The Ground Clause (Cláusula Suelo)
The Ground Clause (Cláusula Suelo) is that which establishes a minimum interest rate payable in monthly mortgage payments, applicable even though the interest rate agreed with the financial institution is lower or has reduced. Usually the agreed interest rate is calculated using the Euribor, (Euro Interbank Offered Rate), plus an additional percentage rate set by the finance company. This percentage rate can vary depending upon which financial institution is involved.
For example, if your mortgage establishes an interest rate of Euribor, + 1% and the Euribor is at 1%, you should then pay a 2% interest. However, if you have a mortgage with a ground clause at 3%, it would be calculated at that 3% rate and would not be reduced to 2%.Ultimately, this ground clause sets the minimum interest rate to be paid ALWAYS, no matter what the Euribor is. This results in a limitation in the lowering of payment quotas for the client when interest rates are reduced, causing economic harm to them as they are forced to pay more money each month.
Are “Ground Clauses” legal?
According to the courts the mere inclusion of this clause in loans is not illegal, what is illegal is that it is included without adequately informing clients about the consequences. Therefore the courts have annulled this clause and consider it invalid. Financial institutions have a legal obligation to explain all of the clauses to their clients so that they understand exactly what the loan agreement specifies.
Does the ground clause affect me?
In order to find out if this clause affects you it is advisable to ask for a professional to analyse the signed contract as the words “ground clause” do not usually appear in the text per se. The terms that usually appear are “minimum interest rate”, “limit the variability”, “limit the application of variable interest rate”, “the interest rate cannot be lower than X”, etc. If you have not seen any reduction in your monthly payments since 2009, then this may well indicate the existence of this clause in your contract.
The Spanish Supreme Court judgment
One of the most important decisions was made regarding this issue by the Supreme Court on May 9th 2013 when the ruling made was in favour of all those affected with mortgages from different banks and the base or ground clause was annulled. However, the main point was that in their ruling they established retroactivity from the date of its pronouncement. That is to say that only the overcharged amounts paid from the date of the final sentence would be reimbursed. They justified this decision by referring to the serious damage that would be caused to the Spanish economy if the financial institutions were obliged to repay all of the overcharged amounts from the date of the signing of the loan contract.
The EU Court Judgment
Now the victims are waiting for the EU Tribunal’s decision regarding the retroactivity of the cancellation of the ground clauses, as to whether reimbursement would take effect from 9 May 2013 or from the date of its inception. On 13 July 2016 the Advocate General of the Court of Justice of the European Union, (CJEU), Paolo Mengozzi already advised us in his report, that banks will not return all of the overpaid money, but only reimburse that which was overcharged from 2013, using the same argument; that it would endanger the country’s economy if the banks were forced to repay all of the money back.
Normally the decisions taken by the CJEU follow the line of the Opinion of the Advocate General, so we could assume that this would apply to this issue, and therefore, we have an idea of how far back we could claim the loss suffered by the aforementioned clauses.
In conclusion, we always recommend that property purchases are made with the assistance of a specialized lawyer. Our firm, Montelongo Asesores, has over 45 years experience helping hundreds of clients in the purchase and sale of their properties. Do not hesitate to contact us for advice on this, or any other topic that might interest you. Go ahead and make an free no obligation appointment with us!!!