Extinction of condominium

As has just been explained in the preceding question, the extinction of a condominium is the legal figure that allows to put an end to a situation of shared ownership of several persons over a property, in such a way that one (or some) of them becomes the new owner of the totality of such property.

In view of the above concept, its usefulness is more than evident in those cases in which, for whatever reason, several persons who share the ownership of a property wish to put an end to this situation, so that the property becomes the property of only one of them.

In practice, recourse to the extinction of the condominium usually occurs in the following cases, among others:

• In the case of couples that jointly acquire a property and that later, when the sentimental relationship ends, one of them wishes to acquire the entire property and the other to leave the community in view of the cessation of the cohabitation produced between both (let us think of cases of separations, divorces, extinctions of stable couples, etc.).
• ~Julia and Vicente are a couple who have been in a romantic relationship for 10 years, during which they have acquired ownership of an apartment in Barcelona (50% each), to establish their habitual residence. After this time, due to personal differences, Julia and Vicente decide to put an end to their relationship, so that Julia leaves the common home and moves to live in another address.
• ~As a result of this situation, as Julia and Vicente are no longer a couple and do not live together, Julia wishes to get rid of the 50% that she owns in that house, so that, after agreeing the appropriate with Vicente, both decide by common agreement to proceed to the extinction of the existing condominium, so that Vicente acquires 50% of the remaining property that previously belonged to Julia and, in exchange, he compensates her with the market value of that %, let's say for example 150.150,000 euros, so that the community situation is extinguished, leaving Vicente as the sole owner of 100% of the freehold.
• It is also very common in the case of assets that have been acquired by inheritance by several siblings or nephews, who, after some time, in view of the difficulties of managing the community, agree to cease in this situation, in such a way that one of them will keep the whole of the property, compensating the rest in the corresponding monetary amount.
• ~Let us imaginethat Óscar and Raquel, owners of a summer house in Calella de Palafrugell, are a married couple who have three daughters, named Belén, Andrea and Sara. Upon the death of Oscar and Raquel, their three daughters, as universal heirs, when accepting the inheritance of their deceased parents, become the owners of the full domain of the said property, each one having 33% of the property.
• ~Overthe years, the three sisters come to the conclusion that sharing ownership of the house is not practical, because for example two of them do not use it, so finally, as Sara does enjoy it, they agree to extinguish the existing condominium, so that Sara acquires the remaining 66% (belonging to Belén and Andrea in 33% respectively), thus becoming Sara the owner of 100% of the freehold.
• It can also be used to dissolve the existing community of property for any other reason(remember the example of the two friends who jointly acquire a second home, and later wish to put an end to this situation).
  

As can be observed, the sale and purchase and the extinction of condominium are very similar operations, since in both cases there is a transfer of part of the ownership of an asset to a third party, in exchange for an economic consideration (provided, of course, that the extinction of condominium is carried out for valuable consideration).

Thus, on the basis of this similarity between other operations, the fundamental differences between the two resources are, broadly speaking, as follows:

In the first place, as is evident, it is necessary to indicate that the extinction of the condominium can only be carried out if any of the co-owners is willing to acquire the remaining portions belonging to the other co-owners, since if all of them wish to abandon the community, and therefore the transfer to a third party proceeds, the only legal mechanism suitable for this purpose will be the sale and purchase.

<ejemplo>Así pues, recuperando el ejemplo inicialmente propuesto de Mireia y Anna que adquirieron conjuntamente una vivienda en Puigcerdà, si pasados los años, ambas ya no desean tener la propiedad de esta vivienda, lo que procederá es realizar una compraventa y vender la finca a un tercero que la adquiera, por el precio que se pacte.<ejemplo>

Having made this basic and evident precision, but at the same time necessary, if in the termination of the intended community, one of the co-owners is willing to acquire the remaining portions of the property that belong to the rest of the co-owners, in such case, it is necessary to indicate that the intervening parties, besides resorting to the extinction of the condominium, could also opt for the purchase and sale, however, this will have a higher tax cost, since in such case, it will be taxed by the Transfer Tax (in Catalonia, for example, at a rate of 10%).

<ejemplo>Así pues, recuperando el ejemplo inicialmente propuesto de Mireia y Anna que adquirieron conjuntamente una vivienda en Puigcerdà, si posteriormente Mireia desea abandonar la comunidad, puede plantear una compraventa a Anna, de modo que Anna adquiera el 50% de la propiedad restante mediante una escritura de compraventa, a cambio de, por ejemplo, 150.000 euros.<ejemplo>

<ejemplo>No obstante, como se indica, en este caso, al tratarse de una compraventa, la misma tributará por ITP al 10%, esto es, Anna deberá pagar 15.000 euros (el 10% de 150.000 euros) en concepto de ITP a la Agencia Tributaria catalana.<ejemplo>

On the other hand, if the termination of the community is proposed by means of the extinction of the condominium, so that one of the co-owners acquires the portions of the property that belong to the rest of the co-owners, all this through this figure of the extinction of the condominium, the operation will have a more favorable tax treatment, since in such case, it will only be taxed for the Stamp Duty (in Catalonia, for example, at a tax rate of 1.5%).

<ejemplo>Así pues, recuperando el ejemplo inicialmente propuesto de Mireia y Anna que adquirieron conjuntamente una vivienda en Puigcerdà, si posteriormente Mireia desea abandonar la comunidad, si la operación se plantea como una extinción de condominio, Anna adquirirá el 50% restante de la propiedad, Mireia recibirá esos 150.000 euros igualmente como contraprestación, pero el coste fiscal será mucho menor, pues se tributará por AJD sólo 2.250 euros (esto es, el 1,5% de 150.000 euros).<ejemplo>

Before understanding how to proceed when extinguishing a condominium, I believe that, without a doubt, it is also very necessary to know what an undivided community is, as well as to know how it is regulated.

As regards the concept of undivided community property, as already indicated above, this is the legal reality in which two or more persons jointly and concurrently share the ownership of the property or of another real right over the same asset (in our case, real estate, i.e., an apartment, a house, a parking space, etc.), without there being a determination as to which specific and concrete part belongs to each of the co-owners.

<ejemplo>Así pues, recuperando el ejemplo inicialmente propuesto de Mireia y Anna que adquirieron conjuntamente, al 50%, una vivienda en Puigcerdà, como vemos, lo único que sabemos es que dicho piso pertenece al 50% a cada una, pero sin que sea posible determinar qué parte concreta del piso pertenece a cada una, de modo que, por ejemplo, no es posible saber si una habitación concreta, o un baño, o el pasillo, pertenecen a una u otra.<ejemplo>

Knowing then what an undivided community is, it is necessary to know that, as far as its regulation is concerned, it will be governed:

• In the first place, by the autonomy of the will of the parties, that is to say, by the pacts or agreements reached by the co-owners(in the example of Mireia and Maria, they may have agreed that the apartment will be used indistinctly by both of them all the time, or for alternate weeks, among many other options).
• And, in the absence of agreement between the parties, by the legal rules established by civil legislation (in the case of Catalonia, Articles 552-1 and following of Book V of the Civil Code of Catalonia).

Thus, in relation to this regulation, it is necessary to highlight the following main issues:

• Each of the rights determines the share of participation in the use, enjoyment and yield of the property(so, for example, if Juan owns 25% of an apartment, he has the right to use it 3 months a year, that is, 25% of the time; Or, if for example that apartment is rented for an amount of 800 euros per month, Juan will receive 200 euros, that is, 25% of the rent obtained) .
• Each co-owner can freely dispose of his right in the community, dispose of it and encumber it(i.e., in our example, John, if he wishes, can sell his 25% or even mortgage it).
• Each co-owner may use the object of the community in accordance with its social and economic purpose and in a way that does not harm the interests of the community or of the other co-owners, who may not be prevented from using it.
• No co-owner may modify the property which is the object of the community (i.e. carry out works, alterations, etc.), not even to improve it or make it more profitable, without the consent of the others. However, if a co-owner carries out works that improve the property without the express objection of the others within one year of their execution, he may demand compensation with the legal interest accrued from the time when he claims them in a reliable manner.
• The administration of the community corresponds to all the co-owners, and for the adoption of agreements the following rules will be taken into account:
• ~For acts of ordinary administration (such as minor repairs), resolutions shall be adopted by the majority of the co-owners, according to the value of their quota.
• ~On the other hand, for acts of extraordinary administration(such as, for example, the installation of a swimming pool in the house at a cost of 40,000 euros), a majority of three quarters of the quotas will be necessary.
• Each co-owner must contribute, in proportion to his share, to the expenses necessary for the conservation, use and performance of the object of the community, as well as to those of reform and improvement agreed upon by the majority(thus, if Juan is owner of 25% of the property, and an electrical appliance breaks down and its repair amounts to 1,000 euros, Juan must pay the 250 euros corresponding to his 25%).
  
In these cases, it should also be taken into account that the co-owners who have advanced expenses may demand from the others the reimbursement of the part that corresponds to them, plus the legal interest accrued from the moment in which they claim them in an irrefutable manner.

In accordance with the Catalan civil regulations, it is necessary to know that, as already indicated, any of the co-owners who wishes to leave the community, has the right to do so, without the need to allege or justify any reason, being able in such case to sell his participation to a third party outside the community.

<ejemplo>Así pues, siguiendo con nuestro ejemplo inicial de Mireia y Anna que poseen cada una el 50% de ese piso en Puigcerdà, si Mireia desea desprenderse de su 50%, tiene todo el derecho a hacerlo, de modo que podrá venderlo a un tercero distinto a Anna, por ejemplo, a su amigo Francisco, que desea comprar ese 50%, a cambio de 100.000 euros.<ejemplo>

However, in these cases, the law establishes that the other co-proprietors will have a right of first refusal in order to acquire that % of the property that the co-proprietor wishes to dispose of (unless otherwise expressly agreed in the deed of incorporation). In order to exercise this right of first refusal, the co-proprietor who wishes to acquire that % of the property must pay the same price and with the same conditions that had been agreed with the third party.

<ejemplo>En nuestro ejemplo, como Anna no quiere compartir ese piso con Francisco, porque no tienen buena relación, si Anna lo desea, puede “igualar” la oferta de Francisco, de modo que si ella abona los 100.000 euros a Mireia, podrá adquirir ese 50% de Mireia y hacerse con el 100% de la propiedad, “pasando por delante” de Francisco, pues como este es un tercero ajeno a la comunidad, ella tendrá este derecho de tanteo.<ejemplo>

To exercise this right, the co-owners who intend to make the transfer must notify the other co-owners, reliably (by means of a burofax, for example), of the decision to sell and the circumstances of the transfer.

• In such a case, the right of first refusal may be exercised within a period of one month from the time of notification.

Likewise, in order to avoid that the co-owner who wishes to sell does not respect this right, the law determines that, if the notification does not exist or if the transfer is made for a price or in circumstances different from those stated therein, the pre-emption will entail the withdrawal, that is to say, the possibility of bringing a legal action to invalidate this sale to a third party, so that the other co-owners are the ones who finally acquire the % sold to someone outside the community.

• In such a case, this right of withdrawal may be exercised within a period of three months from the time the other co-owners become aware of the transfer and its circumstances or from the date on which the transfer is recorded in the Land Registry.

Finally, it should be noted that if there are more than two co-owners who wish to exercise the right of first refusal, each of them will be entitled to a percentage in proportion to their respective rights in the community.

<ejemplo>Así pues, siguiendo con nuestro ejemplo inicial, si este piso en Puigcerdà lo compraron Mireia, Anna y Paula, cada una un 33%, y posteriormente Mireia desea vender su 33% y Anna y Paula lo desean comprar, dicho 33% se dividirá entre ambas, correspondiendo un 16,5% a cada una, de modo que Anna y Paula se convertirán en propietarias del 50% cada una.<ejemplo>