Por favor, get your bulldozer away from my villa: an analysis of the nascent European Land Registry Association's Cross-Border Electronic Conveyancing project.

• Author: Griffin, Christine E.

1. INTRODUCTION

   Imagine that the Spanish government, without providing you any warning or opportunity to contest, bulldozed the villa you spent your retirement savings on because a retroactive law deemed it illegal. (1) While this notion may seem ludicrous, thousands of people in Spain, particularly expatriates in luxury housing markets, face this very dilemma. (2) A pilot program of the European Land Registry Association (ELRA) aims to mitigate such disastrous effects resulting from European cross-border land transactions. (3) The Cross-Border Electronic Conveyancing (CROBECO) scheme allows buyers to draft bilingual contracts for the purchase of real property in foreign countries while simultaneously taking advantage of choice-of law provisions to incorporate clauses allowing buyers to seek redress in the courts of their native country. (4) Time will tell whether CROBECO, currently being tested in the Netherlands and Spain, with the potential to be expanded to other countries in the near future, provides an efficient framework for cross-border land transactions in the European Union. (5)

   This Note will present the history leading to the introduction of the CROBECO scheme and analyze the strengths and weaknesses presented by its pilot testing. (6) Part II of this Note presents an overview of the Spanish housing market, in particular its meteoric rise and subsequent decline, and the so-called land-grab crisis. (7) Part III will summarize the history of land registries and cross-border property transactions in the European Union and will give an overview of the aims and mechanisms of the CROBECO project. (8) Part IV analyzes the progress made thus far by the CROBECO initiative. (9) Finally, Part V reaches a conclusion regarding the efficacy of CROBECO at facilitating European cross-border land transactions and increasing buyer Confidence. (10)

2. FACTS

   1. The Spanish Housing Market

      1. Rapid Growth

         Like the housing markets in many other nations, the Spanish housing market enjoyed a period of near-unbridled growth from the mid-1980s until 2007. (11) New home prices, particularly in urban areas, were valued thirty times higher in the mid-2000s than they were in the last quarter of the twentieth century. (12) Low interest rates coupled with expatriates quick to use their retirement savings to build dream homes along the picturesque Spanish coast fueled much of the homebuilding activity in the early 2000s. (13) While construction firms profited enormously from the housing build-out, industry forecasters predicted that such phenomenal growth could not go unchecked. (14)

      2. The Bubble Bursts

         In 2007, the Spanish sub-prime mortgage crisis dealt the once-thriving property market in Spain a crippling blow, one the market is still struggling to recover from nearly six years later. (15) Sources estimate that housing prices have fallen anywhere from seventeen percent to as much as fifty percent from their 2007 peaks. (16) Now, nearly one million new and partially built homes, once so eagerly purchased by expatriates and wealthy Spaniards, stand unoccupied. (17)

         The fact that Spain's homes are among the most overvalued in the world has impeded Spain's potential economic recovery. (18) Even Spain's perennially robust luxury markets, such as the Balearic Islands, have seen property values drastically decline in the wake of the sub-prime mortgage crisis. (19) Finally, perhaps one of the worst hindrances tarnishing the image of the Spanish housing market is the so-called illegal homes or "land-grab" scandal. (20)

   2. Expatriates and the Land-Grab Crisis

      1. Regional Government Corruption

         The Spanish government originally enacted the so-called "land-grab" laws as benign legislation to generate low cost housing. (21) The current land-grab problem, centered in the region of Andalusia, stems from the widespread granting of construction licenses by local governments that did not first obtain the appropriate licensure permission from regional authorities. (22) Fearing overdevelopment, the higher regional governments initiated legal action to invalidate licenses granted at the local level. (23) Additionally, local governments now wield the power to bulldoze partially constructed or completed homes that run afoul of proper licensing procedures. (24) Currently, the Andalusian government estimates that over one hundred thousand illegally built homes exist in Andalusia alone, exposing homeowners to great risky Nearly thirteen thousand of these illegal homes are in Andalusia's picturesque Almanzora Valley, an area popular with British expatriates. (26)

      2. The Bulldozing of Good Faith

         As a result of the retroactive invalidations, thousands of homeowners, many of them expatriate retirees who purchased their properties in good faith, now live in jeopardy. (27) Some owners have already seen the fruits of their retirement savings quite literally bulldozed away. (28) Len and Helen Prior, looking forward to retirement, left their native Britain to build the Spanish retirement villa of their dreams. (29)

         Thanks to unscrupulous builders who did not obtain proper permits before building their villa, the Priors watched helplessly as the home they poured their lives' savings into was demolished thanks to a retroactive land-grab law. (30) While Spain's highest court ultimately ruled that the demolition of the Priors' home was invalid and that the couple should receive compensation, the relief the couple sought has been slow to come to fruition. (31)

         Other homeowners must live without essential infrastructure services, such as water and electricity, which they believed were guaranteed by their purchase agreements. (32) Andalusian authorities are working to have over eleven thousand homes in the Almanzora Valley re-declared legal. (33) Unfortunately, the remaining illegal homes, approximately one thousand in total, would still be subject to demolition, resulting in the economic and psychological devastation of the expatriates who inhabit this region. (34)

      3. The Spanish Solution, or Lack Thereof

         The uncertainty caused by the land-grab laws caught the attention of the European Parliament in 2009. (35) Faced with the threat of reduced or suspended funding to certain autonomous regions, such as Andalusia, the Spanish government sprang to action. (36) The Spanish government introduced, for a twenty-nine euro fee, an online service whereby potential land buyers could receive a certificate from the Spanish Land Registry to serve witness to the fact that the buyer purchased a property in good faith. (37)

         The program, dubbed the Interactive Land Registry Information Service, is run by the Public Law Corporation of Land and Mercantile Registrars of Spain and has been fraught with problems. (38) For instance, a search for one Andalusian property turned up an accurate physical description but failed to mention that the government demolished it in 2008. (39) The program aims to allay the fears and increase foreign buyer confidence in Spanish property transactions. (40)

3. HISTORY

   1. Pre-CROBECO Land Conveyancing in the European Union

      1. Existing Land Registry Schemes and Principles

         The European Union is currently comprised of twenty-seven countries, each possessing independent land registries and land conveyancing legal processes. (41) European land registry systems fall into one of two main categories, title registration systems and deed registration systems. (42) Deed registration systems are premised on the concept that titles to real property exist in law and are comprised of all prior transactions relating to a piece of land. (43) Title registration systems, on the other hand, are premised on the notion that title exists in the land register itself, rather than in law. (44) The deed system is prevalent in countries with Roman roots, such as Spain and France, whereas the United Kingdom and Germanic countries tend to have title registration systems. (45) Regardless of the type of land registry system employed, each member country of the European Union maintains a completely independent land registry system. (46)

         The lex rei sitae principle is a classic property maxim. (47) In effect, the principle stands for the premise that the law that governs the land where real property is situated must necessarily be the law that governs the transfer or acquisition of that real property. (48) The CROBECO scheme aims to respect the classic transfer of property rights principles while offering buyers the option to apply the laws of other countries when contracting for rights not directly affecting the property transaction itself, which must be governed by the law of the jurisdiction where the property is located. (49)

      2. Role of Registries

         Simply put, land registries, whether they follow a deed or title registration scheme, provide interested parties with an orderly record of private land ownership. (50) Land registries and their respective processes for cataloging public information are legislative creations and thus vary widely from jurisdiction to jurisdiction. (51) Given the vast differences in public access to land registries, information regarding land parcels, and the registration systems themselves, it is no surprise that various groups, such as the European Union Land Information System (EULIS), formed in the European Union in an attempt to mitigate such differences and improve the ease and reliability of cross-border land transactions throughout the European Union. (52)

      3. Creation of ELRA

         In 2004, twelve European land registry groups banded together to form the European Land Registry Association (ELRA). (53) According to its mission statement, ELRA is dedicated to "develop[ing] and understanding the role of land registration in real property and capital markets." (54) Like EULIS, ELRA also seeks to increase the European community's knowledge of the processes of land registration systems in each European Union member state. (55) Despite its desire for increased...