Introductory comparison of the Spanish Condominium Act (Ley de Propiedad Horizontal)

German residential property law and the Spanish law of Propiedad Horizontal, literally translated as horizontal ownership, have many similarities. However, the German term Wohnungseigentumsrecht (residential property law) evokes far clearer associations when explaining which particular legal constellations it covers. The term is self-explanatory to a certain extent. As the German regulations are conceptually the same as the Propiedad Horizontal and many parallels can be drawn, it makes sense at this point to use the German terms where a corresponding Spanish equivalent exists, especially as an introduction to Spanish condominium law and to facilitate understanding and comparison.

The term residential property already conveys the idea of ownership of an apartment, i.e. the right to a separate, individually usable property that is part of a larger structure (building), which in turn has elements or facilities (e.g. entrance, stairwell, elevator) that serve several apartments. The self-contained, individually usable property (apartment) is referred to in Germany as Sondereigentum and in Spain as elemento privativo. The communal facilities serving the individual property elements (apartments) as a whole form the so-called common property or elementos comunes in Spanish. While the individual property may have a single owner, the common property belongs jointly to the owners of the various individual property units. The owners of the separate property each have a share in the common property, which is expressed as a percentage quota. In Spain, all quotas taken together form the total quota of 100 percent (in German condominium law, however, the share is described in thousandths).

From this description, it can be deduced that in order for condominium ownership to be assumed, (a) more than one separate property element, (b) more than one owner and (c) joint ownership, i.e. common property, must exist. The owners of all legally delimited separate property elements together form the community of owners.

For a better understanding, it should be explained in more detail that if a single ownership unit exists, even if there are several owners, there can only be co-ownership but no special ownership. Finally, separate ownership presupposes that there are at least two further separate ownership elements, i.e. at least two separate ownership elements in total, which serve the so-called common property, which in turn is proportionally linked to the separate ownership elements in the form of a percentage quota. Special ownership therefore understandably requires a number of such elements in order to exist. If there are no elements that can be divided into the categories of separate property and common property, there can only be a single object in which only co-ownership could be established.

Despite the meaningful term condominium ownership, as already mentioned, one should not be misled into the erroneous assumption that the special property elements must necessarily be apartments. Although this is certainly the most common case, a condominium ownership relationship can also exist outside of central residential buildings or blocks of flats. The best example is the single-family houses within an urbanization, which are widespread in Spain. This constellation also constitutes condominium ownership, as can be seen from Article 24 LPH, if there is common ownership.

Creation of the condominium ownership relationship

Ideally, the creation of a community of owners is based on a correspondingconstitutive title(título constitutivo), i.e. the declaration of division. It describes each individual property element and allocates it a co-ownership share (quota) of the common property expressed as a percentage. [pullquote]A foundation deed or a declaration of division are not absolutely necessary in order to be able to assume a condominium ownership relationship. Condominium ownership can also exist without a formal deed. [/pullquote]

However, such a foundation title is not absolutely necessary. Article 2 of the Ley de Propiedad Horizontal includes various types of properties within the scope of the Spanish Condominium Act, without the need for a declaration of partition for all of them. While letter a.) refers to properties with a foundation title, letter b.) also includes properties that meet the requirements of Article 396 of the Código Civil or, according to letter c.), real estate complexes that meet the requirements of Article 24 of the LPH (private urbanizations).

In this way, properties that already existed before the LPH came into force, as well as those that do not have a declaration of division despite having been created later, are subject to the regulations of the Spanish Condominium Act if they have special ownership and common ownership elements and belong to several owners.

The declaration of division

Although, as just explained, a foundation title is not absolutely necessary for the assumption of a condominium ownership relationship, it is only rarely omitted.

[pullquote]The declaration of division is usually formulated by the sole owner of the property. If there are several owners because the developer has already proceeded to sell individual units, a unanimous declaration by all owners is generally required. Alternatively, the declaration of division can also come about through a court decision or an arbitration award. [/pullquote]

In accordance with Article 5(2) LPH, it can be concluded by the sole owner of the property, if there are several owners, by their unanimous declaration of intent, and if this cannot be achieved, by an arbitration award or a court decision. Ideally, the sole owner should draw up a declaration of division before any transfer of ownership to third parties affecting the property, as the larger the number of owners, the more difficult it will be to reach agreement among them. If, in such cases, it is actually not possible to draw up a declaration of partition due to differences of opinion among the owners, the law allows for recourse to an arbitration tribunal or to the ordinary courts. It should be noted, however, that an arbitration tribunal only has jurisdiction if all owners agree. If there is no such agreement, the civil courts of first instance have no jurisdiction (Article 45 Ley de Enjuiciamiento Civil), which is the normal case.

As a rule, in the first two cases (establishment by the sole owner or all owners), the foundation deed will take the form of a notarized declaration of division. However, the legislator does not stipulate a specific formal requirement for the declaration of partition, which is why, taking into account the principle of general freedom of form (Article 1278 C.C.), a private written declaration of partition would also be valid. Only the requirement of written form must be assumed, as the foundation deed must contain a number of contents that indicate that it must at least be a written document.

In the case of new buildings in particular, however, the developer or builder will want to take the route of a notarial deed, for example, because it gives him direct access to the land register (if the sole owner is a public authority, it is possible to create a foundation title by certificación administrativa, which then also has direct access to the land register).

Although the entry of the declaration of division in the land register is also not mandatory and is merely declarative and not constitutive in nature, there are numerous advantages derived from this, which are not limited to the public faith of the land register and the special protection of the rights entered there.

General remarks on Spanish real estate purchase law

From the perspective of other legal systems, it may come as a surprise that neither the declaration of partition nor the sale of shares in the property or individual elements of special ownership require notarization, and that the entry of these transactions in the land register is left to the will of the parties. For a better understanding, the main features of Spanish (real estate) purchase law are therefore briefly outlined below:

In the Spanish legal system, the theory of título y modo, i.e. the (contractual) agreement, i.e. the agreement and transfer of the thing itself, applies with regard to the requirements for a transfer of ownership by means of a purchase contract, based on Roman law. According to Article 1450 C.C., the agreement between buyer and seller must extend to the subject matter of the contract and the price and from then on binds both parties. Unlike in other legal systems, the purchase contract is therefore not subject to any formal requirements in order to be valid. Even an oral agreement would be binding. The provisions of Article 1280 C.C. are therefore contradictory and confusing, according to which notarization is required to create, transfer, amend or extinguish rights in rem to real estate. The unanimous opinion of the courts has resolved this contradiction by giving priority to the absolute freedom of form of Article 1450 C.C. and understanding the requirement of Article 1280 C.C. as having only evidential value, or that the parties may request each other to notarize.

Even if the agreement reached is already binding, the actual transfer only takes place with the transfer(modo) in accordance with Article 609.2 C.C.. Otherwise, there is only a right to this. As long as the transfer or taking possession does not take place, the purchaser does not become the owner (see also Article 1095 C.C.). The notarization of the property is equivalent to the actual transfer (unless otherwise stipulated in the deed).

[pullquote]Entry in the land register is not required for the acquisition itself. However, since, unlike a purchase, a mortgage only becomes fully effective once it has been registered, prior registration of the purchase is ultimately unavoidable. Finally, there is no financing without registration of the purchase. [/pullquote]

Notarization and entry in the land register are neither required for the acquisition of ownership nor for the establishment of condominium ownership, as in this case they are merely declarative and not constitutive. An entry of these rights also only has effect vis-à-vis third parties. They may rely on the accuracy of the information contained therein (as long as they have no information to the contrary or are acting in bad faith).

Due to the freedom of form provided for in Article 1278 C.C., neither the declaration of partition nor the sale of the special property elements to third parties must be notarized, but these transactions therefore only have a direct effect between the parties if this option is waived.

However, there are also rights in rem that are only established through registration. These include, as Article 1875 C.C. and Article 145 Ley Hipotecaria stipulate, the mortgage.

However, their registration requires that the property (and its owner) that is encumbered by this (limited) right in rem has previously been entered in the land register.

The developer will therefore not be able to avoid the notarized declaration of partition and its entry in the land register in order to be able to take out a mortgage on the individual separate property elements, as is customary in the industry.

In addition to the possibility of now being able to establish a mortgage on the individual special property elements, their sale to third parties is also made easier.

If the buyers are to be able to take out a mortgage to pay the agreed purchase price, the declaration of division and the purchase agreement must be notarized and entered in the land register.

As Article 8.4 LH of the declaration of division grants access to the land register even if the property is still under construction or construction has only begun, a corresponding entry can be made at a very early stage.

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At this point, however, special reference should be made to the legal situation in Valencia. According to Law 8/2004, the developer may only start selling condominiums once the declaration of division has been entered in the land register.