What is the “COVID Clause” to buy a home in Spain?October 23rd 2020 | by José Naranjo
The new normal has brought us a lot of changes. Issues like confinements or other unexpected problems can interfere with our buying or selling expectations. To fix part of these problems, we have the Covid clause to buy a home in Spain.
As the world has become unpredictable, the lawyers think in every possible situation for their clients to feel as safe as possible. That’s why it’s so important the COVID clause.
COVID Clause to buy a home in Spain
- Clause included in sale and purchase documents protecting buyers and sellers in case a coronavirus event prevents either party from effectively transferring the property.
- The clause regulates that the parties will not be in breach of obligations because of a coronavirus event.
- Starting to be contemplated in residential sale and purchase agreements.
Shortly after the lockdown in Spain began, the so called “Covid clauses” in residential sale and purchase documents began to be contemplated. A Covid clause offers parties the ability to sign sale and purchase documents while ensuring they are not at fault and in breach of contract, with all of the associated costs, if they are unable to effectively transfer the property should the transaction be affected by coronavirus restraints.
Covid clauses enable transactions to continue and not fall away where a coronavirus event delays completion. Examples of these coronavirus events could be the following:
- The buyer or seller is ill or self-quarantining.
- The government introduces recommended or mandatory measures to reduce transmission.
- There is disruption to the post or sending money electronically.
- The buyer or seller cannot properly execute documents e.g. if no Notary is available.
- The buyer cannot carry out standard pre-completion searches.
- The lender withdraws its offer to finance the purchase.
- There are delays elsewhere in the chain.
To date these clauses have tended to be quite widely drafted, reflecting the widespread disruption across the property market. Broadly speaking, an industry standard Covid clause will provide the following:
- The term of the parties’ right to serve a notice to notarize will freeze while a coronavirus event prevents completion
- A party will not be in breach of its obligations because of a delay caused by a coronavirus event.
These clauses may not work if you absolutely have to complete the transfer of ownership on a certain date and will not cover every eventuality in what is a fast moving and complex crisis, but they do provide a basic layer of protection for both parties who may otherwise be wary about transacting in the current scenario.
COVID Clause to rent a property in Spain
- Clause included in a lease agreement protecting tenants and landlords against a second wave of infections and a further lockdown.
- Starting to be included in student residential lease agreements and commercial premises lease agreements.
- The clause complies with residential lease agreements as long as it does not adversely affect the tenant.
September has normally been a month where many people start to lease a property either for commercial or for residential purposes. However, this September is different since there is a “new normal”, which brings uncertainty and may determine future decisions. To avoid these uncertainties, some tenants are contractually preparing themselves against a possible second wave of infections and a potential further lockdown.
The so called “Covid clause” in lease agreements has been designed to find an agreed solution to these potential conflicts entailed by coronavirus restraints. Such clause provides a basic layer of protection for both parties who may otherwise be wary about entering into a lease agreement in the current scenario.
Although these clauses tend to be quite widely drafted, an industry standard Covid clause will provide both:
- Price to be paid (discounts or price deferrals) in case a new lockdown is imposed and/or
- The fact that a party will not be in breach of certain obligations triggered by coronavirus restraints.
The correct use of this clause complies with the legal framework of lease agreements for commercial purposes (as per article 4 of the Spanish Urban Leases Act).
In the case of residential lease agreements, the correct use of this clause also complies with the legal framework, taking into account that the clause will be valid as long as it does not breach the tenant’s minimum standards (as per articles 4 and 6 of the Spanish Urban Leases Act). In light of the above, and taking into consideration how the coronavirus is evolving, we can expect Covid clauses in one form or another to be with us for some time to come.
Do you need legal advice? You can contact Carlander Law Firm by phone (+34 952778708) or by e-mail (email@example.com). Address: Avenida Ricardo Soriano, 65, 4-1, 29601 Marbella, Málaga.
Learn more about Ernesto Franco (Carlander Law Firm), through his Linkedin profile.