The real estate annuity is a business that has acquired certain relevance over the last few decades.
This type of contract consists of the transfer of a real estate property to -typically- an insurance company, in exchange for the latter paying the creditor a fixed income, which must be delivered until the date of death of the transferor of the property.
As mentioned above, this is an increasingly frequent contract. Its configuration involves the liquidation of the property in exchange for a life-long livelihood.
In Spain, according to a study published by the Asociación Empresarial del Seguro, in collaboration with Analistas Financieros Internacionales (Afi), 95% of households headed by retired people who own their own home have it paid for. In addition, 52.9% own another property.
For this reason, annuities are an ideal complement to retirement pensions.
However, it should not be forgotten that, in principle, the property transferred is not redeemable and that the contract is limited to the provision of an annuity for as long as the creditor lives. Therefore, at the time of death, his heirs will not obtain any part of the value of the property.
What happens when the annuitant dies prematurely?
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In this contract, randomness predominates: the parties are exposed to the risk that the benefit will not be very high. For this reason, the Supreme Court has emphasised the importance of the contracting parties assuming their obligations in a reasonable equality of exposure to risk.
On the one hand, the insurance company assumes the risk that the creditor will live beyond his life expectancy, obliging itself to deliver an annuity, above the value of the property that was initially delivered.
On the other hand, the annuitant could die shortly after signing the contract, below the life expectancy, having amortised the property in a small part.
This is why the Supreme Court itself has pointed out that the assumption of the risk cannot be disproportionately high for the parties: the value of the property, the life expectancy of the creditor and the rent that the insurer must deliver must be weighed up.
However, the majority of the doctrine points out that the death of the annuitant or the unexpected drastic change of circumstances are not grounds for the application of the rebus sic stantibus principle. Although it is accepted that the equality of the parties is an extreme that should not be undermined, neither can we ignore that it is the will of the parties that exposes them to the risks described above.
Finally, as we have said, the “pure” annuity modality prevents the heir from being able to claim from the insurance company, even if the death of the creditor has occurred unexpectedly early. However, this would not prevent the contract from being declared null and void due to the unequal conditions agreed (e.g. if the creditor was terminally ill at the time of signing).
Finally, if you would like to know more about your rights as an insured and guarantee a safe and beneficial transaction, we invite you to visit a lawyer expert in annuities at Navas&Cusí, we are committed to your wellbeing and that of your assets. Do not hesitate to contact us.
