Amendment of the Spanish Stamp Duty exemption applicable to mortgage loan novations

Spanish Law 2/1994 regulating mortgage subrogations and novations, which provides for the exemption of the variable amount of the Spanish Stamp Duty in public deeds of mortgage loan novations provided that certain requirements are met (hereinafter, the "Exemption"), has been amended, effective as of 24 November 2022, by Royal Decree-Law 19/2022.

Limitation of the subjective scope of the Exemption

By virtue of the aforementioned amendment, the subjective scope of the Exemption, on the one hand, has been broadened, since it is no longer required that the creditors that can benefit from the Exemption have to be financial credit institutions (as was previously required). This requirement prevented, for example, the application of the Exemption when the creditor was a debt fund.

However, according to the new regulation, only individuals or legal entities that, in a professional manner, carry out the activity of granting the following loans, provided that the borrower, surety or guarantor is an individual, will be considered as a "qualified lender" (i.e. a lender beneficiary of the Exemption):

• loans which are secured by a mortgage or other real right of security over a residential property (including storage rooms, garages and the like); or
• loans whose purpose is to acquire or preserve property rights over land or real estate built or to be built, provided that the borrower, surety or guarantor is a consumer.

Consequently, although the subjective scope of the Exemption is initially broadened (by not limiting it to financial credit institutions and allowing any creditor, individual or legal entity, for example debt funds), in practice, this subjective scope is considerably restricted since the creditor benefiting from the Exemption must be engaged in the granting of certain mortgage loans (basically, for the acquisition of residential real estate to individuals).

The subjective scope of the exemption relating to the subrogation of the mortgage creditor has also been altered in similar terms.

Possible impact on the objective scope of the Exemption

Our first conclusion, in accordance with the aim of the regulation (notwithstanding its confusing wording) and taking into account the reasons for which the Exemption was created, is that the Exemption will only be applicable in the case of novations modifying the term and/or the interest rate when the borrower, surety or guarantor is an individual and the lender is a professional in the context of the granting of mortgage loans on residential real estate; or for the acquisition or preservation of property rights on land or real estate built or to be built when the borrower, surety or guarantor is a consumer.

However, another possible interpretation of the amendment is that, since it is a subjective exemption (i.e. the application of the exemption is conditioned to the type of entity granting the loan), the Exemption would be applicable to each and every loan granted by such qualified lenders, without objectively limiting the Exemption according to the purpose and recipient of the specific loan.

Conclusion

In summary, although the modification is subject to interpretation, what seems clear is that the subjective scope of the Exemption has been drastically reduced, which will mean an increase in the tax cost of many of the future mortgage loan novations which, although legally corresponding to the creditor in its condition of taxable person, will be contractually assumed, in most cases, by the borrower following the usual market practice, thus increasing the final cost of the refinancing and making it more difficult in many cases.