Glossary of terms – Life Annuity
Acquirer / Buyer: the physical or legal person contracting the operation, acquiring the ownership of the home and assuming the obligation of the payment established in each case.
Resolutive Condition: the clause, included in the Bill of Sale of ownership and later registered in the Property Register, which protects the Senior Citizen from a mortgage situation of non-payment of the established monthly income. The buyer would lose ownership if they incurred the non-payment and non-rectification of two consecutive or alternate payments.
Ordinary Community Fees: these are the bills issued by Housing Associations, in accordance with approval by a Board, to cover current expenditures of the buildings in which the homes are located, in apartments (reception, central heating, elevator, door and stairwell light, water, etc.). These fees will be borne by the Senior Citizen, who as usufructuary uses and enjoys the home and its community services.
Life Annuity Deed: the public document which is signed before a Notary Public in which all conditions agreed by the parties are set out to set up the transfer. Its formalisation implies the Buyer’s acquisition of the full ownership of the home, and the Senior Citizen/Seller’s usage rights of the home until their death, at which point the full ownership rights of the property will be automatically established.
Life Expectancy: to determine the Life Expectancy of an Individual, their age and gender is considered in accordance with the Tables created by the National Institute of Statistics and the General Directorate of Insurance. Along with the value of the property, this is one of the fundamental pieces of information for calculating the economic conditions of each operation.
Annual Property Expenses: the annual expenses and taxes generated by all homes. Upon transferring full ownership through a Property Annuity (life, temporary or single capital payment), a distribution of property expenses and taxes is created between the buyer/bare owner and the seller/usufructuary, in the following manner:
- Expenses for the bare owner: Land Value Tax, unforeseen fees approved by the Housing Association and set out in the corresponding Act, and contents insurance of the home.
- Expenses for the usufructuary: those which pertain to the use of the property retained by the transferor; that is, ordinary community fees, supplies to the home (light, water, gas, etc.) and contents insurance of the home.
Bill of Sale Expenses: the expenses that the buyer must assume when acquiring the property, which are the following:
- Professional fees of the Notary Public and Property Register.
- Taxes: specifically, Property Transfer Tax (one for the transfer of ownership and the other for the constitution of a capitalised pension, when the payment is made through monthly instalments), Stamp Duty for the inclusion of the resolutive condition in the Document and the municipal Capital Gains tax. Some of these taxes consider the seller of the property to be a taxable person, but in these operations, it is agreed that the buyer will bear all taxes, although logically these initial expenses are always taken into account in the determination of the economic conditions of each operation.
Ownership: the full ownership of a property is made up of bare ownership rights and usufructuary rights. In Property Annuity, in principle the buyer acquires the bare ownership of the home, which makes them the owner of the property, but without holding the possession that is still the usufructuary’s, who may use the home until their death, at which point the buyer will consolidate their ownership.
Property Register: the public institution where the ownership of different rights on a property are registered, along with their responsibilities. In the case of Property Annuities, bare ownership will be registered in the name of the buyer, and the usage rights in the name of the seller, with the Resolutive Condition guaranteeing the payment of the monthly instalments.
Rentier / Transferor: the Senior Citizen who will receive the monthly payment/income once the transfer of the home has been formalised.
Life Usufruct: the Senior Citizen/Seller’s right to use and enjoy the home, reserved for them when transferring ownership. This right is lifelong for the Senior Citizen until their death or until they voluntarily wish to transfer ownership in exchange for an increase in the payment, which occurs regularly if for some reason the Senior Citizen will no longer use the home, for example due to wanting to move into a Retirement Home/Care Home.