Abusive clauses in mortgages - the "ground clause"

Spanish regulation of mortgages and consumers’ rights is under revision. Recent judgments of the Supreme Court of Spain and the European Court of Justice have declared the abusive nature of some clauses of mortgage loan contracts due to lack of information and transparency. This jurisprudence is important because it benefits not only Spaniards who request a mortgage but also foreign citizens who wish to purchase a second home for holidays.

One of those clauses under suspicion is the one popularly called "ground clause", included in the contracts of loan with variable interests. In these types of loans the interest rate is calculated by adding to the reference rate -generally the EURIBOR -, a fixed percentage that does not change during the lifetime of the loan. Thus, under normal conditions, the interest rate that the borrower has to pay will depend on the fluctuations of the benchmark index, so the purchaser will suffer if it goes up but will benefit if it goes down. The latter is precisely what has happened in recent years, where the Euribor has fallen to levels close to 0%.

The ground clause alters the behaviour of the loan against the purchaser, so that if the interest rate rises, the loan is met in its terms: but if it descends, the clause establishes a minimum below which the rate of interest will never fall and remain fixed. It is therefore a clause that, should it vary, will always be a detriment to the borrower.

The Supreme Court of Spain has declared that the clauses that limit the variation of the type of interest (the ground clauses) are not prohibited.  Nevertheless, to incorporate them into contracts with consumers it is now necessary that they overcome a double filter of transparency and comprehensibility. This has a series of consequences for the bank, which not only has to inform of its content, but has the duty to make an effort to explain to the purchaser the consequences of the clause for his pocket in the event of rate variation.  That is, it is not enough for it to be legible, but the bank has a duty to make sure that the borrower understands the present or future costs that it may entail.

The liability for ensuring that the purchaser is fully aware of the clause and the consequences falls to the lender who must prove that he fulfilled his duties of transparency.  However, the Supreme Court goes further, and certain specific cases, the lack of information is presupposed, for example, when it is included together with an unattainable “roof clause” as apparent counterpart, or hidden under a ton of data and operations very complicated for any consumer.

With this interpretation of the Spanish courts, any purchaser, Spanish or foreigner, who has a "ground clause" on his mortgage and believes that there has been a lack of transparency, can claim the return of the amounts of money which have been overpaid from the beginning of the contract, provided you are still paying the mortgage or within four years from when the mortgage expired. However, a detailed study is necessary on a case-by-case basis if the requirements for claiming the refund of the payment are met or, if necessary, for claiming additional amounts if there are more clauses that could be abusive.

For more information about Spanish mortgages or loans please contact clientservices@giambronelaw.com  or telephone 020 7183 9482