I am sure you have all heard of the infamous “floor clauses” (“cláusulas suelo”) contained in Spanish mortgage contracts. However, as much as I am sure you have heard I am just as sure that you are not entirely clear on what they are or what they entail. This confusion, which already exists in the Spanish community and more so in the foreign community, is due to huge amount of contradictory, and sometimes outright false, information spread by the media. Though I must admit this is not helped by the zigzag course taken in Spanish judicial precedent.
I hope this post will help to clarify the situation and any doubts you may have as to whether they could apply to you, and how to submit your claim.
What is a “floor clause”?
A “floor clause” is a clause of a mortgage contract that establishes a minimum for the mortgage payments, regardless of whether the ordinary interest agreed upon with the financial institution are below this minimum.
The majority of mortgages given in Spain apply an interest rate which is fixed according to a reference rate, usually the Euribor, although there are others, plus a spread that varies depending on the financial institution in question.
Therefore, the “floor” of the mortgage exists when there is a minimum fixed percentage, even if the interest resulting from the Euribor and the spread is less. In addition, there is also a mortgage “floor” when a minimum value is assigned to the Euribor, despite its market value being inferior.
On some occasions a mortgage “roof” may also be applied, maximum amount of interest to be paid. However, this is usually, quite cleverly, far above the normal market values, so the consumer never benefits from this clause.
Are “floor clauses” illegal?
Due to all the contradictory information and rumours that have been spread regarding “floor clauses” there is a lot of confusion on this subject.
“Floor clauses”, in themselves, are not illegal. These clauses are deemed illegal when they are applied unfairly and when the financial institution does not properly inform the consumer of their presence in the contract. Banks are, therefore, obliged to explain the terms of the mortgage contract in a comprehensive way to all kinds of consumers.
There is a series of legal precedent that outlines the exact conditions that need to be met so as to consider that the financial institution has complied with this obligation, and they are fairly demanding. If these conditions are not met the clause will be considered null and void.
Confusing precedent surrounding “floor clauses”
Lower courts started ruling the removal of “floor clauses” from certain mortgage agreements in 2010, but precedent was not created until 2013 when the Supreme Court ruled non-transparent “floor clauses” to be null and void. This meant that the amounts overpaid by consumers due to the application of these clauses were to be returned.
However, another Supreme Court ruling of 2015 created outrage among the legal community by ruling that the amounts overpaid by consumers under these clauses would only be able to be claimed as far back as the date of the 2013 ruling. This political decision clearly contravened a basic principle of law, which is that something that is null and void is as if it had never existed from its origin, and consequently the consumer would be entitled to the total amount overpaid.
What does the EU have to say?
On the 21st December 2016 the European Court of Justice ruled against the Spanish government on the matter of “floor clauses”, ruling that any claims granted must be fully retroactive, and consequently the entire amount overpaid by the individual from the origin if the clause is to be repaid. This, of course, was the logical legal conclusion.
What is the current position?
The Spanish government passed an act on the 20th January of this year, by which it approved urgent measures of protection relating to “floor clauses” to benefit the mortgage holder, the most important of which are:
- Compulsory negotiation: Banks are now required to enter into some form of negotiation with the customer before resorting to court. The banks have 3 months, from the date the claim is submitted to them, to make any offer for an out-of-court settlement they intend to make.
- Notification and calculation: Banks are now required to inform their customers if their mortgage contains a “floor clause” and present them with a calculation of the amounts overpaid (even if they do not make an offer of said amount). This calculation serves as considerable ammunition in the event of a court case.
If you have been the victim of the unfair application of these types of clauses in your mortgage agreement, you may be able to recover a significant amount overpaid over time and, just as importantly, have the clause removed from your contract for the rest of its duration. This can result in lifting a great financial burden, as the amounts overpaid due to these clauses can be significant.
As making this kind of claim requires following a recognised procedure, and could result in legal action having to be taken, it is important that you obtain legal advice from the very beginning, so that you are in the best position to understand your chances of success and how much you could be entitled to.
Gabriella Mary Trussler Rowland
4408 Ilustre Colegio de Abogados de Almería