Legal foundations of real estate transactions and professional services in european and national regulation

AuthorConsumers, Health, Agriculture and Food Executive Agency (European Commission), Deloitte consortium, IPSOS, London Economics
2. Legal foundations of real estate transactions and
professional services in European and national regulation
This chapter presents an overview from a consumer perspective of the current EU law and
policy framework related to real estate transactions as well as of the professional services
assisting consumers i n such transactions. Reference to the residential real estat e market
is made while relevant pieces of legislation and policy strategies that go beyond the scope
of the study are not included.
2.1 The applicable EU legislation
A basic division line n eeds to be drawn betw een the regul ation of substance and content
of transactions, i.e. the rules on real estate conveyancing and residential tenancies
themselves (Section 2.1), and the regulation of professional services and service providers
facilitating such transa ctions, i.e. rules on market access and behaviour of the involved
professionals and service providers, in particular notaries, l awyers, licensed conveyancers
and estate agents (Section 2.2).
In specific, Section 2.1 covers the following topics:
Fundamental constitutional dimension of the right of property from a consumer
European consumer law and policy;
European energy efficiency law;
European tax law;
European anti-discrimination legislation;
European private international law.
Conveyancing and residential tenancies are largely regulated by autonomous national
law, thus resulting in a very high degree of diversity across the 30 countries under scope
by the study. R eal property and real securities (mortgages) are defined differently; the
registration of real property serves different purposes and requires different forms and
procedures ranging from declaratory to constitutive publicity, with some mixed systems
(which require constitutive publicity for mortgages only).
The investigation of differences across national legislation and regulation is particularly
relevant for the purposes of the study not only in terms of the process engaged when
buying, selling, renting and letting a property but al so regarding termi nology and
definitions, the role of professionals and regi stration in the land register. Several major
differences can be noticed and are highlighted throughout the literature review and other
study tasks. To provide an illustration, in some countries such as France, Italy and Spain,
the transfer of real property (‘conveyancing’) depends on the validity of the sales contract,
whereas, in Germany, the transfer of real property is valid even when the underlying sales
contract is invalid (abstract system). Other differences are related to the legal instruments
used. Whilst in Scandinavia, Great Britain and Ireland, private documents or deeds can be
registered in the land register (on the request of the parties to the transaction), in most
continental countries the transfer of property or other real rights to be registered in the
land register requires a ‘notarial deed’ (acte authentique) – which, in turn, may be a
substantive validity requirement or only a formal requirement for the registration
Despite national specificities on the legal framework of residential conveyancing and
tenancies, guidance to Member States from the EU in relati on to real estate transacti ons
is observed through the following:
The basic market freedoms which, though allowing different national rules, contain
several rights that are relevant to real estate transactions and will be analysed from
a consumer perspective (Section 2.1.1);
The most important European input comes from European consumer law Directives
(Section 2.1.2); and
Further policy initiatives in this field also play an important role including European
Energy Efficiency Law, European Tax Law, European Anti-Discrimination Legislation,
and European Private International Law (Sections 2.1.3 2.1.6).
2.1.1 European right of property
The most important legal infrastructure for real estate transactions is provided by
the fundamental right of property, which lays down a framework for both conveyancing
and renting. From a consumer perspective, the European right of property is of paramount
importance as i t may b e i nvoked di rectly against national regulation and administrative
decisions both in the field of real estate conveyancing and rental s.
Whilst the right of property is part of the written or unwritten constitutions of all
European Member States, it has also been recognised at the European level as a general
legal principle by the European Court of Justice (ECJ) and it has been inserted into Art. 17
of the Charter of Fundamental Righ ts of the EU . However, these EU law guarantees have
generated only limited impact on i mmovable property law and real estate transactions up
until now; this is mostly because as a principle they may be invoked only against European
and not national regulation and administrative decisions.
This is different for the European Convention of Human Rights (ECHR), whi ch includes, in
its first protocol, the well-known protection of the right of property. This right has been
further specified in an ample jurisprudence by the European Court of Human Rights17,
which extends to many legal aspects of real estate and tenancy transactions. As an
example, the ECHR has repeat edly found a violation of the landlord’s right of p roperty in
cases concerning extremely long waiting periods for eviction in Italy even in cases in
which the landlord intended to use a house or apartment for herself or close family
members18. Most importantly for a private tenancy law context, the ECHR has i n recent
years increasingly balanced the property rights of th e owner against national
regulation protecting the tenant. In Malta19, Poland20 and Norway21, which seem to
have overruled previous jurisprudence22, it seems that, dependin g on the case, legislative
and administrative restrictions of the landlord’s property rights may be accepted in favour
of tenants’ protection.
As regards the economic constitutio n of the EU, the basic freedoms protect the three
most important aspects of cross-border real estate transactions which are of highest
relevance for consumers:
The acquisition of real estate and the securing of financing debts with mortgages as
only this right allows most purchases of real estate properties by consumers;
The latter encompassing both the right of the debtor (consumer) to secure a debt with
a mortgage; and
The right of the bank t o offer a credit secured by a mortgage which is so to speak
the counterpart of the consumer’s right.
Acquisition of real estate
The right to acquire real estate in other Member States is protected by the basic freedoms
in all respects. For consumers, it i s most relevant to see how the ECJ has c oncretised this
right: i.e. if a foreign worker, acti ng as a consumer, wishes to buy an apartment in the
17 For older basic judgements, see J. De Meyer, Le droit de propriété dans la jurisprudence de la Cour européene
des droits de l’homme, in S. M. Helmons (ed.), Le droit de propriété en Europe occidentale et orientale, 1995,
18 See case 22774/93, Immobiliare Saffi v. Italy of 28/7/99; case 22534/93, A.O. v. Italy of 30/5/00; case
28272/95, Ghidotti v. Italy of 21/2/02
19 Application no. 17647/04, Edwards v. Malta of 24/10/06
20 Application no. 35014/97, Hutten-Czapska v. Poland of 19/6/06
21 Application no. 13221/08, Lindheim and others v. Norway of 12/6/12
22 Application no. 10522/83, 11011/84, 11070/84, Mellacher and others v. Austria of 19/12/89
host country, this has been qualified by the ECJ as an annex to the free movement of
workers (Art. 45 TFEU, Ex-Art. 39 TEC)23.
European debtor’s (consumer’s) right to secure a debt w ith a mortgage
The right of a debtor (consumer) to secure debt with a mortgage has been acknowledged
by the ECJ in ‘the Trummer24 case’, which is a fundamental decision on the relationship
of the basic freedoms and real sureties, though its facts are outdated after the introduction
of the Euro currency. In this case, an Austrian prohibition on registering mortgages in
foreign currencies was at stake. In its decision, the ECJ first confirmed the extension of the
scope of the free circulation of capital to mortgages, as these “represent the classic method
of securing a loan linked to a sale of real property”25. Then, the Court found a violation of
the freedom right:
“The effect of national rules such as those at issue in the main proceedings is to
weaken the link between the debt to be secured, payable in the currency of another
Member State, and the mortgage, whose value may, as a result of subsequent
currency exchange fluctuations, come to be lower than that of the debt to be secured.
This can only reduce the effectiveness of such a security, and thus its attractiveness.
Consequently, those rules are liable to dissuade the parties concerned from
denominating a debt in the currency of another Member State, and may thus deprive
them of a right which constitutes a component element of the free movement of
capital and payments”26.
Following the ordinary scheme of analysis of the basic freedoms, the Court further went
on to examine possible justifications of the violation. In this context, i t made a statement
of principle as regards to real sureties:
“It should be noted that a Member State i s entitled to take th e necessary measures
to ensure that the mortgage system cl early and transparently prescribes the
respective rights of mortgagees inter se, as well as the rights of mortgagees as a
whole vis-à-vis other creditors. Since the mortgage system is governed by the law of
the State in which the mortgaged property is located, it is the law of that State which
determines the means by which the attainment of that objective is to be ensured”27.
In the remainder of the case, the ECJ did not, however, accept the Austrian prohibition as
a proportional limitation of the free movement of capital. Assuming that the Austrian rule
is designed to attain the objecti ve of a clear and t ransparent mortgage system, the Court
reproaches it to enable l ower-ranking creditors to establish the precise amount of prior-
ranking debts and thus to assess the value of the security offered to them, only at the
price of a lack of security for creditors whose debts are denominated in foreign currencies.
The bank’s right to offer credits secured by mortgages
A well-functioning real estate market presupposes not only the debtor’s (consumer’s) right
to secure a d ebt with a mortgage, but also the bank’s r ight to offer mortgage credit.
Such a right, which is principally protected by the freedom of services (Art. 65 TFEU), ha s
been implemented by the second banking Directive 89/646/EEC, which came into force on
1 January 1993. Labelled the ‘basic law for banks in Europe’, this old Directive has brought
about the liberalisation of all important fi nancial services , including lending money
in the form of mortgage credits.
The Directive aims at enabling the free circulation of financial services by a mix of
harmonisation and mutual recognition. On this basis, it has been claimed in the literature
23 Case 7/78, Thompson, ECR 1978, 2247.
24 Case C-222/97, Trummer and Mayer, ECR 1999, I-1661; confirmed in case C-464/98, Stefan.
25 ECJ, at no. 23.
26 ECJ, at no. 26.
27 ECJ, at no. 30.

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