owner, the only tax to be paid will be the tax we have referred to as “deemed income tax” (See Sections 1 and 2).

The above list of taxes is obviously a generalisation and will need to be specifically determined in each particular case.

This is an opinion article and is therefore subject to any better-founded opinion on the matter.

Francisco J. Lizarza – Lawyer

Rocio Lizarza – MBA

SEASONAL RENTALS VS. TOURIST DWELLINGS

Posted on 26 marzo, 2016 por lizarzablogesp

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ANDALUCIA

SEASONAL RENTAL OF DWELLINGS
VS.
OPERATION OF DWELLINGS FOR TOURISM PURPOSES

The legal rules governing tourism in Spain fall within the competence of the Administration of the ‘Autonomous Communities’ or Regions of Spain as opposed to that of the central State Government, which means that different regulations exist in each such Region.

Following suit with other Regions, Andalucía has recently published a Decree (28/2016 of 2 February) on dwellings to be used for tourism purposes.

This and similar legal rules of other Regions are intended as a reaction to what was formerly known as “illegal holiday apartments”, and they have become very important given the growth experienced by the commercialisation of private homes for use by tourists during very short periods. Such an unstoppable growth is due to the straightforwardness and immediateness of the electronic means which are now used for the marketing of these homes. Thus, what the owners of dwellings do is that they cede their private homes for very short periods (sometimes a few days) to companies which, through their own website, channel the agreement between the owner and the tourist, who normally don’t know each other or only meet when the tourist arrives on a prearranged date to occupy the dwelling. Even payment of the agreed price is also managed through that portal.

The traders who operate resorts of holiday accommodation regard this (as they did the so-called “illegal holiday apartments”) as unfair competition as, while these traders need to maintain an appropriate services structure, staff and facilities, in addition to bearing a considerable tax burden, short-term occupation of private homes by tourists, where services which may be considered inappropriate are also offered, do not bear the same taxes or can simply dodge them easily.

But the owners of dwellings have the ancestral, legally-recognised right to rent out their homes, even for short periods.

Therefore, the intention behind these rules is to establish a distinction between a short-term rental of a dwelling and the cession of a “dwelling” (whatever its size) as if it were a holiday accommodation unit.

This Decree is therefore intended -more or less successfully- to differentiate between these two legal activities.

We must therefore stress the elements which identify and differentiate each type of right, although it must first be noted that all these rights relate to “viviendas” (dwellings) understood as the first definition contained in the Dictionary of the Royal Spanish Academy of Language, i.e.:

“An enclosed and covered place built to be inhabited by persons”.

Therefore, when we commonly talk about a dwelling, we refer to its physical meaning, i.e. a building constructed to be inhabited by persons, but when we do so in the legal context of the Decree mentioned in this article, we do so to differentiate between the different ways of occupying and using that building, be it a dwelling intended to be used mainly and permanently as living accommodation or to be enjoyed during a short period or used as what we now regard as “holiday accommodation”.

Articles 1542 and 1543 of the Civil Code provide that a lease can relate to things, works or services, and that, where it relates to things, one of the parties undertakes to grant the other party the right to enjoy or use a ‘specific thing’ during a certain period of time. And, obviously, the ‘thing’ can be a dwelling, whatever its size and characteristics (villa, apartment, studio, mansion, etc).

For the purposes of the current Urban Lease Act (L.A.U. for its Spanish initials), leases on a dwellings relate to those intended to be used as a “place of habitual residence” and to the “seasonal rental of dwellings”. Namely, it is their intended use that characterises them.

But where the cession of a building/dwelling has a different intended use, such as the provision of accommodation services, this is no longer a lease but an accommodation services contract.

For this reason, certain clarifications should now be made concerning the elements of each one of these contractual rights:

I.- CONTRACT OF OCCUPATION BY WAY OF A LEASE FOR HABITUAL RESIDENCE PURPOSES.

Given the social relevance of the primary need to fulfil the right to living accommodation for persons and families, this has been regulated in Spain with a very interventionist role of the State, so that the rules and conditions governing the cession of use of a dwelling have to a large degree been regulated very strictly and in great detail by special laws, to such an extent that, in the tenant’s sole discretion and enforceable on the lessor, the lease can continue for up to three years even if the contract was entered into for a shorter period. Such lease contracts where the intended use is not a seasonal rental are not the subject of this analysis.

II.- CONTRACTS RELATING TO THE SEASONAL OCCUPATION OF DWELLINGS.

In addition to the lease contract mentioned in the last preceding section, the current Urban Lease act (LAU) contemplates and regulates those contracts relating to the rental of urban property which are entered into on a seasonal basis, be it the summer or otherwise.

That is, occupation of the dwelling is granted for a “specific season” such as the summer season or, rather, the summer holidays or any other purpose which does not require a long-term stay.

III.- CONTRACT FOR THE OCCUPATION OF DWELLINGS FOR TOURISM PURPOSES OR AS TOURIST ACCOMMODATION SERVICES.

This is the kind of contract referred to in, and governed by, Tourism Laws (particularly, in this case, the aforementioned Decree of the Junta de Andalucía).

Therefore, the aforementioned lease contract for habitual residence aside, the purpose of this analysis is to be able to tell an ORDINARY SEASONAL LEASE (where a private individual rents out their dwelling to a person –tourist or otherwise– during, for example, the summer season) from THE CESSION OF A DWELLING FOR IT TO BE OCCUPIED AS “HOLIDAY ACCOMMODATION”.

And, to do so, there is a preliminary point to stress, as it is often that contracts, rights or business deals are called something they actually are not in an attempt to dodge the regulations applicable to that specific legal transaction, but this is not admissible from a legal point of view because contracts and rights are what they are, not what they are called; or, as Spanish Case Law has determined:

“Contracts have the legal nature which arises out of their binding content, regardless of what the parties thereto may choose to call them”.

Therefore, as far as this analysis is concerned, calling what in legal terms is a right to occupy a holiday accommodation unit a “seasonal lease” (or vice versa) does not mean that we can avoid the rules which in fact apply to each kind of right according to its own legal nature.

For the sake of -an almost impossible- brevity, we need to define or at least delimit when the owner of a “dwelling” located on residential land may only operate their dwelling as holiday accommodation and has to comply with the legal requirements to do so. Or, inversely, when they may not cede it as an ordinary seasonal lease.

This will be mandatorily regarded as the operation for tourism-related purposes of a dwelling located on residential land where some or all of the following circumstances occur:

The dwelling is marketed or promoted through holiday services channels where the latter is understood to mean travel agencies, companies providing holiday services or acting as an intermediary in respect thereof and any channels including the possibility of booking accommodation.

It is very important to highlight these provisions of the Decree as therein lies the, in my opinion, main motive for approving this legal rule, as it further addresses what triggered the old claim of “legal” holiday resort operators who felt that short-term occupation by tourists of residential homes constituted unfair completion and, also, the public Administration’s concerns about certain “perils” in an activity which had not been specifically regulated, on the one hand, and even the possibility of tax evasion on the other.

And it is the promotional and commercial use of the Internet to achieve deals in respect of such dwellings through the so-called “holiday services channels” that constitutes this triggering factor.

Just type the words “rental of apartment by days” or something similar into any Internet search engine. You will see the amount of pages offering services for the owner of a dwelling to cede the occupation thereof through that website. We know that the use of such websites is often monitored by the “competent tourism administration” in the assumption that this is a holiday services channel and, therefore, the user’s dwellings are being marketed through this channel, thus engaging in a clandestine operation of tourist accommodation deserving of large fines.

So much so that a previous draft of Andalucía’s Decree on dwellings for tourist use dated in 2014 pointed out, as does the current Decree now in force, that the growth of this activity was due, among other things, to:

“The appearance of new forms of marketing which are direct and have no intermediaries, particularly numerous Internet portals…”, to such an extent that said previous draft Decree from 2014 took the tourism-related purpose for granted where the service is offered “through any advertising medium, inclusive of the Internet or any other new technology…”.

Does this mean that any person offering the rental of their dwelling for a longer or a shorter period directly or through an Internet portal, even if they do so regularly, is engaging in a tourist accommodation activity, or that the dwelling has thereby become what the new tourist rule we are discussing calls a residential home for tourism purposes?

I honestly believe it does not.- It is not the fact of being marketed through the Internet that defines a tourist accommodation activity, but the fact that the property is actually used as tourist accommodation.

Tourist accommodation is fundamentally defined or characterised by the union of two essential elements; the “physical accommodation itself” and the “ancillary services of the tourism industry” or, as set forth in article 40.2 of Andalucía’s Tourism Act: “Any establishment to be used for the provision of tourist accommodation services shall comply with the requirements concerning facilities, furniture, services and, where applicable, those applicable according to the type, category, form or specialty to which they relate”.

Consequently, properties occupied without any added services typical of the tourism industry being provided, few as they may be in this case, may not be regarded as tourist accommodation.

So we should now look at the similarities and differences between one kind of right and the other.

Conflict has certainly arisen in the past and will continue to arise, albeit more rarely now, when somebody tries to avoid complying with this new regulation on dwellings located on residential land but including tourist accommodation services and when this is disguised behind an allegedly lawful “seasonal lease”.

We are back to what I mentioned above: contractual obligations are determined by their own nature, not by what we choose to call them. If the right being contracted for is one to occupy a tourist accommodation unit (i.e. a building which is legally suitable to such end and where the ancillary services typical of the tourism accommodation industry are provided), then the contract will not constitute a seasonal lease and, if the intention is to make it appear as such, this will be done in breach of the obligations inherent in the kind of contract now analysed and the breaching party may be subject to severe administrative sanctions.

This certainly does not mean that those who market their seasonal lease, whether directly or through specialised traders (such as estate agents or the like), cannot do so through the Internet or other media, as this electronic medium is not exclusively reserved for lodging activities.

Despite the efforts that went into the legal rules, there can always be a point of conflict between these two types of contracts, hence the Decree under study -article 3, “Definition”-, rather than define the nature of accommodation in a dwelling for tourism purposes clearly, exactly and accurately, simply provides a non-exhaustive list of the characteristics by which it is presumably delimited.

OBJECTIVE DELIMITATION OF “DWELLINGS FOR TOURIST USE”

MANSION

The delimiting (defining) characteristics from a legal point of view of DWELLINGS FOR TOURIST USE -which as such must be registered with Andalucía’s Tourism Registry- are, according to the rule herein discussed, as follows:

• These dwellings must be located on “residential” land. While excluding those located on “touristic land” may appear to make no sense, it does, as in that case they are already obligated to be used for tourism-related purposes as defined in other rules.
• It must be presumed (and can therefore be otherwise proved) that the following dwellings are used for tourism-related purposes:
* Those offered for a certain price on a habitual basis and for tourism-related purposes.
* Those marketed or promoted through holiday services channels.

* On the other hand, the following dwellings shall be regarded as not for tourism-related purposes:
• Those ceded gratuitously or without any economic consideration.
• Those hired for more than two months.
• Those operated under other kinds of holiday accommodation activity.
• Where the deal relates to a set of three or more dwellings in the same building or group of buildings, adjacent or otherwise, in which case the regulations governing holiday apartments will be applicable.

Essential requirements to operate your dwelling as a “TOURIST RESIDENTIAL” dwelling.

1.– Located on residential land.
2.- Ceded for a certain price or an economic consideration.
3.- Maximum cession time not in excess of two months.
4.- Operation by the same owner relates to one or two dwellings at most in the same building or group of buildings, adjacent or otherwise.
5.- Each dwelling to be rented out for use by no more than the authorised number of occupiers according to its type.

6.- REGISTRATION WITH ANDALUCÍA’S TOURISM REGISTRY:
The process starts by filing a Statement of Compliance (Declaración Responsable) with the Administration in which the owner states that they are compliant with the legal requirements to carry out this activity, particularly:
6.1.– Contact details and address for notification purposes of the owner of the property.
6.2.- Identity of the person “operating” the dwelling and title by which they do so if they are not the owner.
6.3.– Registration with Andalucía’s Tourism Registry; and
6.4.– Licence or notice of the activity to the Town Council.

7.– MAXIMUM OCCUPATION OF THE DWELLINGS:
7.1.– If The dwelling is ceded in its entirety, the number of occupiers must not exceed that reflected in the municipal Habitability (First Occupation) Licence or, in any event, fifteen occupiers altogether and four per bedroom.
7.2.- If the dwelling is ceded by bedroom, the owner must live in it and the number of occupiers may not be more than 6 altogether or more than four per bedroom.

8.– REQUIREMENTS AND COMMON SERVICES:
8.1.- The dwelling must be “legal”, which in principle means that it must have obtained the municipal Habitability (1st Occupation) Licence and must be compliant with the technical and quality specifications demanded for such dwellings.
8.2.- The rooms must have direct ventilation to the outside or patios and some system to protect them against the glare or exterior lighting.
8.3.– It must be sufficiently furnished and equipped with the necessary domestic appliances.
8.4.- It must have a heating system if it is occupied between the months of October to April inclusive, and a cooling system if it is occupied between May and September inclusive.
8.5.– First aid kit.
8.6.– Tourist information must be available (leisure areas, cafes, restaurants, etc.).
8.7.- There must be claims and complaints forms in it to be made available to the tourism authorities.
8.8.– A visible “tourist dwelling” sign.
8.9.– It must be cleaned at least before the check-in and after the check-out of guests.
8.10.- Linens and furnishings, etc.
8.11.– Owner’s telephone number in case there is a problem.
8.12.– Information and instructions of use of electrical appliances and machines.
8.13.– Information concerning use of the facilities, whether pets are allowed in the house, smoking rules, etc.

Obviously, this article does not contain full, specific details but only general information.

9.- TAXES.
The owner of these dwellings becomes the operator thereof and must observe the applicable legal rules, as it receives a rent and has to pay for utilities and services and will therefore make a profit or incur a loss, so they must file tax returns, quarterly tax statements, withholdings, etc. This activity is also liable for V.A.T. at a reduced rate of 10%, with the formal obligations this entails.

OBJECTIVE DELIMITATION OF SEASONAL LEASE (SUMMER OR ANY OTHER SEASON).

Although seasonal lease contracts have been traditionally entered into between the owner direct and another person to whom the owner has been in any way introduced, or through a estate agency, this does not mean that the owner themselves or an intermediary -particularly a real estate agent- cannot undertake the job of promoting and marketing the seasonal lease contract. That is, Internet marketing does not necessarily mean “marketing through holiday services channels”.

As mentioned at the beginning, the differentiating line between marketing a building-dwelling by entering into a “seasonal lease contract” and doing it in respect of the same building-dwelling by entering into the “accommodation contract” to which the regulations herein discussed refer are not clear, as we do not have an accurate definition of each contract. And it is an inaccurate delimitation as aforesaid because both buildings are dwellings which are to be occupied by persons, both are located on residential land and the duration of the agreement is in both cases more or less short, or at least it is in many cases.

Consequently, in trying to delimit the meaning of a seasonal lease as opposed to the meaning of a cession of a dwelling by an accommodation contract, rather than using a legal definition of each right we will have to look at the integral elements -or, in this case, particularly the excluding elements – of one kind of contractual right or the other.

Thus, without being exhaustive, a contract will relate to a seasonal lease where the duration of the contract is in excess of two months (although leases with a shorter duration do exist) and, at the same time, the ancillary services inherent in the accommodation, etc. are not provided.

On the other hand, a contract relating to tourist accommodation in a residential dwelling fundamentally requires the provision of the services typical of the tourist accommodation industry, even if these are restricted to those mentioned in the Decree about which we are speaking. If these services fail to be provided, then the contract is a seasonal lease.

We mentioned at the beginning that Andalucía’s Tourism Administration is putting particular focus on monitoring holiday services channels on the Internet, to such an extent that inspections and sanctions have been frequent in respect of accommodation complexes with several units; but now, after the coming into force of this Decree, there is no doubt that a revision will take place, on what is regarded as holiday services channels, of singular dwellings where tourists are being lodged without meeting the requirements of this law, and the relevant sanctions will obviously be imposed on those who contravene it.

Having said the above as regards the requirements of a seasonal lease as opposed to contracts relating to accommodation in a residential home, we have to say that the “season” does not have a specific temporal limitation, i.e. it does not have a minimum or a maximum duration. A season rather refers to the leaseholder’s need, or mere suitability, to occupy the dwelling “temporarily”, without the ancillary services of the tourism industry on the one hand, and without intending to fulfil the primordial and primary need of persons and their families for living accommodation, as in that case the contract would be an ordinary contract of habitual residence.

Summer is typically the season to which a seasonal lease relates, but it can be any other, such as a period of time during which a person needs to do a temporary job (e.g. six months, one year, etc.).

Therefore, a season of less than two months can exist (without this entailing that the contract is for lodging) or it can be longer than 11 months (without it being a lease for habitual residence).

And we highlight these two time limits -less than two months and more than eleven months – because it has been traditionally interpreted that, by stipulating one or the other, the mandatory rules of a specific contract can be circumvented at will. Thus, “eleven-month” seasonal lease contracts have for decades been offered by lessors in the belief that they could thereby exclude an “ordinary” lease for habitual residence and its mandatory -for the lessor- extensions, which used to be indefinite, then became mandatory up to five years and currently up to three years, depending on the date of execution of the contract. However, those who tried (and still try without being aware of the consequences) to simulate a seasonal contract by merely specifying its duration as eleven non-extendable months, found that the courts had many years ago ruled that, despite its name and appearance, such a contract actually related to an ordinary lease for habitual residence purposes, with an indefinite extension until the decease of the lessor, and even until the decease of the lessor’s spouse and children in many cases.

Therefore, whether a short-term or a long-term seasonal lease is chosen, a reason to occupy the dwelling temporarily has to exist.

It must be stressed, therefore, that a seasonal lease contract has to refer to a “building-dwelling” which may or may not be furnished, although logic dictates that it needs to be furnished in the case of a short-term seasonal lease, and there is also an important security requirement for the leaseholder to pay to the lessor an amount equivalent to two months’ rent as security deposit to answer for any possible damage, which the lessor must deposit with the Public Treasury of Andalucía and refund without interest when the lease has finished.

Current State regulations in Spain excluded this requirement in the case of seasonal leases, but competence in this matter now lies with the Autonomous Regions of Spain and, in the case of Andalucía, its current legislation obligates the lessor to demand, under their own responsibility, that the leaseholder pay a two-month security deposit irrespective of whether the seasonal lease is for fifteen days, one month or longer. This really is contradictory in addition to illogical, but this is the legal rule that must be complied with and Andalucía’s tax administration is currently pursuing non-compliance and imposing sanctions on breaching lessors.

Also in this case, as in others, the rents obtained by the lessor are subject to tax payable to the Public Treasury of the State.

CONCLUSIONS:

A cession for valuable consideration in Andalucía (and on similar terms in other autonomous regions of Spain) of buildings-dwellings located on residential land may be formalised by entering into an accommodation contract, a seasonal lease contract or an “ordinary” lease contract (to fulfil persons’ primary and habitual need for living accommodation), but the choice of one or another right or contract is not free, as it has to be made based on complying with the minimum legal requirements applicable in each case.

This is an article of legal opinion

Francisco J. Lizarza
Lawyer
Lizarza Abogados S.L.P.

The General Directorate of Public Registries and Notaries holds a dissenting view from that of the Supreme Court on the maximum duration of systems in existence before the 1998 Timeshare Act

Posted on 9 marzo, 2016 por lizarzablogesp

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RDO has furnished us with a Report dated 9 February 2016 which was issued by the General Directorate of Public Registries and Notaries at the request of the Ombudsman of the Canary Islands.

We believe that the interpretation reflected in this report is more in line with the spirit, the rationale and the mandatory provisions of the Rotational Enjoyment of Real Property for Tourism Purposes Act 42/1998 (LAT 42/1998).

It is important to stress that this Act was in fact developed within the General Directorate of Public Registries and Notaries. This Act incorporated the prescriptions of the 1994 Timeshare Directive, but it was also intended to respect the rights in existence before its enactment, albeit demanding the owners and/or promoters of this kind of touristic operation to have the pre-existing system registered, whether transformed into a system of in-rem or leasehold rights of rotational enjoyment or preserving its own pre-existing legal nature, whether subject to Spanish or to non-Spanish law, and whether its maximum duration was 50 years or more, or even indefinite if this was expressly declared in the Deed.

REPORT ON CURRENT SITUATION OF RIGHTS OF ROTATIONAL ENJOYMENT OF REAL PROPERTY CREATED BEFORE THE COMING INTO FORCE OF THE ACT OF 15 DECEMBER 1998

(Click on the originals images-pages below for the Spanish version)

Following a request filed with the General Register of the Ministry of Justice on 16 December 2015, this report has been issued by this General Directorate with regard to a query made by the Canary Islands’ Ombudsman concerning the current situation of the rights of rotational enjoyment of real property created before the coming into force of the Act of 15 December 1998.

THE ASSISTANT DEPUTY DIRECTOR,

Elena Imedio Marugán

Sec. 3ª R. 1833/2015-10.4

REPORT ON CURRENT SITUATION OF RIGHTS OF ROTATIONAL ENJOYMENT OF REAL PROPERTY CREATED BEFORE THE COMING INTO FORCE OF THE ACT OF 15 DECEMBER 1998

            The report requested on the instruction of the Ombudsman of the Canary Islands focuses on the current situation of those rights of rotational enjoyment of real property which were created before the coming into force of the Timeshare Act of 15 December 1998.

            This request has been prompted by various Judgements of our Supreme Court (specifically the Judgements rendered on 15 January and 16 July 2015 by the Civil Chamber) which declare the nullity of certain contracts relating to rights of enjoyment –which had been created before the enactment of the aforementioned rule-, the execution date of such contracts being later than said coming into force.

            Both cases involved rights relating to occupation periods which were still owned by the promoter of the scheme.

            The Supreme Court, similarly in both cases, resolved the matter as follows:

“SEVENTH LEGAL GROUND

I.- Act 42/1998 of 15 December regulated the different formulas enabling the transfer of the right to use an accommodation unit during a period of time each year, which had been known as multi-ownership despite the fact that, as stated in the Rationale, they involved a temporal division of the right to use a real property.

In addition to implementing Directive 94/47/EC of the European Parliament and of the Council of 26 October 1994 –regarding protection to the purchasers in relation to certain aspects of contracts of acquisition of the right to use real property on a timeshare basis-, the legislator intended to provide the institution with a full set of regulations, for which purpose they considered of utmost importance to decide whether any of the formulas created by the principle of free will should be admitted or only the system regulated by Law was admissible and any other system should be therefore left out. And they chose a middle path by imposing a detailed regulation of the right in rem over somebody else’s property and admitting the seasonal leasehold variation so that, outside this alternative, the legislator considered that the transaction had been made in circumvention of law and, also, that the fraudulent legal transaction was to be rendered null and void –article 1, paragraph 7-.

Of particular importance for the regulation established in the Act was the duration of the scheme, determined by article 3, paragraph 1, as lasting three to fifty years – “[…] from the date of registration of the legal scheme or from the date of registration of the completion of works where the scheme has been created in respect of a property under construction”-.

This rule is supplemented by the second transitional provision, in which the legislator addressed the effects of the new regulation on the so-called “pre-existing schemes”, imposing the mandatory adaptation of the latter to its provisions within two years –paragraph 1 -.

Indeed, after imposing such an adaptation to the new scheme, also in relation to time – “without prejudice to that set forth in the last preceding paragraph, all pre-existing schemes…..

….will have a maximum duration of fifty years as from the coming into force of this Act […]” – , paragraph 3 of said transitional rule permitted the possibility of formulating, in the Deed of Adaptation, an “[…] express declaration of continuance for an indefinite or a specific period of time”.

This latter alternative, informed by a wish to respect the rights already acquired, was chosen by Anfi Sales, SL, insofar as it expressly declared in the Deed of Adaptation that its pre-existing scheme would continue to have an indefinite duration.

However, the appellant’s interpretation of the aforementioned paragraph 3 of the second transitional provision, on which it bases its argument, does not respect the sense which arises out of the systematic connection thereof to paragraph 2 of the transitional rule itself, whose content the former respects in any event – “without prejudice to that set forth in the last preceding paragraph […]” – and according to which every owner – also, therefore, the now appellant – who, after the Deed of Adaptation, wanted to “market the occupation periods not yet transferred as rights of rotational enjoyment”, should constitute “the scheme in respect of the periods available with the requirements established in this Act”, including the temporal requirement stablished in article 3, paragraph 1.

The Appellant, claiming the applicability of a rule which did not provide sufficient coverage, failed to do this and, therefore, by marketing the occupation periods not yet transferred when the new Act was already in force without respecting the timeframe established in the rule of said article, it breached the article, as declared by the Appeal Court by virtue of a correct interpretation of the set of regulations (Supreme Court Judgement of 15 January 2015).

Therefore, what our high court wanted to point out is that, while contracts entered into before the 1998 Act may continue to have the duration thereby agreed, including an indefinite duration (provided that this has been expressly established in the Deed of Adaptation), all contracts entered into after the coming into force of the rule must be subject to the temporal limits laid down therein (namely, a maximum duration of 50 years).

In other words, only those rights relating to occupation periods constituted in favour of third-party purchasers, not promoters of the scheme, whose contracts were entered into before the coming into force of the Act of 15 December 1998, are protected with an eventual indefinite duration.

The transitional provision applied in the aforementioned rulings is that contained in the Second Transitional Provision of Act 42/1998 of 15 December, which literally states as follows:

            “Second – Pre-existing Schemes

Pre-existing schemes relating to rights involving the use of one or more properties, constructed or under construction, during a defined or definable period of the year, the establishment of which is recorded in any form recognised by law, must be adapted to the provisions of this Act within a period of two years.

             If the pre-existing scheme is registered, the Registrar may be asked to provide the non-binding report referred to in Article 355 of the Mortgage Regulations concerning the manner in which the adaptation is to be effected.

At the end of the two years, any holder of an in-rem or personal right relating to the use of one or more properties during a defined or definable period of the year may apply to the Courts for the enforcement of the adaptation described in this provision.

For such an adaptation it will be necessary, in any event, to execute a regulatory deed fulfilling those requirements of Article 5 which are compatible with the nature of the scheme and to have it registered at the Land Registry, solely for public record purposes and fully respecting the rights acquired. Of the contracts to which the said Article refers, only those which are in existence at the time of the adaptation must be incorporated. The deed must be executed by the sole owner of the property.

             If the pre-existing scheme was established in such a way that the holders of the rights are owners of undivided shares in the property which confer on them the right to enjoy a defined occupation period, the deed of adaptation must be executed by the President of the Community of Owners following a resolution passed by a simple majority of those attending the General Meeting to be called for that purpose.

In the deed of adaptation, the sole owner of the property must describe the pre-existing scheme and declare that the rights to be conveyed in the future will be of the nature derived from that scheme and identical to those already transferred. If the owner wishes to market as rotational enjoyment rights the occupation periods which have not yet been transferred, they must also establish the scheme in respect of those unallocated periods subject to the requirements of this Act, albeit the scheme will not need to be established for the whole property but only in respect of those occupation periods which have not yet been transferred. If the Owner wishes to convert the whole scheme into a scheme of rotational enjoyment rights, as regulated by the Act, they may do so in accordance with all the requirements contained herein, albeit maintaining the duration of the pre-existing scheme, even if such a duration is indefinite.

Without prejudice to the provisions of the last preceding paragraph, all pre-existing schemes will have a maximum duration of fifty years from the coming into effect of this Act unless their duration is shorter or the deed of adaptation contains an express statement that they are to continue for an indefinite period or for a specific period of time.”

             In a wider sense, the provisions on transitional regulations contained in our Civil Code (whose interpretative value may in no event be called into question) included the basic rule of non-retroactivity, along the same lines as article 2 of the same body of laws and article 9 of the Spanish Constitution, guarantor of legal certainty and non-retroactivity of penalty provisions which are not favourable to, or restrictive of, individual rights.

Our Code on transitional provisions sets forth that:

“Any variation introduced by this Code which is detrimental to rights acquired under the preceding civil legislation will not have retroactive effect.

First transitional provision

The legislation which preceded the Code shall govern those rights which, according to said preceding legislation, arise from actions performed under its regime, even if these are regulated differently or fail to be recognised by the new Code. However, where a right is declared for the first time in the Code, it will take effect immediately irrespective of whether or not the fact from which it arose was verified under the preceding legislation, provided that it is not detrimental to another acquired right of the same origin.

Second transitional provision

Acts and contracts executed under the preceding legislation which are valid according to it shall take full effect in accordance thereto, with the limitations established in these rules. (…) but the revocation or modification of such acts or of any clause contained therein may only be verified, after the coming into force of the Code, by executing a Will in accordance with it.”

The literal wording of the rules analysed clearly shows the establishment of a non-retroactivity system whereby the rights, acts and contracts created before the publication of the rule were fully protected and regulated by the preceding regulations.

In this sense, despite being reiterative, it is relevant to point out that the Second Transitional Provision of the 15 December 1998 Act states as follows:

Pre-existing schemes must be adapted, within two years, to the provisions of this Act. For such an adaptation it will be necessary, in any event, to execute a regulatory deed fulfilling those requirements of Article 5 which are compatible with the nature of the scheme and to have it registered at the Land Registry, solely for public record purposes and fully respecting the rights acquired.

            In the deed of adaptation, the sole owner of the property must describe the pre-existing scheme and declare that the rights to be conveyed in the future will be of the nature derived from that scheme and identical to those already transferred.

If the owner wishes to market as rotational enjoyment rights the occupation periods which have not yet been transferred, they must also establish the scheme in respect of those unallocated periods subject to the requirements of this Act, albeit the scheme will not need to be established for the whole property but only in respect of those occupation periods which have not yet been transferred.

If the Owner wishes to convert the whole scheme into a scheme of rotational enjoyment rights, as regulated by the Act, they may do so in accordance with all the requirements contained herein, albeit maintaining the duration of the pre-existing scheme, even if such a duration is indefinite.

Without prejudice to the provisions of the last preceding paragraph, all pre-existing schemes will have a maximum duration of fifty years from the coming into effect of this Act unless their duration is shorter or the deed of adaptation contains an express statement that they are to continue for an indefinite period or for a specific period of time.”

This provision, therefore, demands that pre-existing schemes be duly adapted to the new Act (mainly in the sense of clarifying the nature of the right created), but it allows a subjection to certain conditions of the preceding scheme including, without a doubt, the possibility of indefinite duration. And such an indefinite duration can apply both to occupation periods created and transferred and to those not yet transferred.

Also, executing the deed of adaptation entails, by virtue of mandatory rule no. 3 of article 5.1 of the 1998 Act, that the deed must reflect the occupation periods which exist in relation to each unit, including both those transferred and those still in possession of the promoter of the scheme. In addition, the Second Transitional Provision of the aforementioned special Act itself allows both the possibility of configuring a right of rotational enjoyment in respect of the unsold occupation periods and the conversion of all the existing rights (sold or…..

….unsold) for a full subjection thereof to the rule, albeit allowing it to maintain the duration of the pre-existing scheme, even if indefinite. It does not seem logical to allow the promoter to configure all the occupation periods under the new scheme (not under a mere adaptation) and maintain the indefinite duration of the scheme while, at the same time, the situation of the as yet unsold periods (although already created as such occupation periods before its coming into force) may not be configured under the new Act preserving its indefinite duration.

Additionally, and included in this report for its interpretative value as aforesaid, it is worth pointing out that the rules of the Civil Code on transitional law acknowledge the validity and ulterior applicability of all rights, acts and contracts executed before its coming into force, which means that, in a case like this, where the right of the promoter of the scheme had already been created on configuring –before the 1998 Act– the units and the occupation periods or rights relating to them, the publication of the new rule should not impair or alter such legal situations already created or the effects which the latter may have.

Therefore, the conclusion to be drawn is that our high court has differentiated between occupation periods already marketed (which are allowed to maintain their indefinite nature) and those not transferred, whose indefinite duration they regard as a breach of the 50-year temporal limitation, which infraction is acknowledged as deserving to be rendered null and void under article 6 of our Civil Code. This argument, therefore, differs from the sense which, in this directorate’s view, is intended by the 15 December 1998 Act for the purposes of adaptation of pre-existing schemes to its substantive provisions.

It is not reasonable that the whole system of enjoyment should be allowed to be converted to the new Act (where marketed and unsold periods coexist) and maintain the indefinite duration of all its occupation periods while, in the event that only the periods not marketed are directly regulated by the new Act, their duration is limited to 50 years. The rotational system, in both cases, existed before the coming into force of the rule, and it involves a number of rights in favour of the promoter (all of them included and defined in the deed of adaptation imposed by the transitional rule and registered with the Land Registry) to which the rule is applied retroactively, without respecting their indefinite duration.

Transferring the occupation periods already configured to a third party may not be considered to constitute the event which allows a differentiation between indefinite and limited duration periods, as the promoter’s right has, without a doubt, come into existence, and its configuration took place before the coming into force of the Act, not to mention that some of the paragraphs of the Second Transitional Provision of the 1998 Act are thereby fully voided.

Madrid, 8^th February 2016.

THE DIRECTOR GENERAL

Francisco Javier Gómez Gálligo

Lizarza AbogadosS.L.P.U.

Marbella, 9th March 2016

Ombudsman of the Autonomous Community of the Canary Islands warns of “serious” consequences if the “timesharing” gets overridden

Posted on 2 marzo, 2016 por lizarzablogesp

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In the Canary Islands there are 14,000 timeshare properties, representing 58,874 beds, with an occupancy rate of 81.1%, generating 10,000 direct jobs

Europa Press – Las Palmas de Gran Canaria

The Ombudsman of the Autonomous Community of the Canary Islands, Jerónimo Saavedra, has expressed his concern about the situation of «legal uncertainty» between owners and the «serious breach» that can bring to the Tax Office the annulment of time sharing contracts.

This was pointed out in a statement as a result of several Supreme Court judgments of the past year in which they have declared void the rights acquired for an indefinite period for real property for tourist purposes timeshare, also known as time sharing mode.

Saavedra comes to meet a complaint lodged to the Ombudsman of the Autonomous Community of the Canary Islands on this matter, as well as several public consultations in this regard.

In those complaints is warned the situation of legal uncertainty, in addition to the possible economic and financial impacts, as well as tariffs impacts or other, that can arise to restore the taxes and expenses that might have been paid as a result of carrying those contracts out.

It is also notified the serious breach to the Tax Office that going back to the situation prior to granting the contracts could cause to the Tax Office, such as compensation for damages whose amount can be very high if declared void, says Saavedra.

The Ombudsman of the Autonomous Community of the Canary Islands maintains that it is a matter of «great significance» in the Canary Islands, given the relevance of this modality within the tourist sector on the islands. Of the 302 timeshare resorts that exist in Spain, 128 are in the Canaries. In the entire country there are about 715,000 holders, of which approximately 623,000 are foreigners.

This industry generates in Spain more than 18,300 direct jobs and a total economic impact (direct and indirect) of 2,800 million Euros, with an investment by purchasers of nearly 15,000 million Euros, almost 1.5% of GDP , funded mostly by foreigners who could take them back to their countries of origin.

In the Canary Islands there are 14,000 timeshare properties, representing 58,874 beds, with an occupancy rate of 81.1%, generating 10,000 direct jobs. The average expenditure per owner in 2013 was 45.2 Euros per day, at an average stay of 11.6 days and an average occupancy rate in the same annuity of 81.1%.

Every year 1.3 million tourists visit the Canaries in this modality, over 10% of the tourism received by the islands per year, according to the figures provided in 2014 by Resort Development Organization, in line with the National Association of Timeshare and Canarian Institute of Statistics.

Limitation of 50 years

The Ombudsman of the Autonomous Community of the Canary Islands points out that the Supreme Court judgments are based on an interpretation which denies that the pre existing resorts or regimes to the Law on real estate for tourist purposes timesharing right and the tax regulations “cannot be passed on indefinitely but with a 50 year time limitation”.

In the report of the Ombudsman of the Autonomous Community of the Canary Islands, after analyzing the legal text, he holds that the approach adopted by the Supreme Court does not adjusts entirely to the law, and understands that the legislator “sough to grant the acquired rights and provide security to the preexisting regimes, while strengthening the position of the consumer”.

At the same time it emphasizes that the law aims to strengthen the juridical legality and safety with the public notaries and land registrars, entrusting the former ones with formalizing the public deed, ensuring its disclosure by accessing the Land Register.

Jerónimo Saavedra explained that after this Law, many public notaries and land registrars granted and registered adaptation deeds to the aforementioned legal requirement, of pre existing regimes to it, stating that the weeks or specific period each year, to be sold in the future would be indefinitely.

Further adds that also public notaries authorized contracts regarding timesharing accommodation rights, which were configured with an indefinite time character or without a term, i.e. beyond the scenario of 50 years.

This is why, the Ombudsman of the Autonomous Community of the Canary Islands, has issued a resolution requesting the Registries and Public Notaries CEOs to decide as to whether in the light of the existing legislation such operations may be carried out as indefinite or must be done with the maximum time limit of 50 years.

Jeronimo Saavedra concludes by asking «what would be left of the legal security deposited in these two groups of very high legal professionals if we find judgments that decree the nullity of contracts in which they have intervened or that have been reflected in the appropriate Land Registry”.

LIZARZA ABOGADOS

SPANISH TIMESHARE ACT 42/98: REAPING WHAT WAS SOWN

Posted on 17 febrero, 2016 por lizarzablogesp

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Many a draft came to light in the 1990s aiming to enact a law which would specifically regulate what was initially called timeshare (tiempo compartido in Spanish), and many seminars, conferences, etc. were held to make proposals, discuss what its scope should be and, especially, establish a reliable legal framework for both the consumers and the traders in the Sector.

Eventually, as has often been the case, the new Act was rushed as a result of the need to have a new law given the quantitative and qualitative importance of this phenomenon and, to no lesser extent, the media impact of the problems which had arisen between consumers and traders and the so-called abusive practices in its commercialisation.- But the fact is that, after many years of drafts, bills, etc., the urgent need or, rather, obligation, to enact a specific law for this economic activity arose, as has happened on many other occasions, from the adoption by the European Parliament and the Council of Directive 94/47/EC of 26 October. And, also as many times before, the Act which incorporated into the Spanish legal system the provisions of the Directive was enacted by the Kingdom of Spain well past the deadline thereby established; so late, in fact, that everything had to be done rather hastily.

Timeshare became popular in Spain under the name “multi-ownership”, in some cases meaning strict ownership of a certain share of a property but, ncreasingly so among Spaniards, as a term equivalent to the timeshare name, as a literal translation of ‘timeshare’

When the pressing need to implement the aforementioned Directive arose, the General Directorate of Public Registries and Notaries was tasked with drafting the Bill. It seemed quite surprising that the proposed regulation of this predominantly touristic phenomenon, which today is called “marketing of accommodation in tourism establishments” even in the relevant legal texts, should start and be developed by the management body of Notaries and Registrars of Property. That is, its structure or legal regulation had become a matter of ownership, or of rights directly related to ownership, despite the fact that this word was banned from the marketing process.

The drafters of the Bill acknowledged at all times that this was a (merely) touristic activity but, when it came down to it, the “touristic element” of the new regulation was the least important thing.

Directive 94/47/EC contained a clear mandate to the legislators of the EC member states to incorporate certain “consumer protection” rules, the fundamental purpose of which was to prevent the bad practices which doubtless existed. To do so, particular focus was put on the need to provide the consumer with truthful, detailed information, to establish a ten-day period of free withdrawal from the contract of acquisition of the right –which in certain cases could be extended for another three months- , to prohibit “advance payments” on account of the price during the withdrawal and termination period, to ensure that annual service fees may not be determined arbitrarily by either party, etc. But the Directive never required –quite simply because it did not fall within its competence– a civil or mercantile regulation of this economic activity. This was a faculty and discretion to be exercised by each State at its convenience.

And what the Spanish Administration did, through the General Directorate of Public Registries and Notaries, was consistent with the Body which had been tasked with this Bill: It chose to implement a full regulation of the timeshare phenomenon which included the mandatory rules laid down by the Directive but also a substantive regulation of the legal systems and contracts of “timeshare” and/or “multi-ownership”, which would thereby start to be known, exclusively, as aprovechamiento por turno de bienes inmuebles de uso turístico (rotational enjoyment of real property for tourist use).

The drafters of the Bill, without a doubt, in keeping with their background and convinced that it was the best option, chose to prohibit the future use of any other legal system for this kind of touristic rights and decided to establish an only, mandatory formula, outside of which there was no other option.

This new legal formula was called “limited right in rem of rotational enjoyment of real property”

Only very restrictively –and, as we now know given the interpretation of the Supreme Court, also insufficiently and confusingly– were the legal systems in existence before this Act “acknowledged” and allowed to maintain their pre-existing real or personal nature, albeit a formal requirement was imposed on them to give public status to the system without transforming its own legal nature by causing it to be registered at the Land Registry. Other than that, there was nothing but restrictions and safeguard clauses to prevent any leak through the wall of the dam which had been designed to “stem the tide”.

And based on what economic studies, what studies in the reality of this phenomenon and its level of compliance, what studies on a tourism level, what comparative report on these systems and what the consequences would be… did the drafters of the bill reach that conclusion?

The Spanish Association of Timeshare Traders (A.N.E.T.C.), currently the Spanish Chapter of the European Trade Organisation RDO, conveyed to the General Directorate of Public Registries and Notaries the opinion of this trading sector on the matter, which included the following views:

The exclusive limited right in rem of rotational enjoyment could be a valuable instrument to configure the timeshare sector, but it could not be the only configuration once the Act came into force. It was pointed out to the Directorate that this was a touristic product and a changing touristic activity, and that such a tight confinement within the boundaries of a purely property-related right would be counterproductive to both the traders and the consumers.

Not much success was achieved other than an alternative formula which was almost identical to the former, albeit configured as a leasehold right of rotational enjoyment which had to be formally established by public deed and whose registration with the Land Registry was mandatory so that determinable units of the same type and determinable occupation periods within the same season could exist in one only resort.

A prohibition was thus established on flexible systems which related to various resorts in Spain or in several countries, or the already incipient “points systems”.

The A.N.E.T.C. also argued that the intended prohibition of any other system of personal or binding rights (article 1.7 of the Spanish Timeshare Act 42/1998) was contrary to a rule of Spanish Law which prevailed over this new rule, i.e. the 1980 Rome Convention, and, despite this qualification being known, the matter was left in limbo. Hence the title of this article.

To avoid the confusion which the former Timeshare Act 42/1998 had created in this regard, the new Spanish Timeshare Act 42/2012 made specific mention of timeshare (aprovechamiento por turno) contracts in accordance with the Rome I Regulation, which had replaced the former EU rule known as the 1980 Rome Convention.

Not being in agreement with the Bill, A.N.E.T.C. made a formal request to the Council of State to ask that its observations be taken on board (which, on the other hand, were the only observations submitted to it as no other organisation made a similar request).

The traditonal & central building of the Spanish State Council in Madrid

Without a doubt, such observations of this trade organisation were partly embraced by the Council of State in its report, some of whose points we would like to highlight –the full text can be found in Spanish on the following link:

https://www.boe.es/buscar/doc.php?id=CE-D-1997-1123&lang=es

One of the considerations of the Council of State in its Report refers to the “Conclusions of the Special Commission for the determination, study and proposed solution to the problems posed by the application of the Legal and Economic System, in which I was invited as «interlocutor»

I believe that the Report of the Council of State shows the shortcomings of the process which led to the enactment of the Timeshare Act 42/1998, one of which is, without a doubt, a deficient regulation of legal systems of personal rights which can doubtless be used for the configuration of “timeshare” or “rotational enjoyment” rights.

It would have sufficed to be aware of what the reality of timeshare was back then based not on personal opinions but on a deep, serious study of its circumstances.

I would like to finalize this article taking the following paragraph from the Report of the Council of State

All these loopholes determine that this opinion – the Report says – must be given without knowing a very important group of circumstances of particular relevance. Thus, with proper account being taken of such a reservation and considering the eminently touristic and vacational spirit of this sector and its very relevant projection to non-residents, the Council of State feels that the regulation “ex novo” of a special system of rotational enjoyment of real property should include the dual possibility of following legal-in rem or legal-personal formulas.

This article only intends to express the undersigned’s opinion.

Franciso J Lizazarza – Lizarza Abogados –February 2016

TIMESHARE FACING A “PULL FACTOR”

Posted on 11 enero, 2016 por lizarzablogesp

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The recent Judgements of the Spanish Supreme Court rendered during the year just ended, 2015, have caused or may cause a tsunami which could ruin the timeshare industry as a result of the “pull factor” created by the interpretation of these Judgements and the application thereof by first instance courts and provincial courts, which has already started.

The doctrine contained in Supreme Court Judgement (SCJ) no. 774/2014 concerning the requirements to be met for the adaptation of timeshare systems in existence before the enactment of the Spanish Act 42/1998, and in SCJ 830/2015, handed down on the same date, regarding the requirements to be met by the subject of a timeshare contract (which, in addition, have both been promptly ratified by Judgements given during the same year so as to fulfil –and this is my personal opinion – the reiteration requirement necessary for Case Law to be considered a source of Law), certainly seem to indicate that the intention of the Supreme Court was to take strong action for the purpose of bringing order to a Sector plagued by a bad reputation it has failed to shake off, sometimes through fault of its own but more often than not due to a factual assumption that the consumer, whatever they say or do and even if all of it is contrary to true facts, actual events or their own actions, IS ALWAYS RIGHT.

In every consumer relationship, greater and more thorough diligence is always demanded from the trader in the fulfilment of its obligations simply because it has the upper hand over the consumer, but the consumer is also demanded to exercise their rights in good face and without abusing their own rights. Just as “bad faith traders” do exist and their dominant position allows them to take greater advantage of their position, bad consumers also exist, and not occasionally or only in isolated cases, but acting together, not only through non-profit organisations for the defence of their own interests, but also through other professionals and traders who use the means provided by the information society and the electronic networks for the obvious purpose of obtaining a personal gain.

Supreme Court Judgements 747/2014 and 830/2015 have filled with bewilderment timeshare resort promoters, companies providing tourism services to those resorts and virtually all the legal operators who, after fifteen years of what appeared to be a correct interpretation of Act 42/1998 of 15 December, have been surprised –if not overruled – by the Supreme Court with a new and, until that moment, almost exclusive interpretation of the requirements to be met for the adaptation of pre-existing systems or the extent of the requirements relating to the subject of the contract.

I have not entitled this opinion article “Timeshare Facing a Pull Factor” because of the existence of some dark conspiracy against this Sector, but to stress that such a “pull factor” does certainly exist, particularly as the possible claims to the courts of justice are being “marketed”.

The pull factor as such takes place when the doctrine established by the Supreme Court in a specific case (and it could not be different in this instance) is taken out of context and isolated and subsequently translated by for-profit operators (an activity which, other considerations aside, is currently lawful) in a simplistic, albeit not totally wrong, interpretation, outside the context of the specific case to which it relates, of the following doctrine:

A.- Doctrine initially contained in SCJ 747/2014 which, in my view, denies the possibility of adapting systems in existence before the enactment of Act 42/1998 by merely giving them public status, which was the form of adaptation used with virtually all timeshare resorts. The Supreme Court has thus established that the “transformation of pre-existing timeshare rights into in-rem or leasehold rights of rotational enjoyment according to the requirements of said Act” is the correct doctrinal interpretation of how adaptations must be performed.

B.- Doctrine contained in SCJ number 830/2015: “In the legal system established by Act 42/1998 of 15 December on rights of rotational enjoyment of holiday accommodation, failure by the contract to determine the unit which constitutes the subject thereof determines the nullity of such a contract, as provided for by Article 1.7 in relation to Article 9.1.3 of the said Act”.

This doctrinal line has been vulgarly, publicly and interestedly translated by trading and legal operators seeking to make a profit in the following statements:

• “Timeshare contracts entered into up to 2012 whose duration is in excess of 50 years are absolutely and radically null and void”.
• “Even if you have used the tourist resorts for 10, 15 or 20 years, you can recover all the money you paid – absolutely the full price you paid”.

• “You can also get back all the money you have paid every year as service fees even if the services have been provided to you”.
• “Additionally, you will not have to pay anything to the lawyers and legal representatives acting on your behalf in the Courts. This will be borne by the seller when they lose the case and, otherwise, your lawyers and legal representatives will not charge you anything”.
They obviously fail to mention that if the claimant loses the case, the claimant’s lawyers may not charge them anything but the Courts will, as a general legal principle, obligate them to pay the court costs and even the fees of the counterparty’s lawyers and legal representatives.
Who would, therefore, reject so many advantages when there is no downside?

It’s like the lottery without even having to pay for the ticket!

I believe it is necessary at this point to analyse whether, on the one hand, the above Case Law –treated as an axiom without the possibility of being disproved whatever the reason argued, however petty, irrelevant or even if based on a mere statement without having to prove anything relating to its truthfulness – can be applicable always or virtually always and in every case as proclaimed by the providers of free legal services or whether, as is my view, the aforementioned Case Law needs to be considered in the context of each specific case and in accordance with the Spanish substantive laws, in some cases, or with the law to which the contract is subject in other cases, without disregarding the fact that jurisdiction may lay with non-Spanish courts in many cases.

On the other hand, the –fundamentally economic and social – consequences of the promised universal lottery also need to be analysed.

In relation to the former, judgements have already been issued by provincial courts whose interpretation is that a brief paragraph from the Supreme Court Judgements may not be applied in every case disregarding the context of the court resolutions of the provincial courts themselves. By way of an example, Judgement 477/2015 rendered by the Provincial Court of Las Palmas, Canary Islands, on 27 November 2015, states that:

“As we have seen, the aforementioned SCJ does not resolve a similar situation to the case at hand (where the subject of the transfer is not timeshare rights but condominium) and is therefore not applicable. Consequently, this Court must stick to the criterion previously described in relation to the admissibility of maintaining the pre-existing system”.

I believe that this is the line along which the Instance and Appeal Courts will go when the moment comes in the proceeding to contest other issues which had somehow been taken for granted, to such an extent that they had not been argued by the parties and that, therefore, by virtue of the principle of consistency of judgements, these may not accept or reject matters not raised by the parties in assessing the general aspects of the cases.

And here could be the first flaw of the principle followed by the managers of free legal services who encourage the consumers simply to file claims, without any further consideration, through websites and advertisements saying that the court case is basically won beforehand and that the defendant trader will bear all the expenses and the court costs, as such court costs will be inevitably awarded against the consumer. They obviously omit and fail to mention, as aforesaid, that the claimant can be sentenced to pay the court costs if the court does not accept their claims.

Will the traders who are promoting free legal services be able to promise their clients that they will not lose their right, will not pay any court costs even if they lose the case and that they will not have to pay what they owe? I believe they will not, as they say nothing about these things but simply gloss over them and fail to give any undertakings.

This is the problem with assuring an outcome in the case of a judicial controversy which is to be resolved by an independent judge.

But we also mentioned that this organised pull factor can bring about other economic or social consequences, such as:

A huge increase in litigiousness.
An escalation of bankruptcy of tourism companies and resorts. Timeshare traders will be unable to reimburse the total price paid by virtue of the vast majority of the contracts entered into over the past 15 to 20 years, during which time accommodation services have been provided, employees have been hired, utilities paid, etc., if even the proportional share of the price of the right of occupation which relates to the time during which such right has been enjoyed would have to be reimbursed.
Loss of a very large number of jobs.
Loss of the right acquired by those timeshare users who are happy with their right of occupation and want to continue to use it rather than opt for the free lottery.
This may be taken to the limit in those cases where there is no promoter at this time and where the resort is directly managed by its members (consumers and users) through the management bodies appointed from their number, i.e. the General Meeting of Members and the Management Committee appointed by it. Will the claimants sue a promoter who ceased to exist years ago or will they sue the other members?

Therefore, earnestness and good faith is needed from the parties, including the providers of free legal services, the traders in the Sector and the consumers and users.

If the consumers must be demanded to act in good faith and to abstain from abusing their right, the traders –in relation to the past – should review their own situation and, where it was not correct, they will have to amend it, if possible through out-of-court procedures and solutions, and for the present and for the future adapt their commercial practices and their contractual documents rigorously and strictly according to the thorough legal rules, seeking to achieve the necessary training of the agents involved in the commercialisation process so that they understand that this is the time of consumers and users and that, consequently, they need to know and respect their legal rights and those which are inherent in a proper commercialisation process.

Francisco J Lizarza – Lizarza Abogados

Marbella, January the 11th, 2015

FLOATING & FLEXIBLES TIMESHARE SYSTEMS IN SPAIN

Posted on 15 octubre, 2015 por lizarzablogesp

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IN RELATION TO JUDGEMENT NO. 830/2015 ISSUED BY THE PLENARY SESSION OF THE CIVIL CHAMBER OF THE SUPREME COURT ON 15 JANUARY 2015

“In the legal system established by the Spanish Rotational Enjoyment of Tourist Property Act 42/1998 of 15th December, the fact that the accommodation unit to which the contract relates is not specified therein determines the nullity of the contract according to Article 1.7 in relation to Article 9.1.3 of the Act”.

This paragraph summarises the Case Law Doctrine expressly formulated in Supreme Court Judgement 775/2015, which has doubtlessly raised the alarm and a certain degree of confusion among the entrepreneurial operators in the timeshare/rotational enjoyment sector and among those customers who are satisfied with their product (who are a great majority) and now find themselves at risk of losing their right to occupy a “floating” or “flexible” holiday unit with which they are happy. And this has happened, in my opinion, where the interpretation of such a short text has been disassociated from the background which has led to the conclusions of the aforementioned Judgement and the doctrine therein contained.

In addition, the Judgement contained a dissenting vote by the Judge Mr Antonio Salas Carceller which starts with a partial transcription of Article 9.1.3 of the Rotational Enjoyment Act 42/1998 (hereinafter the REA 42/1998) which demands that certain details must be included in those contracts where a professional marketer participates in the transfer of a rotational enjoyment right; the details to which the transcribed section relates refer to the mandatory inclusion of “an accurate description of the building, its location and the unit to which the right relates, with specific mention of its registration details and the occupation period to which the contract relates, stating the starting and end days and times” (sic), and Judge Mr Salas concludes in his dissenting vote that this must not determine the nullity of the contract as it simply relates to irregularities which may constitute a breach of contract (which can consequently be the subject of an action to terminate the contract within three months thereof =as per the REA 42/1998=) rather than –as the rest of the Court argues– a reason for radical nullity of the contract which, therefore, is not amendable by the passing of time.

Resultado de imagen de imagenes gratis casas flotantes

Such differing views between the position of the majority of the Court and Judge Mr Salas’ dissenting vote is doubtlessly very important but, before commenting on its implications from a legal point of view, an important practical conclusion should be drawn from this to prevent litigation in such a complex –and often misunderstood or misinterpreted– matter, i.e. that the first rule for the commercialisation of this kind of right is that utmost care and maximum precision must be observed in drawing up the contracts and other documents aimed at the client-consumer, without any verbal promises or the clichés or vicious practices of past times, in order to prevent the nullity, annullability or termination of contracts and the imposition of penalties in a Sector which has changed a lot but continues to carry the burden of a bad reputation which still exists today, albeit to a large extent undeservedly.

Let us take as an example the contract which resulted in the court proceeding and Case Law Doctrine mentioned at the beginning. A quick reading of this contract, which is complicated fundamentally because it relates to a “complex subject” whose elements are determinable (flexible) insomuch as they relate to the occupation of various units –one of them not located in Spain– and to weekly periods which are also determinable (flexible), would suffice to understand without much difficulty that it lacks the minimum degree of rigour which would be required irrespective of the omission of certain details.

But the concerns which the Supreme Court Judgement 775/2015 has raised among the entrepreneurial agents of this type of activity, which is the fundamental subject of this article, is that it may have been interpreted or concluded from its considerations that the Doctrine therein contained entails nothing short of a prohibition, by reason of nullity, of the timeshare or rotational enjoyment structures known as “floating or flexible” systems, whether in respect of the determination of the “unit”, of the “annual occupation period” or of both.

If we confine ourselves to the paragraph reproduced at the beginning of this article, which transcribes the strict legal doctrine established by the Plenary Session of the Supreme Court, an initial, rushed conclusion may seem to indicate (obviously with the support of its remaining considerations) that, as an essential and inescapable requirement, “failure to determine the unit” results in the prohibition of rotational enjoyment contracts whose subject has not been determined (that is, perfectly and initially specified) in the contract and in the legal system or structure on which the contract is based.

The above Case Law Doctrine does not expressly contemplate the need, for the same reasons, to “determine the annual occupation period”, although it is reasonable to assume, from the context of the Judgement itself, that such failure to determine the occupation period must also be regarded as the absence of an essential element of the subject of the contract which could also result in nullity of the contract.

The above Judgement, which as explained by Judge Mr Salas cites the REA 42/1998 to state that the subject of the contract has not been “determined” due to the absence of the mentions set forth in Article 7.1 thereof –which in Judge Salas’ opinion are not what constitute the “true subject” of the contract as this should be determined by the rules of the Civil Code which refer to the original absence of such an essential element (the subject of the contract) – , has chosen to apply a rule which is not the rule envisaged for any of such cases (sic).

As the majority of the timeshare operators at whom this Blog is aimed are not Spanish and in many cases come from territories with Anglo-Saxon-based legal systems or for any other reason use or are familiar with legal institutions of this tradition, I believe that it is necessary to make some brief –therefore not thorough– clarifications concerning the essential requirements of the contract as briefly, albeit accurately, set forth in Article 1261 of the Civil Code, which states that “No contract exists where the following requirements fail to be met:

1. Consent by the contracting parties;

2. A true subject to which the contract relates; and

3. Reason of the obligation thereby established

”.In Spanish Law, the “true” subject of a contract may be determined at the time consent is given or it may be determinable by the application of objective rules at some later time, whether consent is to be given only once or periodically.

We must once again mention the Anglo-Saxon tradition systems where the existence of subjective rules (undetermined legal concepts as denominated by Spanish Case Law) such as “from time to time”, “as may be reasonably determined” or “as determined by the then market conditions” is contrary to the public order demand of the Spanish legal system which requires that those obligations to which initial consent is given in the contract but need to be specified at a future time must be determined or specified when the moment comes by the application of objective rules which, we could exaggeratedly say, must be “an almost mathematical result of applying the premises agreed in such rules”, so that the determination or specification of the subject is not left up to the will or arbitrary decision of one of the contracting parties.

In this regard, the subject of the contract may take the form of future things (e.g. an unbuilt house whose determination or specification would be set in the “architectonic project” which would from the start constitute a part of the contract) or future services which are not contrary to Law or to proper conduct (Article 1272 of the Civil Code).

Focusing on the title of this Article and the concerns expressed by entrepreneurial operators in this Sector, I believe it is right to say that Judgement 775/2015 does not in any way regard the systems colloquially and commonly known as floating or flexible (determinable) as being prohibited. And such an assertion is made despite the fact that the Court deems the contract null and void by reason of lack of subject as it considers that Article 7.1 of the REA 42/1998 is applicable when its states that “where the contract whereby any other in-rem or personal right is created or transferred […] regarding the use of one or more real properties during a determinable period each year, outside the scope of this Act, shall be fully null and void”.

The conclusions which, in my judgement, can be drawn from the foregoing, are as follows:

First.– It is expressly acknowledged that the constitution and transfer of rotational enjoyment rights, as far as the unit and the occupation period are concerned, can be determinable by the application of objective rules (flexible or floating unit and/or period).

The omission from the contract of the requirements demanded by Article 9 of the REA 42/1998 to which Judgement 775/2015 refers, whether it be regarded as a reason for nullity (as the Court argues) or a reason for termination on the grounds of breach of contract (as maintained by Judge Mr Salas in his dissenting vote), does not entail the prohibition of systems involving flexible units and/or occupation periods, although it does confine the latter to the restricted formulation thereof as set forth by the now repealed REA 42/1998.

Second.– The Court’s interpretation, including that of Judge Mr Salas’ dissenting vote, does restrict the constitution and transfer of such rotational enjoyment rights, whether determined or determinable by objective rules (flexible systems), to their only formulation as set forth by the REA 42/1998.

Such a restrictive interpretation was to be fully reviewed as a result of the coming into force of the new rotational enjoyment regulations of 2012, if not upon the coming into force of the Rome I Regulation in late 2009.

Third.- Contrary to the Supreme Court doctrine established by the Judgement now under discussion and that established by its earlier Judgement of 15 January 2015 and its later Judgement of 5 July 2015, it is my view that flexible systems of personal rights constituted or transferred –including points systems – with subjection to non-Spanish law are lawful in our country and legally valid before, during and after the validity of the now repealed REA 42/1998.

Having reached the above conclusions, I believe it is now necessary to address how and in what way flexible/floating systems of rotational enjoyment of holiday accommodation have been, or can now be, constituted.

A.- SYSTEM OF RIGHTS IN REM OF ROTATIONAL ENJOYMENT.

This is the system specifically regulated by the REA 42/1998 and the current Rotational Enjoyment of Real Property for Tourist Use Act (REA 4/20129), the provisions of which are also applicable on a subsidiary basis to the other system of personal leasehold rights contemplated by the same Act (Article 1.6 REA 42/1998 and Article 23.6 REA 4/2012).

I understand that these in-rem rights, structurally by reason of their own real nature (as stated in Judgement 775/2015), must specifically refer to:

Predetermined units (independent registered properties where there is a horizontal division or, in default thereof, units which are described and “registered” at the Land Registry as if they were independent properties).
Predetermined occupation periods.
In predetermined holiday accommodation resorts.

That is, what has come to be known as “fixed triple” in tourism jargon: fixed building, fixed unit and fixed occupation period.

This does not prevent, in my opinion, the existence of internal fexibilisation rules by way of what we could improperly call an “internal exchange” within the same resort.

B.- SYSTEM OF PERSONAL RIGHTS OF ROTATIONAL ENJOYMENT – SEASONAL LEASEHOLD CONTRACT.

In my opinion, this is the only system of “flexible units and occupation periods” contemplated by the REA 42/1998 (Art. 1.6), albeit not expressly contemplated as such by the current REA 4/2012 (Art. 23.6).

Indeed, the above-mentioned Article of the REA 42/1998, which was in force at the time of conclusion of the contract to which Supreme Court Judgement 775/2015 relates, which is expressly mentioned therein, states that:

“Such contracts shall refer to a predetermined annual season which relates to a predetermined or determinable occupation period within that season and to a predetermined accommodation unit or one which can be determined on the basis of its general conditions, provided that the resort where the right is to be enjoyed has been specified” (sic).

Therefore, they can relate to a flexible occupation period, within the same season, in a flexible accommodation unit of a “predetermined type” in the specified building or resort.

Certainly, the 2^nd paragraph of the Ruling contained in the Judgement transcribed at the beginning seems to contradict that set forth in this Article 1.6 of the REA 42/1998 when it states that there is no subject of the contract where the “contract does not specify the unit to which it relates”, but I think that this must be understood as referring to the specific contract to which the Judgement relates and that the legal rule is observed in any case where the units are determined by objective rules for each specific season from among those of the same type included in the same building which, on the other hand, are all specifically and individually described in the public Deed of constitution of the system which, in addition, must be mandatorily registered at the Land Registry.

Article 23.6 of the current REA 4/2012 also refers to the seasonal leasehold right of rotational enjoyment and, in a wider and more general sense, so to speak, it refers to seasons contracted for whose purpose is the use of one or several accommodation units for overnight stay during more than one occupation period…

In any case, this being a system of a leasehold nature, it must be constituted by public Deed and registered with the Land Registry according to the applicable Spanish regulations.

C.- SYSTEMS OF PERSONAL RIGHTS SUBJECT TO NON-SPANISH LAW

1.- CURRENT SITUATION SINCE THE COMING INTO FORCE OF THE ROME I (EC) REGULATION.

All structures or systems of personal rights subject to non-Spanish law, whether of an EU country or otherwise, provided that they do not contravene any rules of the “laws of public order of the Spanish legal system” or any rules relating to matters of mandatory application in Spain (such as consumer protection rules), are valid in our country, as it is so provided by the Rome I (EC) Regulation which came into force on 17 December 2009.

Such systems of personal rights can be configured with fixed or flexible occupation periods, which can be annual or biennial and can relate to flexible units and can also refer to various buildings in Spain or in several countries, including the so-called “points clubs”; it must be noted, however, that such freedom of contract also has its limitations, particularly as regards consumers’ rights, not only according to the domestic law to which the system is subject, but also according to the law of the country where the rights are commercialised if any of the properties is located in territory of an EU or EEA Member or if the contract, while not directly related to a real property, relates to the activities carried out by a Member State or projected from or within a Member State.

2.- SITUATION BEFORE THE COMING INTO FORCE OF THE ROME I (EC) REGULATION.

Supreme Court Judgement 775/2015, to which this commentary relates, refers to a contract entered into before the coming into force of the new regulations on rotational enjoyment of 2012 and even before the coming force of the aforementioned Rome I Regulation, so it only takes into account the provisions of the REA 42/1998 which was in full force at that time.

That contract, at that time, was neither formulated as a right in rem nor as a personal leasehold right of rotational enjoyment in the form provided for by the REA 42/1998, but as a confusing personal right which does not only relate to buildings located in Spain but also to a building in another country, and without any express or tacit subjection to foreign law but clearly subject to Spanish Law.

For this reason, I believe that the contract is in contravention of mandatory rules of the Spanish regulations then in force generally, and it would also be in contravention thereof at the present date by virtue of the Rome I Regulation.

But this leads me once more to assert that those contracts relating to “flexible” units, occupation periods and resorts which were entered into before the coming into force of the Rome I Regulation and were tacitly or expressly subjected to non-Spanish law were (without prejudice to the application of public order laws of the Spanish legal system or of consumer protection laws) perfectly valid in Spain, as it was so allowed by the 1980 Rome Convention.

In this sense, we must refer the reader to the article entitled “The Validity of the Club-Trustee System in Spain”, published in this Blog on 21 August 2015.

Once more, as mentioned in the aforementioned Article, this is an opinion article written without prejudice to a more knowledgeable or better informed opinion.

Francisco J. Lizarza

Lizarza Abogados

THE VACATION INDUSTRY BLOG Actualidad – Update & News

Lizarza Abogados S.L.P. C/ Marcia Auxiliadora 5, 29602 MARBELLA (Málaga) Spain TEL +34 952770612 www.lizarza.com – vacationindustry@lizarza.com

Archivo de la categoría: ENGLISH BLOG

SO WHAT IS EXCHANGE?

B.SOLÍS, leading construction company on the Costa del Sol, bid to become the reference brand in reforms and new «turnkey» construction projects for tour operators and hospitality businesses through its Reforms & Hotels Division.

B.SOLÍS has developed more than 480 luxury villas, of which 140 units are located at most prestigious urbanisations such as La Zagaleta, Sierra Blanca, Guadalmina, Sotogrande or Los Flamingos.

División Reformas & Hoteles Isabel.villada@bsolis.com Plaza Dª. Elvira 2. Urb. Aloha Pueblo,
Nueva Andalucía, 29660 Marbella (Málaga)
Tel.: 952 815 080 Fax: 952 817 385
http://www.bsolis.com

TAXATION OF DWELLING RENTALS AND CESSIONS

SUMMARY

SEASONAL RENTALS VS. TOURIST DWELLINGS

ANDALUCIA

The General Directorate of Public Registries and Notaries holds a dissenting view from that of the Supreme Court on the maximum duration of systems in existence before the 1998 Timeshare Act

RDO has furnished us with a Report dated 9 February 2016 which was issued by the General Directorate of Public Registries and Notaries at the request of the Ombudsman of the Canary Islands.

SPANISH TIMESHARE ACT 42/98: REAPING WHAT WAS SOWN

TIMESHARE FACING A “PULL FACTOR”

I have not entitled this opinion article “Timeshare Facing a Pull Factor” because of the existence of some dark conspiracy against this Sector, but to stress that such a “pull factor” does certainly exist, particularly as the possible claims to the courts of justice are being “marketed”.

This doctrinal line has been vulgarly, publicly and interestedly translated by trading and legal operators seeking to make a profit in the following statements:

• “Timeshare contracts entered into up to 2012 whose duration is in excess of 50 years are absolutely and radically null and void”.
• “Even if you have used the tourist resorts for 10, 15 or 20 years, you can recover all the money you paid – absolutely the full price you paid”.

It’s like the lottery without even having to pay for the ticket!

On the other hand, the –fundamentally economic and social – consequences of the promised universal lottery also need to be analysed.

This is the problem with assuring an outcome in the case of a judicial controversy which is to be resolved by an independent judge.

But we also mentioned that this organised pull factor can bring about other economic or social consequences, such as:

A huge increase in litigiousness.

Loss of a very large number of jobs.

Loss of the right acquired by those timeshare users who are happy with their right of occupation and want to continue to use it rather than opt for the free lottery.

Therefore, earnestness and good faith is needed from the parties, including the providers of free legal services, the traders in the Sector and the consumers and users.

FLOATING & FLEXIBLES TIMESHARE SYSTEMS IN SPAIN

IN RELATION TO JUDGEMENT NO. 830/2015 ISSUED BY THE PLENARY SESSION OF THE CIVIL CHAMBER OF THE SUPREME COURT ON 15 JANUARY 2015

B.SOLÍS has developed more than 480 luxury villas, of which 140 units are located at most prestigious urbanisations such as La Zagaleta, Sierra Blanca, Guadalmina, Sotogrande or Los Flamingos.

División Reformas & Hoteles Isabel.villada@bsolis.com Plaza Dª. Elvira 2. Urb. Aloha Pueblo, Nueva Andalucía, 29660 Marbella (Málaga) Tel.: 952 815 080 Fax: 952 817 385 http://www.bsolis.com

SUMMARY

ANDALUCIA

RDO has furnished us with a Report dated 9 February 2016 which was issued by the General Directorate of Public Registries and Notaries at the request of the Ombudsman of the Canary Islands.

This doctrinal line has been vulgarly, publicly and interestedly translated by trading and legal operators seeking to make a profit in the following statements:

• “Timeshare contracts entered into up to 2012 whose duration is in excess of 50 years are absolutely and radically null and void”. • “Even if you have used the tourist resorts for 10, 15 or 20 years, you can recover all the money you paid – absolutely the full price you paid”.

It’s like the lottery without even having to pay for the ticket!

On the other hand, the –fundamentally economic and social – consequences of the promised universal lottery also need to be analysed.

This is the problem with assuring an outcome in the case of a judicial controversy which is to be resolved by an independent judge.

But we also mentioned that this organised pull factor can bring about other economic or social consequences, such as:

A huge increase in litigiousness.

Loss of a very large number of jobs.

Loss of the right acquired by those timeshare users who are happy with their right of occupation and want to continue to use it rather than opt for the free lottery.

Therefore, earnestness and good faith is needed from the parties, including the providers of free legal services, the traders in the Sector and the consumers and users.

(PLESE SEE «LEGAL VALIDITY OF THE “CLUB-TRUSTEE” SYSTEM: BEFORE, DURING AND AFTER THE SPANISH TIMESHARE ACT 199)

Lizarza Abogados

IN RELATION TO JUDGEMENT NO. 830/2015 ISSUED BY THE PLENARY SESSION OF THE CIVIL CHAMBER OF THE SUPREME COURT ON 15 JANUARY 2015

División Reformas & Hoteles Isabel.villada@bsolis.com Plaza Dª. Elvira 2. Urb. Aloha Pueblo,
Nueva Andalucía, 29660 Marbella (Málaga)
Tel.: 952 815 080 Fax: 952 817 385
http://www.bsolis.com

• “Timeshare contracts entered into up to 2012 whose duration is in excess of 50 years are absolutely and radically null and void”.
• “Even if you have used the tourist resorts for 10, 15 or 20 years, you can recover all the money you paid – absolutely the full price you paid”.