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Lexland obtains a judgment requiring a land registrar to register a sui generis leasing contract

Within the terms of a client consultation, Lexland Solicitors (through the Counsels Mr. Dimas Cuesta Montejano and Mr. Juan Luis Gamez Ortúzar) made an application for the registration of a lease contract for a purpose other than lodging. As a special feature, it was not just a building intended to be business premises, but rather a contract for the lease of a portion of a property with special features, established in public deeds, and on which the Registrar concerned refused registration of the contract, citing the following reasons:

• The lease was made by the Community of Owners as the lessor, not being the leased property registered under its name, something which is not possible – according to the Registrar – because the Community lacks legal status. Article 11 of the Mortgage Regulation prohibited the registration, thereby contravening section 20 of the Mortgage Act, which requires that the property be shown to be previously registered in this party´s favour as an essential prerequisite to practice the inscription.

• That said property was registered under Ob Rem ownership, being linked to various segregated plots, not being possible to sell, encumber or dispose of the property in any way, independently and separately from the properties that they are linked to, under Article 396 of the Civil Code.

• That, by leasing only part of a registered property, the principle of specialty has been infringed, which requires for the registration of a right on a registry sheet of a property, that it refer to the whole of said property, being segregation necessary in any other case, all in accordance with Article 8 of the Mortgage Law and 47 of the Mortgage Regulation, as well as the legal doctrine and case law which interpret these articles.

• The area and boundaries of the leased property did not match those contained in the Register, differing from those contained in the incorporated cadastral certification, as provided in Articles 9 of the Mortgage Law and 51 of the Mortgage Regulation.

• That, finally, the “two bars and a swimming pool” that appeared in the Title Deeds did not appear in the Register, breaking the necessary title chain.

 Because the legal arguments made by the Registrar were not convincing, we proceeded to file a Statement of Allegations against said negative rating, filing the same before the General Direction of Registers and Notaries, based on various claims related to:

a) The proof of the existence of legal personality of the Community of Owners in connection with the provision in the registered title, the unanimous agreement of the Board of Owners for the signing the lease.

b) The impossibility of selling, encumbrance or disposition of the property registered as owned Ob Rem, under art. 396 of the Civil Code, in relation to the nature of the contract obligational to register, and application of the relevant rules, that is, the Royal Decree 297/1996 of 23 February on the registration in the Land Registry of urban leasing contracts; by regulating the acts deriving from joint property, the art should be considered. 398 Cc.

c) The violation of the principle of specialty, in relation to the application of art. 6.2 of the aforementioned Royal Decree 297/1996.

 The Directorate General of Registration and Notary dismissed the appeal, admitting, nevertheless, the arguments put forward by Lexland Solicitors. Basically, the Directorate stated in its resolution:

• That no minute book of the community had been legalized and, in addition to the evidence in the title and in the registry, correspondence with the registered holders attending the meeting whose resolutions were not adopted unanimously could not be inferred.

• That the signing of a lease is an act of management, and not an act of charge and disposal of community property (for which the individual consent of those affected would be required in the case of those affected, in the case of all of the owners, apart from the unanimous or quasi unanimous agreement of the community.

• That a certificate that did not identify the appearing parties was presented, nor correspondence with the registered holders, nor was the result of the vote unanimous or quasi unanimous. Moreover, even the agreed text did not match to the notarized public contract regarding the extension of the existing one and not the new kind that is instrumented according to the agreed contract terms. Moreover, the failure to legalise the books of the community predisposes, additionally, the lack of formal regularity of the representative of the community.

• The flexibility of the principle of specialty that allows Royal Decree 297/1996 is derived from Articles 3.2 and 6.2 of the act. These allow a defined description of the leased property, without requiring segregation, provided it has been recorded by the notary in the Deeds that are constituted or raised to the status of a public document, leasing, accurate data for identification and description and the property quota of the leased property, if it were a horizontal division and expenses are attributed to the lessee. None of this can be inferred from the qualified title. The correct description of the property is not established in the Deeds, regarding its location, boundaries and surface, being established only the non-matching cadastral document without proper description in the Deeds.

 Due to the dismissal of the appeal, the so-called administrative route has been exhausted, leaving only jurisdictional channels to defend the interests of the represented parties of Lexland Solicitors. Therefore, a request for a an Oral Hearing was made, according to article 328.1º of the Mortgage Law.

 Almost two years after the filing of the request, the Hon. Magistrate Judge of the Court of First Instance No. 12 of Málaga issued a judgment accepting the request, stripping the contested decision (of the Directorate) of its legal force, as well as the classification of the Registrar, forcing the registry of the notarized lease, being the defendant sentenced to pay the expenses of the proceedings.

 It is convenient, because of their nature, to analyze various aspects of the judgment, as it establishes a clear story line for the registration of leases located in registered properties with special characteristics, and the importance of proper advice (in the drafting period of the lease) should be emphasized, regarding the powers that the representatives of a community of owners hold, when the leased property belongs to a community agency.

  1. In the opinion of the Court, regarding the issues discussed (via art. 326 LH) and specifically as to the legal status of the property owners association, an examination of the documentary evidence consisting of the minutes of the Annual General Meeting of May 25, 2011, the legalization of the minute books of the community is apparent from the Land Registry itself, according to diligence held on August 28, 2001, as evidenced by the corresponding seal of the Registry in each page of acts attested also comprising an indication of the attendees to the Board, the number of villa or apartment and participation fees, and the unanimous adoption of the agreement. 
  2. On the other hand, the community authorized the President and Vice President to agree to an extension of the lease with a maximum term of 2025, strictly adhered to, without requiring that this should be converted into a new contract or with certain formalities, being limited the authorization to just two requirements, namely that the agreement include the lease of the Beach Club and the time limit set out until 2025, requirements which were both met in the contract signed and raised to the status of a public document. 
  3. Regarding the infringement of the principle of specialty, the Honourable Member declared that, in the case of a horizontal division, being the expenses attributed to the lessee, it would be sufficient for the building as a whole or the entire property to be registered in the name of the landlord and to be sufficiently defined with its surface expression, situation and boundaries. And these requirements are met in view of the lease, which is a correct and precise description of the boundaries with regards to the leased premises, whether they do not match the existing boundaries for registration purposes, which are not intended nor preclude perfect identification, nor an exact match to the cadastral certification provided is presented, which is understandable as it is a part of the master Deed, without being either impediment to perfect identification of the subject of the lease in the former, without a prior segregation.

 Such reasoning led the Court to accept the request, taking into consideration a similar case (as provided in the appeal before the Directorate and ignored by it), which also leads to an improvement in the legal protection of lease rights within the sphere of the reform carried out by the Royal Decree 297/1996.

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