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The new registry for estate agencies explained: decree 98/2022
A new and controversial law may mean that Valencia estate agents have to meet strict requirements or else close down
by John Michael Kirby, Technical Architect and Building Engineer
DECREE 98/2022, of July 29, published in the DOGV on August 16 could – if applied – lead to the most radical and costly change in the business model for foreign estate agencies ever seen in Spain. It could potentially, due to the increased costs of compliance with the new restrictions stipulated by the law, force many or most estate agencies in the Valencian Community to close.
The law, passed under the previous Valencian government and now in force, obliges both agents, paid or unpaid, and estate agencies that work in the Valencia region to join a registry. The law places a series of very strict conditions for joining that registry. So strict are the conditions that the National Markets and Competition Commission (CNMC) has decided to strike down this regional law, an action that is within its power but takes time as it must go through a judicial process. I have been contacted by several estate agencies looking for clarity on the situation.
In short, currently it’s a mess, but this article aims to shed some light on the law itself, the obstacles to its application, which are virtually insurmountable, the motivation behind the law, those entities opposed to its introduction and what happens if you simply keep your head down, keep working and don’t take any notice of the law. The answer to that last question may surprise you.
In 2022, this law was passed and the clock for the 12-month grace period for agents and agencies to comply with that law began ticking. That grace period already expired on October 16, 2023, just a month ago, hence the rush by agencies that conduct business anywhere in the autonomic community of Valencia, which includes the provinces of Alicante, Valencia and Castellón, to know what their obligations are.
In Spain there are national laws and powers conferred by those laws to supra-regional entities, entities that are only answerable to the national parliament. In many cases, those supra-regional entities have the power to restrict, impugn or challenge regional laws. One of those entities is in charge of markets and competition and it’s called the CNMC. While recognising the previous Valencian administration’s right to create laws in this area, they asserted their right to challenge and potentially, through judicial actions, annul any or all of the law which they consider impinges on the correct operation of either the property market or competition within it.
That’s exactly where we find ourselves at this point in time. The CNMC does consider that these are disproportionate restrictions, which restrict competition and harm buyers and sellers. The CNMC formally requested changes to the law directly to the GVA, the regional Valencian government, before filing the legal challenge. As is their right, the GVA decided to ignore the request which is what led to the legal actions against the 98/2022 by the CNMC.
Let’s take a look at exactly which articles the CNMC objects to, why, what the current legal situation is and how it is likely to develop.
Decree 98/2022 is designed to regulate by means of the creation of a mandatory registry of agents and agencies intervening in the real estate brokerage market of this region. That’s a huge deal as it’s the most important investment market this region has and is critically linked to the most important employment sector this region has, which is tourism. 27% of all tourists to the region come to visit friends and family who live here. Thus, the risks involved in choosing to intervene in this market are difficult to overestimate. So why intervene? To improve the quality of service as the proponents of the law state? Although there may be an element of that but, currently being such a lucrative market, with immense future potential, the rewards for gaining control of that market, by restricting access to it, are also huge.
Undoubtedly, the current model of this market in this region works and has worked exceptionally well for foreign investors. In 2022, 78.8% of all second homes were sold to foreigners, as were 37% of all properties. There are 17 municipalities where foreigners constitute the majority of residents and orders of magnitude more than that when foreign owners who are not resident are taken into account. The benefits of this investment, 150 billion euros just in the Valencia region from UK investors alone, has floated all boats. It has been and continues to be the engine behind the flourishing of the Valencia region’s economic well being.
In a nutshell the CNMC considers that the restrictions in the 98/2022 decree hinder the development of the activity and are disproportionate. For example the communication obligations of article 2.2 of the decree which states that people who mediate unpaid and sporadically have to communicate their activity when they are involved in two or more transactions a year. This is clearly designed to restrict access to the activity of brokerage but, with no clear benefit for buyers or sellers.
In addition, there is a new requirement to a public establishment, a premises in the Valencian Community or prove that they are registered in a registry of another autonomous community, whether your business model needs one or not. So international agencies which have their activity base abroad, finding clients for properties here for example, will not meet the new criteria laid down by 98/2022 and will either have to close or to open a new premises, renovate it, staff it, insure it etc. The CNMC considers that these requirements place a burden on agents from other territories, limit the free provision of services and discourage the provision of services. This is undoubtedly true in the case of foreign agencies.
Articles 3.a) and 6 of the decree also seek to break the online model of many foreign agencies by requiring that agents that provide services exclusively by electronic or telematic means have a physical address in the territory of the Valencian Community. This clearly runs contrary to the P2P model that made this sector so successful in this region and once again would have most impact on foreign agencies that necessarily need to contact their client base, foreign buyers/investors, in their countries of origin. The CNMC believes that this requirement can have significant costs for the real estate agent, which inevitably would make the cost of buying a property here higher purely as a result of increased transaction costs and not asset values.
This next requirement of the new decree would, a priori, eliminate 99% of all foreign agencies that I know of. Articles 3.b) and 6 require professional training certification. An agent/agency is now required to either have a degree like mine (Technical Architect) or to have undergone a 200-hour training course in Estate Agency studies.
In order to do either you would need to be fluent in not just everyday Spanish but also technical and legal Spanish. This is patently an absurd requirement as these same foreign agencies have been running successfully, in some cases for many decades, and could quite justifiably give people like me, who do meet the new requirements, lessons on how to best run an estate agency.
This fallacy is compounded by the fact that there is no continuous training requirement. An agent would do a 200-hour course, the equivalent of just two subjects of a 4-year degree, in which you can do up to 14 subjects in each year, and then nothing at all. So in a few years when most of the legal and technical framework has changed and what you were required to study “back in the day” is no longer relevant, that agent would still be just as qualified to intervene. It simply does not map onto reality.
The CNMC believes that this requirement is contrary to the Law, both state law which provides that the activity of real estate intermediation can be carried out ("without the need to be in possession of any title, or membership in any official association"), and regional law.
Articles 3.c and 6 also require the provision of guarantees and civil liability insurance as solvency requirements. Once again the additional costs do not map to the risks that foreign buyers face and as such are not considered justified by the CNMC. These extra unnecessary costs would inevitably be passed on to the clients.
There are many more requirements to be able to register, if you are interested in reading in more depth follow the link below to the law and translating it by following my video of how to translate any web page or document in less than 30 seconds.
The law has been passed by the previous regional government, now changed, the CNMC, which is competent to challenge before the courts administrative acts and regulatory provisions, has challenged it. The 98/2022 decree was challenged 06 Oct 2022 within the framework of article 5.4 of the law creating the CNMC. This power is called “active legitimation” and is included in both article 5.4 of Law 3/2013, of June 4, creating the CNMC, and in article 27 of Law 20/2013. In short they have the power to intervene. So where do foreign agencies stand at this point in time?
There is a registry, the grace period for joining it expired last month, the regional decree makes it mandatory for an agency to join it. However, we also know that the decree has been challenged by a higher national authority which will in all probability win.
Here’s what I consider to be the most salient fact in this whole situation. At this time there is no sanctions policy for non-compliance, for not joining the registry. In addition, article 9 of the Spanish constitution and article 2.3 of the Civil Code prevent any new sanctions being applied retroactively.
As such, what I believe is going to happen is that the new administration in the Valencia region, the PP, an administration that was not responsible for the introduction of this decree, and is the party which liberated the real estate market in the first place back in the year 2000 by eliminating the requirement to be an API (a registered certified estate agent), will kick 98/2022 into the long grass by not introducing a sanctions regime. Thus making the current registry voluntary, which is where we were before 98/2022 was introduced as the API association still exists but joining it has been voluntary for the last twenty years.
I have requested an interview with the new administration to see if further clarity can be given.
Links
John Kirby is a Technical Architect and Building Engineer (UPV), having won the award for outstanding academic achievement. He is the first foreigner to win that award and the only foreigner to ever be Municipal Technical Architect in Spain and a Judicial Property expert witness in Spain. He is Commisioner for Expatriates of the Valencian government and Ambassador for Spain and Gibraltar for Chartered Association of Building Engineers (UK).
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