What is an Energy Performance Certificate?

Known as an EPC, or CEE in Spain the Energy Performance Certificate, (Certificado de Eficiencia Energética), is a report that describes how efficient a home is in terms of energy consumption and also gives recommendations on how to save money and make your home more efficient. It assigns an energy rating to each home on a scale which ranges from “A” (the most efficient) to “G” (the least efficient). In Spain, it has been mandatory since 2013 for anyone selling or letting their property to have a valid Energy Performance Certificate.
Energy Performance Certificates are issued by qualified professional technicians or architects who are authorised to undertake building projects and thermal installations for buildings. They visit the property, collecting data before drawing up a report.

Prices vary according to the size of the dwelling. Excluding IVA, you can expect to pay around 150€ for a property up to 100m2, with price increasing to perhaps 300€ for a larger property of  400m2.  The certificate is issued once the property has been fully assessed and is valid for 10 years. This means that as an owner, you do not have to obtain a new certificate during this period unless you renovate or make changes to the property.

The energy rating given to a property by an Energy Performance Certificate, doesn’t directly prevent an owner from selling, or renting that property, however the rating may well influence a prospective buyer or renter – lower ratings being less attractive due to higher potential energy costs and visa versa.

Do all dwellings need an Energy Performance Certificate?

There are some exemptions to the requirement for an Energy Performance Certificate. These are – properties that have a floor area of less than 50 square meters; buildings that are being purchased for major renovation or demolition; buildings or parts of buildings that are used for less than four months a year; a property where there is already a rental contract in place; a property where a rental contract is signed for less than four months.

The landlord or owner must make a signed declaration if they consider the property to be exempt. This declaration should be included in the sale or rental contract as applicable.
If the certificate or exemption is not presented before the sale or lease, or the responsibility of obtaining the certificate is placed on the interested tenants or buyers as part of the sale or lease condition, the property owner could end up with sanctions and fines from the authorities for violating consumer rights obligations. Or, the sale or lease contract could be rendered invalid for failing to disclose required information to the consumer as part of a sale/lease.  Either of these could also mean the seller or landlord might be required to compensate the buyer or tenant for any costs caused by them not providing information that they were legally obliged to.

What is entailed in obtaining an Energy Performance Certificate?

To obtain an Energy Performance Certificate the owner of a the property will be required to provide basic information about themselves and their property. The technician assessing the building carries out an on-site audit to gather the necessary information to work out the buildings energy rating. This will include the building’s physical characteristics such as: orientation, exterior exposure, window and door openings, along with a review of the buildings systems to identify mechanical, water, and electrical loads.

The technician uses a government approved computer software programme to run its energy efficiency calculations. This generates a report which will present and assess various recommendations for improvements along with determined existing energy efficiency – letter grade (between A to G)

Once complete, the draft Energy Performance Certificate has to be validated by the local Local Government Authority and an original copy will be delivered to the property owner to be kept on file for 10 years or until re-validated.

What information does an Energy Performance Certificate provide?

1. Identification of the building, or of the individual building units being certified.
2. Summary of tests, checks, and inspections being carried out by the technician while providing the certification.
3. Description of the energy characteristics of the building , thermal envelope, facilities, normal operating conditions and occupation, thermal comfort, lighting, indoor air quality, and other data used to derive the energy efficiency rating of the building.
4. The energy efficiency rating of the building expressed by the energy label graded from A (most energy efficient) to G (lower efficiency).
5. Recommendations to enable the property owner or prospective buyer/renter, to understand which improvements will increase the energy rating at least one letter grade if the existing rating of the property falls within letter grades B or C. Or two levels if the existing rating falls within letter grades D, E, F or G

The recommendations may include an estimated payback period on investment throughout its life cycle to help a property owner determine extent of work and how to proceed – by major renovation or incrementally. The evaluation of the recommendations cost effectiveness is based on a number of standard criteria such as: the assessment of energy savings, the underlying energy prices and a preliminary cost estimate.

What is a Spanish mortgage – Clausula Suelo?

Over the last two years the Spanish mortgage Clausula Suelo has received a lot of coverage in the media.  If you haven’t seen it in the press, you may well have heard people talking about it, or about getting money back from the mortgage provider because of it.

Literally translated, ‘clausula suelo’ means ‘floor clause’.  In the UK this condition in the mortgage terms is known as a ‘collar’ and sets in place a minimum mortgage payment by defining a minimum interest rate to which a variable rate mortgage can drop.  Most mortgages in Spain are established on a variable rate that is set using a reference rate, normally the Euribor. Typically this will be a given percentage added on top of the Euribor reference rate.  So if the Euribor rate goes up, the mortgage rate and repayment also goes up, and if Euribor goes down, the mortgage rate and repayment also goes down.

The ‘Clasula Suelo’ imposed a limit on how low the mortgage interest rate can reduce to, thus setting a limit on the extent to which borrowers can benefit from lower costs of borrowing if the Euribor rate reduces, important at times (like now), when Euribor is at an all time low and has been since the beginning of 2009.  A Spanish mortgage ‘clausula suelo’ was therefore good for banks, as it meant they could potentially earn a bigger margin when the reference rate fell below the ‘clausula suelo’ threshold, and they would also know mortgage payments would never fall below a certain amount even if rates dropped considerably.

To give an example: A mortgage taken at the beginning of 2007 on a variable rate of Euribor + 2%, with a ‘clausula suelo’.  At the time Euribor was around 3.5%, so the initial rate paid would be 5.5%. Over the next 2 years Euribor rose to 4.8% at it’s highest, before dropping down to 1.3% in March 2009.  The mortgage interest rate will have followed the rise and fall, going up to a maximum rate of  6.8%, and then falling down to 3.3%.

Great, lower Euribor rate = lower mortgage rate = lower repayment.  Correct, that is until the clausula suelo bites. Let’s say the Spanish mortgage ‘clausula suelo’, i.e. the minimum rate the mortgage can drop to, in this case is 4%.  Euribor has been less than 1% since April 2009 and is is currently -0.251%, (yes a negative rate)!  And in the period from January 2012 where the average Euribor rate has been less than 0.1% this means that the holder of this mortgage would have been missing out on nearly 2% reduction in their mortgage rate, for the last 6 years – that’s €250 per month on a €150,000 mortgage!

So is the Spanish Mortgage Clausula Suelo legal?

The Spanish mortgage ‘clausula suelo’ is perfectly legal.  What isn’t legal however, is the way that many banks included it in the mortgage contract.  The mortgage contract will typically provide key information relating to the mortgage on a single page, with important information such as term and rate made prominent.  As we have seen, the Spanish mortgage clausula suelo is of course a very important piece of contract information, but most Spanish banks failed to disclose it.  Rather than include the ‘clausula suelo’ along with other key information, they instead hid it in subsequent pages or in small print elsewhere in the contract.

In May 2013, in cases brought against BBVA, Caja Mar and Nova Galicia, the Supreme Court in Spain ruled this practice to be abusive for ‘not meeting applicable transparency requirements’. Further, they passed judgment on a number of banks ordering them to remove the ‘clausula suelo’ from all their mortgages and repay customers the extra money that they had spent in repayments as a result of the ‘clausula suelo’ having been in place.

At the same time the Supreme Court also passed a ruling that a law will be passed to establish the compensation amounts that need to be paid in cases where a Spanish mortgage ‘clausula suelo’ renders the contract ‘abusive’.  Whilst the application and extent of this new law was unknown, in light of the judgement, many other banks acted and removed the ‘clausula suelo’ from their mortgages.

On the 20th of January this year, this pending law was passed, clarifying the actions banks must take to redress their customers who have been adversely affected by  a ‘clausula suelo’.   The law makes it obligatory for banks to inform customers who have the ‘clausula suelo’ written into their mortgages and to offer an out of court settlement.  As well as informing their customers, banks must also publish on their websites contact details and information about how to make a claim for settlement with their bank.

The law further stipulates that banks must make an offer within 3 months of receiving a claim, disclosing how the figure is worked out and including interest.  It doesn’t however go so far as to outline how the banks should calculate their offers of compensation.   They are not obliged to publish any information in English, so anyone who doesn’t read or speak Spanish, will more than likely need help to put together and present their claim.

If you have Spanish mortgage, it may have, or have had ‘clausula suelo’, which means that, if it hasn’t happened already, you may well see your mortgage payments reduced with the removal of the clause, and you may also, with a bit of work, be able to claim back money that you’ve overpaid as a result of it.

Our article Spanish Mortgage Clausula Suelo Claim, provides information about the process to apply for a refund of over-payments, and get a ‘clausula suelo’ removed.