In the renewal of structures identified as risky, the legislation attaches legal consequences to the will of a given majority rather than waiting for all the owners to reach agreement. The land shares of those co-owners who remain outside that will may be disposed of by public auction under Act No. 6306. Since the sale in question brings a person’s ownership to an end without his or her consent, it has been made subject to strict formal and procedural constraints.
In practice owners are often left with the impression that the sale is final and irreversible. Yet where the majority was never attained, where the notification was defective, where the market value does not reflect reality, or where the auction was conducted contrary to the prescribed procedure, the removal of the act by judicial means comes into play.
In this briefing note we assess in outline the grounds of unlawfulness on which the sale of a share belonging to an owner who did not join the decision may be annulled, the time limit for bringing an action, the conduct of the proceedings and the consequences produced by a judgment of annulment.
The Place of the Sale of the Land Share in Urban Transformation
The urban transformation process does not consist merely in the physical renewal of the building stock; it is a legal mechanism in which ownership relations are also reconstituted in the public interest. Within that mechanism, the sale of the share of a co-owner who did not join the decision is regarded as the gravest of the interferences with ownership. For that reason every step of the process must be conducted in conformity with the provisions of Act No. 6306 and of its Implementing Regulation.
The Legal Nature of the Sale
The sale of a land share carried out within the scope of transformation is not an ordinary sale of immovable property concluded by the free will of the parties; it is a compulsory procedure conducted through the exercise of public power and it counts as an administrative act. That characterisation has two concrete reflections in practice.
First, the dispute ceases to be a private law relationship between co-owners; it becomes a public process advancing under the supervision of the Presidency of Urban Transformation or of the authorised administration. Secondly, the administrative nature of the act also determines the branch of the judiciary: in actions seeking the setting aside of the sale, subject-matter jurisdiction rests with the Administrative Courts.
Restriction of the Right of Property and Administrative Review
The right of property, which enjoys constitutional protection, is restricted under the transformation legislation on grounds relating to the public benefit and to the right to life in its connection with earthquake safety. That this restriction does not turn into an arbitrary practice is secured through the mechanism of administrative review.
- Review of the price: With a view to the protection of ownership, the Value Assessment Commission determines the market value of the share to be sold. A figure falling below the reality of the market is characterised as a violation of the right of property and calls for the annulment of the sale.
- Review of procedure: Before proceeding to a sale, the administration is under a duty to investigate of its own motion whether an absolute majority has been attained, whether a valid notification has reached the owner who did not join the decision, and whether the fifteen-day period required by the statute has been allowed.
- Judicial protection: The errors emerging in the course of that review — such as a defective assessment of the price or improper service — afford the owner the possibility of bringing an action for annulment before the administrative courts, and thereby make it possible for ownership to be protected by judicial means.
Grounds Requiring the Annulment of the Sale of the Land Share
Since the sale of a land share counts as an administrative act, it must be lawful in respect of all of the elements of competence, form, cause, subject matter and purpose. A defect in only one of those elements is enough to lead to the annulment of the act by the administrative courts.
The defects most frequently invoked in practice and in settled case law are explained in outline below.
Failure to Attain the Land Share Majority
Act No. 6306 takes as its basis that the decision on the demolition and reconstruction of a risky structure be taken by an absolute majority of the total of the land shares (50%+).
In calculating that ratio, the land share ratios recorded at the land registry are taken as the basis; the number of owners, the number of independent units and the floor area of the independent units are not decisive. A sale conducted on the basis of a decision taken without the majority required by the statute will lack any legal basis and may therefore be made the subject of a request for annulment.
Improper Notification or Failure to Allow the Period
One of the most critical formal conditions of the process is that the decision of the majority be validly conveyed to the owner who did not join it.
Under the legislation, the text of the notification must clearly indicate the scope of the decision taken, the essential terms of the contract that the owner is expected to sign, and the period allowed to the owner for signature. Proceeding to the stage of sale without allowing the owner a period of at least fifteen days in which to consider the majority’s proposal and sign the contract, or before that period has expired, constitutes a serious procedural defect capable of requiring the annulment of the act.
Indeed, a substantial proportion of requests for annulment rest on the notification never having been made at all or on a failure to comply with the method required by the legislation.
Defects in the Valuation Report and in the Assessment of the Price
The market value taken as the basis of the sale is among the elements forming the legal foundation of the act. The valuation is therefore expected to be carried out by objective criteria, in a transparent manner and on the basis of genuine market data.
The principal defects advanced in practice as grounds of annulment are as follows:
- The report not being supported by concrete and verifiable data
- The comparable properties taken as the basis of comparison being wrongly identified
- The location of the property, the manner in which it is actually used or its physical characteristics not being taken into account
- The figure determined being kept so low as to be plainly irreconcilable with the reality of the market
That said, not every low figure produces annulment on its own. For a violation of the right of property to be spoken of, it must be established that the price falls manifestly below the market value.
Unfair Terms in the Contract and Unconscionable Exploitation (Gabin)
Recent judicial decisions show that the content of the construction contract forming the basis of the sale is likewise subjected to review for lawfulness. Two headings stand out in this respect.
Unfair terms:
Putting an owner’s share up for sale on the ground that he or she has not signed a text containing provisions that confer a unilateral advantage on the contractor, that leave the owner without protection, or that plainly conflict with the rule of good faith, may be held to be unlawful.
Unconscionable exploitation (gabin):
Where there is a manifest imbalance between the reciprocal obligations — for instance where independent units far above the ordinary are set aside in favour of the contractor — the sale may be annulled on the conclusion that the administration has failed properly to discharge its duty of supervision and review.
Breaches of the Auction and Announcement Procedure
Procedural defects at the auction stage at which the sale takes place likewise directly undermine the validity of the act. The following situations are frequently advanced in practice in this context:
- The auction minutes being kept incompletely or containing internal contradictions
- The announcement of the sale being made without compliance with the methods indicated in the legislation
- The co-owners being prevented, in fact or in law, from taking part in the auction
- The sale not being completed in conformity with the prescribed procedure
In addition to these, a failure to allow the exercise of the pre-emptive right of purchase conferred on the co-owners at the first auction is likewise a procedural error capable of producing annulment on its own.
The Time Limit for Bringing the Action for Annulment
In actions brought against the sale of a land share, time is a critical matter capable of leading to the dismissal of the action without the merits of the dispute being entered into at all. It is therefore of great importance that both the length of the period and the date from which it begins to run be correctly determined.
Since the sale bears the character of an administrative act, the scheme of the Administrative Procedure Act No. 2577 applies as a rule in disputes heard on a request for its annulment.
- The time limit for bringing the action
In actions seeking the setting aside of the sale of a land share, the general rule is that the period applied is sixty days.
That period begins to run;
- From the day on which the act was duly served on the owner
- Or from the date on which it can be proved that the owner became aware of the sale
Accordingly, if the notification concerning the sale or the decision to sell was made in conformity with the procedure, the sixty-day period is as a rule calculated by reference to the date of service.
How the Proceedings Operate
A request for the annulment of the sale of a land share is heard within the framework of the Administrative Procedure Act No. 2577. The process, which begins with the filing of the pleading, is a technical set of proceedings completed by the taking of the administration’s defence, by an on-site examination and an expert examination where these are required, and finally by the giving of judgment.
For that reason the bringing of the action before the court with subject-matter and territorial jurisdiction, the correct direction of standing, and in particular the timely advancing of a request for a stay of execution are among the elements that directly determine the outcome.
Jurisdiction and Venue
Taking the dispute to the right court comes first in terms of procedural economy and the avoidance of any loss of time.
Court with subject-matter jurisdiction: Since the sale of a land share is an administrative act, subject-matter jurisdiction in actions for annulment brought against it rests with the Administrative Court.
Court with territorial jurisdiction: Under the general rule of territorial jurisdiction applicable before the administrative courts in disputes relating to immovable property, the action is directed to the administrative court of the place where the property is situated.
The Parties
In administrative actions, the correct establishment of standing is decisive if the action is not to be dismissed on that ground.
Claimant: The owner whose share has been made the subject of the sale bears, as a rule, the capacity of claimant. Where the owner has died, his or her statutory heirs may also bring the action. Depending on the circumstances of the particular case, the capacity to sue of persons holding a right in rem over the share may also arise.
Respondent (standing to be sued): Standing is directed to the administration that effected the sale. In practice that capacity most often belongs to the presidency of urban transformation, to the relevant municipality where authority has been delegated, or to the other public body that carried out the act.
Intervener: The third party who purchased the share at the auction and the other co-owners may take part in the proceedings alongside the respondent administration, since they will be directly affected by the judgment to be given.
Stay of Execution
The bringing of an action does not of itself suspend the sale or the eviction measures based on it. It is therefore of great importance in practice that a request for a stay of execution be made together with the statement of claim.
Conditions:
For an order staying execution to be made, the following two conditions must be met together:
- The act being manifestly unlawful
- Damage that is difficult or impossible to make good arising if it is implemented
Its importance in the transformation process:
Developments following the sale of the share, such as the demolition of the building, the commencement of construction or the transfer of ownership to third parties, are as a rule regarded as falling within the notion of damage difficult or impossible to make good.
In terms of preventing ownership from actually changing hands or the property from disappearing altogether, the request for a stay of execution is regarded as one of the most critical links in the action.
The Appeal and Appeal on Points of Law Stages
The judgment given by the court of first instance may not always be the final point of the proceedings; the parties have the possibility of applying to the higher judicial authorities.
Appeal:
An appeal may be brought against the judgment of the administrative court before the Regional Administrative Court within thirty days following the date of service.
Appeal on points of law:
Against some of the decisions given by the regional administrative court as a result of its examination on appeal, an appeal on points of law before the Council of State is available, provided that the conditions required by the statute are met.
Since the periods relating to these applications are likewise preclusive in nature, they must be followed with care.
The Legal Consequences of a Judgment of Annulment
A judgment of annulment given by the administrative court erases from the legal world a sale of a land share found to be unlawful. That outcome may require the position as to ownership to be reconstituted and the legal basis of the transformation project under way to be assessed afresh.
The effect of the judgment is not confined to ownership relations alone; it is wide enough to extend to the continuing construction activity, to the administrative permissions obtained and to the other acts effected within the scope of the project.
Retroactive Removal of the Act
Judgments of annulment given in the administrative courts operate as a rule retroactively to the moment at which the act was effected. An annulled sale of a land share is therefore treated as never having come into being in law.
This situation has two principal reflections:
- Return of the legal position to its former state:
All the consequences arising from the sale fall away and the act is treated as never having been carried out.
- Restoration of the right of property:
The right over the share that was the subject of the sale is restored in favour of the former owner in accordance with the judgment of annulment. In practice this outcome frequently makes a rectification in the land registry record necessary.
The Fate of the Project and of the Construction Process
The annulment of the sale may also produce important consequences for the continuing urban transformation project. The legal basis of the decisions taken and of the acts effected throughout the project may be reopened to debate.
The following matters may arise in this context:
- The need for a fresh decision:
The owner to whom the share returns regains the capacity of co-owner of the property. For the project to be continued, it may be necessary for a fresh decision to be taken with that owner’s participation as well, or for the contract in force to be redrawn so as to cover him or her.
- The risk of the construction stopping or being delayed:
Since the annulment may affect the legal foundation of the project, in some cases the construction activity may be temporarily halted or the project timetable reconstructed.
- The validity of the building permit and the administrative permissions:
The fate of the building permit and of the other administrative permissions obtained in a project whose basis has fallen away is reassessed according to the features of the particular case. That assessment brings with it, in certain situations, the risk that the permit measures will be annulled or that the project will be halted.
Independent Legal Assessment
Although actions for the annulment of the sale of a land share appear to be a technical review of an administrative act, in their consequences they affect both the owner’s property and a construction process concerning hundreds of people. Correct timing and correct legal characterisation at the outset of the dispute therefore determine the course of every subsequent stage. Missing the sixty-day period in particular results in even the strongest arguments on the merits remaining unexamined.
In practice a substantial proportion of files are decided less on a dispute as to price than on the absence of documents relating to the requirements of notification and time. Obtaining the sale file from the administration in complete form is therefore decisive in the construction of the arguments.
In drawing up a road map in a concrete dispute, the following headings should be addressed as a priority:
- Documenting the date of service of the sale and calculating the sixty-day period accordingly
- Verifying from the land registry records whether the majority was in fact attained by reference to the land share ratios
- Reviewing the text of the notification as to its content and examining whether the fifteen-day period was duly allowed
- Questioning, in technical terms, the selection of comparables and the valuation method in the report assessing the price
- Advancing a request for a stay of execution together with the statement of claim, with the damage difficult to make good set out concretely
- Examining the construction contract in terms of the balance of obligations and assessing an allegation of unconscionable exploitation
Independent Legal provides advisory and litigation services throughout the entire process in urban transformation disputes, from the examination of the land share sale file to the conduct of the action for annulment before the administrative courts.