Spanish contracts: Read & review service and contract-drafting

Raymundo Larraín Nesbitt, November, 7. 2022

Marbella-based Larraín Nesbitt Abogados (LNA) has over 19 years’ taxation & conveyancing experience at your service. We offer a wide range of over 50 legal and corporate services. Our team of native English-speaking lawyers and economists have a long track record successfully assisting expats all over Spain.

You can review here our client’s testimonials.

Article copyrighted © 2022. Plagiarism will be criminally prosecuted

 

 

By Raymundo Larraín Nesbitt
Director of Larraín Nesbitt Abogados
8th of November 2022

When you buy, sell, or rent a property in Spain you will no doubt be shown a contract in Spanish chock-full of legal jargon. It is only normal you start growing nervous, even feeling a knot at the pit of your stomach. Our law firm offers you two legal services that remove all the stress and anxiety so you, and your family, can enjoy Spain at its fullest!

The best advice I can give you is to hire legal council before you sign on any contract. This is when costly mistakes can be avoided, by pre-empting them. Both landlords and tenants should instruct their own separate legal representation.

Larrain Nesbitt Abogados offers two competitively priced contract services:

1. Read & Review service

 

We offer this service nationwide. On buying/selling/renting out a property in Spain, it is advisable a lawyer is hired from the onstart to protect your interests. This legal service is thought for tenants, but landlords can also make use of it.  We strongly advise tenants to seek legal council prior to signing on the dotted line. Once signed, contracts are binding. Ignorance of Spanish laws will not protect you from performance.

  • Tenant, did you know that if you do not word correctly your tenancy agreement your landlord can pocket your full security deposit or charge you multiple months of security deposits?
  • Tenant, did you know that some devious landlords include clauses that make tenants responsible for previously broken kitchen and household appliances, forcing them to repair or replace them?
  • Tenant, did you know rental increases are now capped by law? Only this tip can save you several hundred euros every month in the context of soaring inflation.
  • Tenant, did you know that some landlords push ‘11-month’ rental contracts to circumvent your legal rights?
  • Tenant, did you know that the Spanish version of a contract always overrides that of any translation? It is not unusual for agreed terms to get ‘lost in translation’ in the Spanish version…
  • Tenant, did you know that in some cases it is the landlord that must pay – by law – the agent’s commission on finding you a rental accommodation? Only this tip saves my clients thousands of euros in undue commissions.
  • Tenant, did you know that in some type of contracts in Spain, if you pull out ahead of time, you are still legally liable to pay your landlord a full year’s rental? This tip not only saves you money but also from protracted litigation proceedings.

 

I can honestly say that clients who hire this service save more money than what we charge.

We review the following standard contracts within 24 working hours (as from payment received):

  • Lease agreement (rental contract), long-term or holiday rentals, seasonal contracts
  • Purchase contract
  • Sales contract
  • Option to buy contract (let-to-buy)

 

We offer the following service (T&Cs apply): Contracts (read & review)

Flat fee: €100 plus vat

2. Contract-drafting

 

We offer this service nationwide. Tenancy laws are traditionally biased towards tenants in Spain. Which is why we strongly advise landlords to instruct a lawyer to protect their interests. This is a service geared towards landlords, as they are the ones that will normally draft a rental agreement. Professionally drafted lease agreements avoid landlords many problems on the long run, saving them money and aggravation.

  • Landlord, did you know that under new rental laws a tenant can legally stay in your property for up to 8 years, or even 10 years? There are ways around this.
  • Landlord, did you know that you can legally override lenient tenant entitlements on choosing the right type of rental contract?
  • Landlord, did you know there are legal ways to recover the possession of your property ahead of what’s contractually agreed?
  • Landlord, are you aware there are several types of rental contracts available in Spain, that range from overprotective (read tenant-biased) to landlord-friendly ones?
  • Landlords, beware of internet rental templates that perpetuate themselves over time, they are a recipe for disaster as rental laws are frequently amended.

 

Lease agreements completed within 48 working hours in Spanish, English, or both languages:

  • Residential (long-term rentals).
  • Holiday lettings (short-term rentals).
  • Seasonal lets (short or long-term).
  • Commercial leases.

 

We offer the following service (T&Cs apply): Rentals (contract drafting)

Fee: starting from only €200 plus vat

Recent LNA testimonials on these two services:

“Larrain Nesbitt Abogados provides an excellent service and I have been using them for several years for my Spanish property legal services. The turnaround time is extremely quick and the quality is excellent – I highly recommend, LJ London“

LJ, London, United Kingdom. September 2021

“We would like to thank you for your very prompt response and advice. It was very considered, concise and to the point, not what we were hoping to hear, but sometimes that’s the best advice. We were able to process accordingly and do the best by my parents without getting engaged in further unnecessary dispute and argument.”

Barbara & Niall McKenna, Republic of Ireland. December 2021

“Many thanks for your advice and adapting the agreement in right legal terms.”

DSB, England, United Kingdom. March 2022

“Thank you for your exceptionally competent expert advice. I am so grateful.”

Marie Löfstedt, Sweden. April 2022

“If you are looking for a legal expert, Raymond is your guy. As Expats, we were presented with a long term rental lease and asked Raymond to look it over. Do yourself the favor of having him look over your contract before you move in. It is a small price to pay for piece of mind and could save you lots of money in the long term. His advice prevented us from getting taking advantage of. I am so grateful we found Raymond and will definitely use him again in the future.”

Suzanne Cohen, United States of America. August 2022

Larraín Nesbitt Abogados, small on fees, BIG on service.

At Larrain Nesbitt Abogados we have over 19 years’ experience buying, selling, and renting properties. We are also specialized in taxation, immigration & residency visas. We offer a wide range of 50 legal and corporate services. Our team of native English-speaking lawyers and economists have a long track record successfully assisting expats all over Spain. You can review here our client’s testimonials.You can contact us by e-mail at info@larrainnesbitt.com, by telephone on (+34) 952 19 22 88, or by completing our contact form to book an appointment.

Please note the information provided in this blog post is of general interest only and is not to be construed or intended as substitute for professional legal advice. This article may be posted freely in websites or other social media so long as the author is duly credited. Plagiarizing, whether in whole or in part, this article without crediting the author may result in criminal prosecution. VOV.

2.022 © Raymundo Larraín Nesbitt. All Rights Reserved.

Copyrighted © 2022. Plagiarism will be criminally prosecuted.

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Buy-to-Let: Landlord’s tax reliefs

Raymundo Larraín Nesbitt, August, 1. 2022

Lawyer Raymundo Larrain explains how non-resident BTL landlords can GREATLY benefit from tax allowances dramatically reducing their landlord tax bill (on average by 70%, or more).

Marbella-based Larraín Nesbitt Abogados (LNA) has over 19 years’ taxation & conveyancing experience at your service. We offer a wide range of 50 legal and corporate services. Our team of native English-speaking lawyers and economists have a long track record successfully assisting expats all over Spain.

You can review here our client’s testimonials.

Article copyrighted © 2022. Plagiarism will be criminally prosecuted. 

 

By Raymundo Larraín Nesbitt
Director of Larraín Nesbitt Abogados
8th of August 2022

Introduction

August. It’s again that month of the year when everyone is enjoying their holiday break and landlords in Spain are – once more – making a killing through rental income.

Have you tried booking a flat for July, August, or September? Sorry, all taken!

One of the best, if not the best, business in Spain over the last 7 years has been to buy a property with a view to rent it out (buy to let), specifically as a holiday home (short-term).

Property prices in Spain have strongly rebounded post-pandemic (since 2021). We are witnessing an annual capital appreciation of 8.5% for resale property across the board and over 10% for new builds (off-plan). In coastal areas, and large Spanish cities, it’s actually a two-digit property rise! Bottom line, property prices have risen in Spain for 12 consecutive months reaching all-new highs!

In addition to the above, rental yields are also growing by two digits year-on-year. Long term lets offer a net yield of 4.5% per annum. Short-term rentals (holiday homes) are far more profitable, delivering a two-digit return.

Spain ranks as the world’s second tourist destination, trailing only behind the United States of America, with over 84 million tourists a year. The strong demand for tourist accommodation in Spain grows every year, pushing up home prices. The prospect of investing in Spain looks brighter than ever.

Pro-tip: The combination of both capital appreciation and soaring rental yields translates into a combined yield of over 10% per annum! No other safe investment offers such high returns.

Spanish real estate is poised for combined two-digit gains over the next year, interest rate fluctuations notwithstanding, easily trumping alternative investments (bonds, commodities, cryptocurrencies, gold, etc) and paltry fixed returns in a context of historic ultra-low interest rates.

But wait, it gets even better!

Now that I have made a case on why buy-to-lets are indeed an excellent investment in Spain, I want to focus mainly on the HUGE tax advantages open to all non-resident landlords. Read on.

Tax deductions available to all non-residents apply to both short-term rentals (holiday homes) and long-term rentals

Non-resident landlords can take advantage of huge tax breaks on their landlord tax bill.

In plain English, landlords can expect to reduce their tax bill by 70%, or more, on filing their quarterly rental income tax using our accountants.

Please be advised that to take full advantage of the below-listed tax allowances you need to instruct a specialized accounting firm – such as us – with over 20 years experience in non-resident taxation. Irresponsibly self-filing tax returns, without taking proper tax advice, leads to costly mistakes with huge fines being levied.

2022 non-resident tax calendar

You must file a tax return in Spain if you rent out your property in one of the below tax quarters:

  • Q1: January – March.
  • Q2: April – June.
  • Q3: July – September.
  • Q4: October – December.

Requirements

In order to benefit from generous landlord tax relief, three requirements must be met:

  • Landlord is tax resident in the European Union or EEA (your nationality is irrelevant).
  • The expenses you claim are in direct relation towards the upkeep of the property (see tax relief list below) i.e. claiming travelling expenses would be excluded.
  • You store VAT invoices to back up your tax relief claim.

Landlord tax relief

As an example, non-residents in Spain may deduct the following expenses from their quarterly tax returns (open list):

  • Interests arising from a mortgage loan (to buy the property).
  • Local taxes and administrative charges and surcharges.
  • Expenses arising from formalising lease agreements.
  • Maintenance costs may be offset; however, refurbishment expenses (improvements) are excluded (but may be claimed on selling the property to dramatically reduce the seller’s CGT bill).
  • Community of owners’ fees.
  • Home insurance premiums.
  • Property repairs: plumbing, roof retiling, painting, pool pump etc.
  • Utility invoices: electricity, water, gas, internet, and landline.
  • Cleaning.
  • Concierge, gardening, alarm & security services (i.e. gated communities).
  • Lawyer’s fees: are 100% tax-deductible! Yes, our fees are also tax-deductible. I.e. to calculate and submit you quarterly tax returns.
  • Property management fees.
  • Advertising invoices from property portals, such as Idealista: online/offline.
  • Marketing expenses.
  • Home depreciation and amortization.
  • Etc.

 

Conclusion

Our clients are reducing their tax bills on average by 70%, or more, every tax quarter on renting out in Spain through us. 

Call or e-mail us, our friendly staff will be delighted to guide you through the procedure and explain how we can assist you by greatly reducing your tax bill.

These taxes are filed online nationwide. So, regardless of where your property is located in Spain i.e. Mallorca, Marbella, Barcelona, Valencia, Madrid, Sotogrande, etc, we can file them for you at a very competitive fee:

  • EU resident: 125 euros plus vat
  • Non-EU resident: 75 euros plus vat

To close, a gentle reminder that our accounting fee is tax-deductible!

If you want to pay less tax, please contact us.

We offer this accounting service:

Holiday Rental Accounting Service (HRAS)

Larraín Nesbitt Lawyers, small on fees, BIG on service.

Larraín Nesbitt Lawyers is a law firm specialized in conveyance, taxation, inheritance, residency, and litigation. We will be very pleased to discuss your matter with you. You can contact us by e-mail at info@larrainnesbitt.com, by telephone on (+34) 952 19 22 88 or by completing our contact form to book an appointment.

Please note the information provided in this article is of general interest only and is not to be construed or intended as substitute for professional legal and/or financial advice. This article may be posted freely in websites or other social media so long as the author is duly credited. Plagiarizing, whether in whole or in part, this article without crediting the author may result in criminal prosecution. VOV.

2.022 © Raymundo Larraín Nesbitt. All Rights Reserved.

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Spain's new rental laws in 2019

Raymundo Larraín Nesbitt, March, 8. 2019

Lawyer Raymundo Larraín goes on to explain the new important changes afoot in rental laws in Spain in 2019 (specifically, long term rentals).

Marbella-based Larrain Nesbitt Lawyers has over 16 year’s taxation & conveyancing experience at your service. Our team of native English-speaking lawyers and economists have a long track record successfully assisting expats all over Spain. You can review here our client’s testimonials.

Article copyrighted © 2019. Plagiarism will be criminally prosecuted.

 

By Raymundo Larraín Nesbitt
Director of Larraín Nesbitt Lawyers
2nd of March 2019

Introduction

Here we go again, déjà vu.

The government is going to be dissolved in a month’s time, as national elections are being called up shortly.

The sitting government has entered an unprecedented state of legislative frenzy approving law after law in the few weeks it has left in what constitutes a very questionable practice, from a legal point of view. Some callous people may even think these opportunistic measures are really geared at garnering votes on polling day (less than two months away) from a legion of disenfranchised young men and women on precarious low-paid wages. Shame on you, our political class are above such petty electoral squabbles! Surely, they think grand long-term strategies, not with their eyes on short-term opinion polls making decisions on the hoof only to secure their position and public pay. God forbid!

Some of our political class make Mr. Trump look like a serious and respectable politician, almost.

One of these new laws was approved yesterday Friday 1st of March and will come into force as from Wednesday 6th of March 2019. After being published in Spain’s Official Law Gazette (presumably today Saturday), it will still require to be ratified by Congress. There is a very serious risk this law will be repealed by Congress – again – for a second time. This is because Congress will be dissolved next Tuesday and there will only be a skeleton crew commission which purpose is not really to approve such rushed ‘urgent’ laws.

It is basically a rehash of the law they passed last 19th of December 2018 (Changes to Spanish Rental Laws – 8th January 2019) which was subsequently repealed shortly after (Congress repeals Spain’s new rental law after just 35 days – 23rd January 2019).

So, it is the third set of rental laws we are getting in little over a month. Thanks Lord the self-proclaimed goal of this law is to “introduce stability into the rental market.” I couldn’t possibly imagine what it would be like if politicians were actually trying to create instability in the market…   

The significance of this new law is tremendous, as landlords, specifically legal landlords, must tread very carefully on the type of contract they are now signing as from next Wednesday with tenants. Some of these tenancy contracts will last 8 or 10 years. For your own sake, make sure you contact a law firm like Larraín Nesbitt Lawyers specialized in lease agreements unless you fancy locking yourself into a contract over the next decade.

 

Changes to Spanish rental laws 2019

 

The Government approved by Royal Decree on Friday 1st of March 2019 a spate of game-changers for the rental market (specifically for long-term rentals). Legal persons acting as landlords should be acutely aware of such changes if they rent or plan to rent out in Spain long term. Physical landlords should take note of the first bullet point.

The idea is to keep it simple and briefly list the most significant changes without going into esoterics. All changes effective from Wednesday 6th of March 2019. Prior signed rental agreements follow previous regulation, unless agreed otherwise.

I will be taking as reference my 2016 article  Urban Rental Law in Spain – Spain’s Tenancy Act (Ley de Arrendamientos Urbanos, LAU). I will take for granted legal concepts and will make no effort to explain them; if you are at a loss for example on mandatory and tacit renewal periods, you should read the above article to understand where I’m coming from.

It is strongly advised to read in tandem the above-mentioned article with the brief bullet points collated below to get the big picture on what’s changed in 2019.

  • Physical landlords: 5 years mandatory renewal period on long-term rentals (plus 3 years silent renewal). Was three years plus one.
  • Legal landlords: 7 years mandatory rental period on long-term rentals (plus 3 years silent renewal). Was three years plus one.
  • Legal landlords: additional bank guarantees demanded by a landlord on long-term rentals may not exceed a two-month deposit. Landlords typically request additional guarantees besides the compulsory one-month tenant deposit, especially when a tenant is a non-resident (because of the increased financial risk). These guarantees are now capped for legal persons acting as landlords. For physical landlords there is no change and may keep requesting additional guarantees in excess of the 2-month deposit.
  • Legal landlords: landlords - by law - will pay the commission to estate agencies on tenancy agreements: it was the case that tenants paid half or all this commission whether directly or not.
  • Inflation update: unless specified, all contracts will now be updated to bring them in line with inflation, referred to the IPC index as benchmark reference during the first 5 years. Given how rental yields increased by two digits year-on-year over the previous three years, this measure basically caps any rental increase at one digit only. So, it is detrimental to landlords and benefits tenants.
  • Non-renewal (for tacit renewal periods only): landlords must now give a 4-month notice, tenants 2-month notice.
  • ‘Necessity clause’: must now be expressly worded into the contract to be triggered by a landlord. This clause legally allowed landlords to cancel a long-term contract ahead of the agreed duration (for personal use, for family use etc).
  • Selling property: property buyers must now respect the whole duration of pre-existing lease agreements, even if they are not registered at the Land Registry. This may seriously jeopardize sales. If you want to sell your property, don’t lock yourself in an 8 or 10-year rental contract.
  • Transfer Tax: payment of Transfer Tax by tenants on signing rental agreements has been removed.
  • Subrogation: in the event the tenant dies, if his family are in a vulnerable position (under aged children, physical or mental disability and over 65-year-olds) they can take over his legal position as tenant throughout the duration of the contract.
  • Holiday lettings: Spain’s Horizontal Act is amended allowing Community of Owners to vote by a simple majority of 3/5 to ban outright holiday rentals within a community. I had already pointed out in a blog post in 2017 that this step was necessary, as the Horizontal Property Act at the time required unanimity to ban them, which logically was never going to happen because landlords would vote against it because of their vested interest. This measure has no retroactive effects.
  • Holiday lettings: Spain’s Horizontal Act is amended allowing Community of Owners to increase the communal quota assigned to a landlord (capped at 20%) of the overall community budget. In plain English, communities of owners may now vote to increase the community quota of a property owner who uses his property/ies as holiday lettings. This agreement will have no retroactive effects.

 

Conclusion

I had already covered profusely the raft of changes in prior articles, so I will refer to them for reference:

 

As a recap, in my opinion, this batch of new measures will foreseeably:

  • Restrict supply. They will scare off landlords as several of these one-sided measures curtail their rights and significantly weaken their position. They will likely pull out their properties from the rental market restricting supply.
  • Increase rentals (specifically, long-term). Tied to the previous bullet point, a restriction in supply necessarily brings about a price increase of the service or good offered.
  • Introduce (severe) tenant-screening. Because landlords will now be forfeiting a great deal of rights, they are going to implement overzealous tenant screening. Any tenant that is too young, too old (over 65 y.o.), who suffers a disability or who does not have a stable high-paying job need not apply. This will perversely worsen off the situations of many tenants who are already struggling in life after the decade-long Great Recession.
  • Induce precarity. Tied to the previous three points, it will bring more misery to families that need a property to live in, long term. Undermining the middleclass, which is the backbone of any modern democracy giving it stability and prosperity, is a sure-fire recipe to elicit extremist political movements, whether left or right-wing. Much like in pre-WWII Europe. You cannot have a strong democracy with a weakened subdued middle class.
  • Foster illegality: both landlords and tenants may now be tempted to circumvent these laws renting off the books which in turn means forfeiting a series of rights.

 

It would seem the Spanish government consistently fails to realize there are two sides to a coin in every negotiation. What this sloppy legislation does is to create a lopsided law that pulls all the stops in favour of only one side, tenants. But it does so at the (great) expense of landlord’s rights, which have taken a severe blow. In life, when you swerve violently to one side, there is bound to be an equal and opposite reaction from the other side. In any negotiation there are always two opposing sides, it is the government’s duty to strive to strike a balance, meeting with the social agents involved, gather their points of view, close positions and reconcile both sides to reach a mutually-agreeable middle ground. Both sides must compromise, making concessions to reach a middle point. Granted, it may not be the best solution but it is attained through a working consensus. Unfortunately, our government would seem oblivious to this fact and keeps obstinately ploughing ahead, like a horse with blinders, permanently enacting law after law which only benefits one side, often at the expense and exclusion of the other.

This observation is extensive to several other social policies adopted by the incumbent during his 8-month tenure, such as the irresponsible sharp minimum wage rise from last December with a mind-blowing increase of 30% in under a year, the largest combined increase over a 40-year span. Unsurprisingly, the backlash to this aggressive wage policy has been a huge spike in unemployment levels as from January, with thousands of workers being let go by SMEs and large companies. Again, the same underlying problem; legislating only for one side blissfully ignoring the other side’s point of view.

You just cannot hope to rule a country properly if you keep approving law after law permanently ignoring the other side; that is not negotiating, it is imposing one’s own views over others. There are bound to be consequences. And in the case of this new rental law, the collateral victims I’m afraid will be the same ones this well-meaning, albeit ultimately flawed law, sought to protect; the vulnerable social collectives such as youngsters, senior citizens and those with a disability that need a permanent place of abode. This law may put them in harm’s way on alienating them when it comes to looking for a reasonably priced long-term rental.

I apologize in advance for repeating what I wrote back in January, when Congress first repealed this clumsy law, but I feel compelled to post it again as it is warranted:

“Whilst it is always commendable in life to aspire to lofty ideals, these have real consequences when put into practice; this is particularly true of those politicians who have a penchant for them and who have never in their life worked in the private sector having lived off public stipends for all their life.

Politicians wield huge power and should carefully ponder the consequences of their ill-thought actions in the real economy and above all, and most fundamentally, on how these changes impact on ordinary families’ life’s.”

The only good news is that, once more, the government has let go of its whacky idea of setting and controlling rental prices (through town halls). Landlords are still free to set their own prices, as enshrined in Spain’s Tenancy Act, Art. 17. It would seem that Catalonia however are bent on passing a regional law along these lines, the first of its type.

I gently remind landlords that long-term tenancy entitlements, such as the ones described in this article, may at times (not always) be legally circumvented through the use of seasonal contracts. You can hire our law firm to draft you one, providing you meet the requirements. More on this here:

 

You can hire our contract drafting service from only €165 plus VAT: Rentals (contract drafting). Rental contracts also available in English. All contracts completed within 24 working hours.

Be proactive, talk to a lawyer. We can make it happen.

 

"Man is the only animal that trips twice over the same stone.” – proverb

 

Larraín Nesbitt Lawyers, small on fees, big on service.

Larraín Nesbitt Lawyers is a law firm specialized in taxation, inheritance, conveyancing, and litigation. We will be very pleased to discuss your matter with you. You can contact us by e-mail at info@larrainnesbitt.com, by telephone on 952 19 22 88 or by completing our contact form to book an appointment.

Article originally published at Spanish Property Insight: New rental regulations rushed into law need to be taken seriously by landlords 

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Please note the information provided in this article is of general interest only and is not to be construed or intended as substitute for professional legal advice. This article may be posted freely in websites or other social media so long as the author is duly credited. Plagiarizing, whether in whole or in part, this article without crediting the author may result in criminal prosecution. No delusional politician was harmed on writing this article. VOV.

2.019 © Raymundo Larraín Nesbitt. All rights reserved.

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Changes to Spanish Rental Laws

Raymundo Larraín Nesbitt, January, 4. 2019

Marbella-based lawyer Raymond Nesbitt goes on to explain the new changes afoot in rental laws in Spain.

EDIT (23-01-2019): Congress repealed this new rental law. Please read our blog post for all the details: Congress repeals Spain’s new rental law after just 35 days – 23rd January 2019

Article copyrighted © 2019. Plagiarism will be criminally prosecuted.

By Raymundo Larraín Nesbitt
Director of Larraín Nesbitt Lawyers
8th of January 2019

Soviet mural in Karaghandy, Kazakhstan.

Introduction

Last December saw a number of changes afoot which could easily trip you up faster than having to explain to someone why Brexit will have no impact in our life’s, ha!

If you have been following our articles and blog posts, you will be aware that Spain has undergone a spectacular two-digit rental yield growth YOY over the last three years. This outstanding advance can be pinned down to a number of factors, but it is not the point of this article to digress and delve in the underlying causes. To simplify, the main two causes have been a landmark pro-landlord amendment to Spain’s Tenancy Act from June 2013 and foremost the irruption of new big players such as property portals i.e. AirBnb. Adopting more relaxed laws coupled with the advent of holiday platforms, account for this huge spike in asking rental prices.

As a result of the unbridled growth in rental yields, given how Spain’s rental market traditionally remained sluggish as laws were clearly biased pro-tenant for historical reasons, whole generations of young Spaniards are now being locked out of the market. Despite a severe correction of property prices post-bubble that saw an average price drop of 50% across the board, the truth is that Spanish youngsters still struggle to get a grip on the first rung of the property ladder. A combination of precarious jobs, low wages and high asking rental prices has led to almost 50% of those aged 18 to 35 years old to still live with their parents in Madrid, for example (source: El País).

Spain’s government, ideologically of centre left wing, has taken a series of measures to ensure these problems are challenged in benefit of society. They have increased the minimum wage by almost 30%, the largest increase over the last 40 years, and have now directly tackled the rental problem by enacting a batch of new pro-tenant regulation that greatly empowers long-term tenants (in detriment of landlords). These changes - fortunately - hardly affect holiday lettings.

There is talk that the government’s hard left-wing allies, feel these changes fall short and want to take matters a step further; they have steadily mounted pressure to take a bolder stance and actually go as far as to determine - by decree - rental prices. Whilst this state price allocation has not occurred as of yet, it would indeed be a very misguided step in the wrong direction. Some would even argue this policy has a whiff of communism.

In all my articles I clearly position myself against such state interventionism because, at least to my mind, they clearly introduce market distortions creating serious anomalies and imbalances. We are not in fact living in a planned economy and the government has no business in fixing renting prices by decree.

As an example of this, back in 2017 the Balearics property market was booming, it was Spain’s undisputed hot spot leading the property pack. The local ruling hard left-wing coalition decided to cool down sales prices and asking rental prices in benefit of youngsters seeking affordable accommodation by passing a new stringent regulation that severely restricted holiday lettings. In their minds, they thought these well-intentioned changes would bring down asking rental prices to a more affordable level allowing more young people on low wages to let. Reality bites.

I unequivocally criticized these new measures as counterproductive in my article New Balearics holiday rental law – 8th September 2017. Not 6 months had elapsed since this clumsy law had  been approved, when the Balearics property market crashed, going from a spectacular 15% growth year-to-year to sales plunging by almost 30% as can be read in a local newspaper.

You would think that, at the very least, after grinding the Balearics market to a standstill the ruling coalition managed to cool off asking rental prices, yes? Wrong. They increased by over two digits YOY.

This is because the market is 'wise' and will adjust itself accordingly. If you artificially stifle supply (by creating draconian requirements for holiday lets that effectively wipe out 50% of supply) but demand remains unabated, then the logical consequence is a price hike of the good or commodity, which is exactly what’s happened. Moreover, ironically a hard left-wing coalition have made the rich richer and the poor, poorer. They have indirectly greatly benefitted well-off owners of detached villas, who are now unshackled to offer their properties as holiday lets without restrictions, as opposed to more humble landlords who own city centre flats and who have seen their owner's rights curtailed as they have been outright banned from offering them as holiday lettings.

Regarding the 'brutal' increase in the minimum wage from last December - whilst commendable - in practice will likely greatly disincentivise (understatement) businesspersons from hiring new employees as in addition to the minimum wage, employers must also pay for Social Security which is over 1/3 of the wage on top. Furthermore, it may even lead to massive layoffs. January 2019 in fact saw the largest figure of employees being let go by companies, with over 274,000. This is the worst figure in over a decade, not even during the recent Great Recession were the figures this bad. To put these numbers into perspective, that is 100,000 more workers losing their jobs than in the same period in the previous year (176,000 in January 2018). Clearly, there is a correlation between the government's (clumsy) vast increase of the minimum wage last December (the largest in four decades) and thousands of people losing their jobs on the following month (source: Idealista).

Whilst it is always commendable in life to aspire to lofty ideals, these have real consequences when put into practice; this is particularly true of those politicians who have a penchant for them and who have never in their life worked in the private sector having lived off public stipends for all their life.

Politicians wield huge power and should carefully ponder the consequences of their ill-thought actions in the real economy and above all, and most fundamentally, on how these changes impact on ordinary families’ life’s.

 

Changes to Spanish rental laws

 

The Government approved by Royal Decree last December a spate of game-changers for the rental market. Legal persons acting as landlords should be acutely aware of such changes if they rent or plan to rent out in Spain long term. Physical landlords should take note of the first bullet point.

The idea is to keep it simple and briefly list the most significant changes without going into esoterics. All changes effective from the 19th of December 2018. Prior signed rental agreements follow previous regulation, unless agreed otherwise.

I will be taking as reference my 2016 article  Urban Rental Law in Spain – Spain’s Tenancy Act (Ley de Arrendamientos Urbanos, LAU). I will take for granted legal concepts and will make no effort to explain them; if you are at a loss for example on mandatory and tacit renewal periods, you should read the above article to understand where I’m coming from.

It is strongly advised to read in tandem the above-mentioned article with the brief bullet points collated below to get the big picture on what’s changed in 2019.

  • Physical landlords: 5 years mandatory renewal period on long-term rentals (plus 3 years tacit renewal periods). Was three years plus one.
  • Legal landlords: 7 years mandatory rental period on long-term rentals (plus 3 years tacit renewal periods). Was three years plus one.
  • Legal landlords: additional bank guarantees demanded by a landlord on long-term rentals may not exceed a two-month deposit. Landlords typically request additional guarantees besides the compulsory one-month tenant deposit, especially when a tenant is a non-resident (because of the increased financial risk). These guarantees are now capped for legal persons acting as landlords. For physical landlords there is no change and may keep requesting additional guarantees in excess of the 2-month deposit.
  • Legal landlords: landlords - by law - will pay the commission to estate agencies on tenancy agreements: it was the case that tenants paid half or all this commission whether directly or not.
  • Holiday lettings: Spain’s Horizontal Act is amended allowing Community of Owners to vote by a simple majority of 3/5 to ban outright holiday rentals within a community. I had already pointed out in a blog post in 2017 that this step was necessary, as the Horizontal Property Act at the time required unanimity to ban them, which logically was never going to happen because landlords would vote against it because of their vested interest. This measure has no retroactive effects.
  • Holiday lettings: Spain’s Horizontal Act is amended allowing Community of Owners to increase the communal quota assigned to a landlord (capped at 20%) of the overall community budget. In plain English, communities of owners may now vote to increase the community quota of a property owner who uses his property/ies as holiday lettings. This agreement will have no retroactive effects.

 

Conclusion

In my view these changes are a faux pas and will understandably make landlords (specifically those acting as legal persons) wary of renting out long-term thereby greatly restricting supply (as legal persons have thousands of units in their possession). Who in their right mind wants to lock themselves into an eight-year contract, or a ten-year for legal persons, losing possession of the property for that long? There has to be an attractive incentive to counter the increased risk these changes bring.

Whilst these changes no doubt can be electorally capitalized, garnering legions of votes on polling day from disenfranchised young men and women who are in need of affordable accommodation, it is uncertain they will actually benefit tenants.

It should be noted that landlords had already been dumping long-term contracts over the previous three years in benefit of the far more lucrative short-term holiday lettings restricting furthermore the long-term supply of properties.

These new changes in law will further compound and exacerbate an already scant supply of long-term accommodation leading to a foreseeable hike of rental prices across the board as more and more landlords will pull out from long-term rentals because of the increased perceived risks for them; exactly the opposite effect of what is sought by lawmakers on passing this new regulation nationwide which is vying to make accommodation more affordable for everyone, especially the more vulnerable collectives on precarious McJobs with low wages, namely youngsters.

Alas don’t fret, ‘fortunately’ for us the government has this base covered as there is talks of planning to intervene rental prices (shortly), goaded by their left-wing political allies, setting them out by decree like in a planned economy! Let us hope common sense prevails and this clumsy policy is not adopted by the incumbent.

I just cannot begin to express how wrong and harmful this decision would be and how counterproductive it could prove for the overall rental market. We’ve already seen last year how a well-meaning (albeit naïve) political decision by a hard-left-wing coalition in the Balearics led the property market to plunge into chaos resulting in fact in the opposite effect of what was sought; a two-digit hike in rental prices YOY (and mounting) making life of all those seeking affordable rental accommodation in the Balearics even more miserable.

Only time can tell whether these well-meant pro-tenant changes introduced by Spain’s government will in fact benefit (long-term) tenants, or not.

My money is it won’t.

 

 

You can hire our contract drafting service from only €165 plus VAT: Rentals (contract drafting). Rental contracts also available in English. All contracts completed within 24 hours.

Be proactive, talk to a lawyer. We can make it happen.

 

"Everyone thinks of changing the world, but no one thinks of changing himself.” – Leo Tolstoy.

Count Lev Nikolayevich Tolstoy (1828 – 1910). Was an unparalleled writer of universal acclaim author of pivotal novels such as War and Peace and Anna Karenina. His works attained the pinnacles of realist fiction. The strife’s of the Crimean War imbued in him a strong religious sense that would lead him to reinterpret the teachings of Jesus coalescing in his ideas of non-violent resistance. These ideas are epitomised in his work The Kingdom of God is Within You which would go on to greatly influence two of the most towering figures of the 20th century, Mohandas Karamchand Gandhi, and Martin Luther King, Jr.

 

Larraín Nesbitt Lawyers, small on fees, big on service.

Larraín Nesbitt Lawyers is a law firm specialized in taxation, inheritance, conveyancing, and litigation. We will be very pleased to discuss your matter with you. You can contact us by e-mail at info@larrainnesbittabogados.com, by telephone on 952 19 22 88 or by completing our contact form to book an appointment.

 

Article also published at Spansih Property Insight: Changes to Spanish Rental Laws.

Legal & tax services Larraín Nesbitt Lawyers offers you:

 

Rental-related articles

 

Please note the information provided in this article is of general interest only and is not to be construed or intended as substitute for professional legal advice. This article may be posted freely in websites or other social media so long as the author is duly credited. Plagiarizing, whether in whole or in part, this article without crediting the author may result in criminal prosecution. No delusional politician was harmed on writing this article. VOV.

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Distinction between long-term and seasonal contracts

Raymundo Larraín Nesbitt, February, 10. 2018

Lawyer Raymond Nesbitt goes on to explain the key differences between long-term and seasonal contracts. He also points out the great advantages offered to landlords by seasonal contracts.

By Raymundo Larraín Nesbitt
Director of Larraín Nesbitt Lawyers
21st of February 2018

Article copyrighted © 2018.Plagiarism will be criminally prosecuted

 

 

Introduction

Picking up from last October’s article, where I wrote on the differences between seasonal and holiday home contracts (Seasonal lets: an alternative to holiday home rentals), in this month’s article I’m going to focus on the key differences between long-term and seasonal contracts. I will also make a case on why seasonal contracts are by far the superior option for most landlords.

Frequently, both types of lease agreements are befuddled leading to a mishmash of poorly-drafted lease agreements. Unbeknownst to the parties, this may have serious legal repercussions when such cobbled-up contracts are challenged at court.

I should clarify that the article’s title can be somewhat misleading, as seasonal contracts in truth can also be long-term. For clarity’s sake, when I mention long-term contracts, I will be referring to those which are used as a permanent place of abode and create lenient tenant entitlements as opposed to seasonal ones, which do not. I’ll define both types below, bear with me.

Definitions, definitions

  • Long-term contract: for this article’s purpose, it is understood as a long-term lease agreement which constitutes the permanent abode of a tenant (and his family). These contracts are subject to Spain’s Tenancy Act or Ley de Arrendamientos Urbanos. This law is the backbone of rental agreements and creates a raft of tenant entitlements which landlords ought to be acutely aware of before entering into any such contract. More details on this in my article: Urban Rental Law in Spain – Spain’s Tenancy Act – 8th May 2016.
  • Seasonal let: is a type of contract whereby a landlord rents a property not as a permanent abode. It can be either short-term (days, weeks) or long-term (months, years). Seasonal long-term lets are NOT subject to the batch of tenant entitlements set out by Spain’s Tenancy Act (which only apply to rentals that constitute a permanent abode, see above).

 

Landlord: the importance of getting it right

Normally when a landlord hires our law firm to draft a lease agreement, he is blissfully unaware of the (legal) implications he is getting into on signing a standard long-term lease agreement. Chiefly, that a tenant (and his family) can stay in the property legally for three years plus one at his own choice. A landlord has no saying over this, nada, only the tenant!

EDIT: 4th March 2019. Following new rental laws, this is now 5 years plus 3 for physical persons acting as landlords (total 8 years) and 7 years plus 3 for legal landlords (total 10 years).

If a landlord wishes to avoid having his property tied up for the next three years, or more, he should be signing instead a 12-month seasonal contract. When the 12 months are up, the tenant needs to leave the property unless a new seasonal contract is signed.

The significance of this is better understood with an example. The following is a real case.

An expat landlord has been struggling to sell his property in Spain for several years due to the Great Recession. In the meantime, to make ends meet, he rents it out to a family. This landlord - without taking any legal advice - downloads some random rental contract from internet and uses it. Once signed, sometime later, the landlord manages to find a buyer. The deal has a positive outlook. Regrettably, his buyer finds out the property has long-term tenants living in it (can stay in the property for up to 5 years or more) and at the advice of his lawyer pulls out of the deal. The landlord/seller has lost a great opportunity to sell on his house.

My client, out of ignorance, and because he wanted to save himself lawyer’s fees, used an old contract from internet which gave his tenants cast-iron rights to remain in the property for the following 5 years (plus one). The sales deal, which was a given, fell through because the buyer did not want to commit waiting for 5 years until the end of the lease agreement.

A common mistake in landlords is to think they can end a lease agreement (whenever they want) and ask their tenants to leave the property when they are selling – which is false. A landlord cannot end a lease agreement only because he is selling his house and must respect the whole duration of the signed lease agreement until it elapses (five years in this case).

More details on common mistakes on long-term tenancy agreements in my article: 7 illegal clauses in Spanish rental contracts – 8th January 2018.

Had this person hired me earlier on, before signing any document, I would have drafted him a 12-month seasonal contract and he would have sold on his property without any problems. Bottom line, speak to a lawyer before you do something rash like signing away lease agreements in a foreign language which give your tenant all sort of rights which you do not fully understand. Sounds easy enough, but few landlords actually follow through and end up in all sort of problems.

 

Comparison: Long-term leases vs. seasonal lets

 

 

Long-term lease 

 

Seasonal lease

 

Applicable law

Spain’s Tenancy Act

Spain’s Tenancy Act

Place of permanent abode

yes

no

Urban property

yes

yes

Rural property

no

yes

Accommodation time

More than 2 months, varies between regions

no time limit (days, years)

Contract renewal

Automatic 12-month renewals (leading up to 3 years plus)

no

Can you rent out individual rooms?

yes

yes

Tenant entitlements

yes, significant

no

Creates right to stay and live in the property

yes, 3 years plus one

no

Rental deposit

one-month

two-months (minimum)

VAT

exempt

exempt

Enforced

nationwide

nationwide

Licence of First Occupation required?

yes

no

Landlord tax relief available? *

yes

yes

Tax on rental income to be declared and paid in Spain?

yes

yes

 

*lenient landlord tax relief is only available to EEA/EU-residents.

Advantages of a seasonal let

  • No tenant entitlements.
  • No automatic contract renewals.
  • Your tenant cannot (over)stay in the property for 3 years plus one.
  • Smoother eviction procedures.

 

 Disadvantages of a seasonal let

  • A (minimum) of a 2-month rental is required.
  • Seasonal lets need to be drafted by lawyers to ensure they comply with all legal requisites to be upheld (successfully) before a law court if challenged.

 

The myth of the 11-month lease agreements

You may have heard, or been offered by layman, a 10-month contract as a universal panacea to all that is wrong in Spain with tenancy agreements. In theory, the idea behind these ‘magical’ contracts are to circumvent the automatic 12-month renewal periods Spain’s Tenancy Act sets forth.

In practice, you should know these contracts are not worth the paper they are written on. Should your tenant seek advice from a lawyer, or take you to court, they will be informed they can stay in your property for the next three years plus (providing they pay the rent, of course).

The only – legal – way to waive a tenant having the right to remain in your property for three years plus is to sign a seasonal contract. Seasonal contracts have a number of requirements to enforce them. Only because you label a contract as seasonal, it will not make it seasonal and can be easily challenged at court. Only lawyers are aware of the requirements, so they can be successfully upheld at court.

Do I need to declare and pay tax on my rental income in Spain in both cases?

Yes.

We have a competitive taxation service for non-residents that deals with holiday home accounting service (HRAS).

On average, we can reduce a non-resident landlord’s rental income tax by 40% using tax relief (available to all EU-residents, UK nationals included). Ask us.

Conclusion

Most landlords wrongly assume they must rent out their Spanish property using a standard long-term agreement – which is simply untrue.

For decades, landlords all over Spain have been letting their properties out using seasonal lets without a problem. Seasonal lets are by far the superior option for most landlords.

Don't be goaded into using lease agreements that only exist for the benefit of tenants. Be smart and make it easy on yourself – speak to professionals!

If you want to avoid stressful situations for you and your family, it is strongly advised you hire a law firm before you commit signing on the dotted line. Taking legal counsel ahead pre-empts most legal problems saving you money (and grievances) on the long run. This advice applies both to landlords and tenants. You can hire our contract drafting service from €165 plus VAT: Rentals (contract drafting). Rental contracts in English also available.

Be proactive, talk to a lawyer. We can make it happen.

"La acción es la clave fundamental de todo éxito." – Pablo Picasso.

Loosely translated as: "Action is the key to all success".

Pablo Picasso was a Spanish painter, sculptor, printmaker, ceramicist, stage designer, poet and playwright who spent most of his adult life in France. Regarded as one of the most influential artists of the 20th century, he is credited for co-founding the Cubist movement. Child prodigy, Malaga-born Picasso achieved universal renown and immense fortune for his revolutionary artistic accomplishments, becoming one of the best-known figures in 20th century art. He is one-of-a-kind towering figure that casts a long shadow over every other artist that has followed in his wake.

 

Larraín Nesbitt Lawyers, small on fees, big on service.

Larraín Nesbitt Lawyers is a law firm specialized in taxation, inheritance, conveyancing, and litigation. We will be very pleased to discuss your matter with you. You can contact us by e-mail at info@larrainnesbitt.com, by telephone on (+34) 952 19 22 88 or by completing our contact form.

 

Article originally published at Spanish Property Insight: Distinction between long-term and seasonal contracts.

Legal services Larraín Nesbitt Lawyers can offer you

 

Rental-related articles

 

Please note the information provided in this article is of general interest only and is not to be construed or intended as substitute for professional legal advice. This article may be posted freely in websites or other social media so long as the author is duly credited. Plagiarizing, whether in whole or in part, this article without crediting the author may result in criminal prosecution. Voluntas omnia vincit.

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7 illegal clauses in Spanish long-term rental contracts

Raymundo Larraín Nesbitt, January, 5. 2018

Lawyer Raymond Nesbitt explains the seven most common illicit clauses in Spanish lease agreements.

By Raymundo Larraín Nesbitt
Director of Larraín Nesbitt Abogados
8th of January 2018

Article copyrighted © 2018.Plagiarism will be criminally prosecuted

 

 

Introduction

Following Spain’s ongoing two-digit rental property bubble, I thought it would be a good idea to write a brief recap of the seven most common blunders in long-term rental agreements.

If you want to avoid stressful situations for you and your family, it is strongly advised you hire a law firm before you commit signing on the dotted line. Taking legal counsel ahead pre-empts most legal problems saving you money (and grievances) on the long run. This advice applies both to landlords and tenants. You can hire our legal service from €175 plus VAT: Rentals (contract drafting). Rental contracts in English also available.

Seven most common illegal clauses in Spanish lease agreements

 

  1. 11-month rental contracts are watertight. Eleven-month contracts is a popular urban myth that somehow manages to perpetuate itself from one year to the next. Such contracts were designed to circumvent Spain’s Urban Tenancy Act (which deals with 12 months renewable contracts) and thus waive generous long-term tenant entitlements. 11-month contracts are void and when challenged at court, a judge will rule they are in fact a long-term contract subject to the LAU, meaning tenants can stay in a property for three years. If landlords wish to avoid the lenient tenant entitlements set by the LAU, they should be signing seasonal contracts instead which legally waive them. More details in my articles: Distinction between long-term and seasonal contracts – 21st February 2018, Urban Rental Law in Spain – Spain's Tenancy Act – 8th May 2016 and Seasonal lets: an alternative to holiday home rentals – 8th of October 2017.
  2. Non-renewable 12-month rental contracts. A similar trick to point one above, is to word a long-term rental contract, which constitutes a permanent abode, as a non-renewable 12-month contract. Forbidding the extension avoids a tenant staying in a property for a number of years. Such a clause is null and void on being legally challenged. A tenant is allowed to stay in a property for up to three years at his sole choice (he can move out ahead if he pleases, providing six months have elapsed, see point three below). Only a tenant may choose whether to renew or not his rental agreement for a further 12 months. Spain’s tenancy laws are biased towards tenants for historical reasons outlined in my article Urban Rental Law in Spain – Spain's Tenancy Act.
  3. Cast-iron 12-month rental contract. Following on the above, another frequent clause is to word a contract as a 12-month contract, meaning a tenant cannot pull out of the rental contract ahead of the 12 months for whatever reason. This clause is also null and void following the amendment to Spain’s Urban Tenancy Act in June 2013. As explained above, a tenant may move out of a property ahead of the 12 months so long as 6 months have gone by. He must notify in advance his landlord of his intention of moving out but there is no need to justify a reason for it. The tenant however will have to pay a compensation to the landlord on breaking away for the outstanding duration of the long-term contract. So, there is a price to pay on bailing out ahead of time.
  4. Two months' rental deposit. By law, a landlord can only request a one-month rental deposit from a tenant on rental agreements subject to the LAU (Spain’s Tenancy Act). Notwithstanding, additional guarantees may be requested but they are not labelled as a ‘deposit’ from a legal point of view. On the other hand, by law, landlords of seasonal contracts must request a minimum of a two-month rental deposit. Often both type of contracts are confused leading to mistakes. More details in my article: Urban Rental Law in Spain – Spain's Tenancy Act – 8th May 2016.
  5. Right of entry. Frequently, concerned landlords word into a tenancy agreement the right to visit the rented property giving only a short notice. This is in fact null and void. This error stems from a misconception, when a landlord rents a property, he loses possession of it until such a time the keys are returned. What this means is that a landlord is forbidden to enter (his own) property without the express written permission of his tenant. Should a landlord disregard this, he can be criminally prosecuted for illegal trespassing being remanded into custody. More details in my article: Renting in Spain: Top Ten Mistakes – 8th of June 2011.
  6. The tenant is responsible for any damage to the (rented) property. Frequently, landlords word rental contracts in such a way that they make tenants responsible for any and all damages to the property. Such a clause is - you guessed it - null and void. Tenants are responsible of paying for the normal wear and tear. Landlords must pay for repairs and maintenance that allow the property to be apt for dwelling purposes as per art. 21 LAU.
  7. In the event of a sale, the tenant must leave. Another common mistake is to word a rental contract in such a way that if the property is sold whilst it is being rented out as a permanent abode, the tenant must leave the property (with his family). This again is null and void. Although following the amendments to Spain’s Lease Act in 2013 there are legal reasons which allow a landlord to bypass the three-year rule and kick out his tenant ahead of time, a sale is not one of them. The new buyer will be forced to respect the outstanding tenancy agreement until it ends (the full three years) providing the tenancy agreement is lodged at the Land Registry. This may lead to complicated legal situations with multiple ramifications which exceed the purpose of this article. Legal advice should be taken.

 

Conclusion

Hiring a seasoned lawyer, in my experience, pays for itself on all the money you stand to save on avoiding the most common pitfalls on signing a rental agreement in Spain.

You should hire a lawyer from the onset, particularly if you are a foreigner in Spain, before you commit yourself signing on the dotted line of a tenancy agreement. All agreements should be put in writing and worded into the rental contract. Quite often these contracts are flawed or have clauses which are null and void as templates are frequently used which tend to perpetuate errors.

Unfortunately, practice tells me that most clients only come to us after they have signed and landed themselves in hot water. The legal fees they wanted to save themselves will now be threefold at least.

Bottom line, for your own good, hire a competent lawyer from the outstart before you commit and sign a tenancy agreement or any other legal document for that matter. Trust me, you will save yourself money and aggravation on the long run.

 

“If you haven’t found it yet, keep looking. Don’t settle. As with all matters of the heart, you’ll know when you find it.” — Steve Jobs.

 

Steven Paul Jobs was an American entrepreneur, business magnate, inventor, and industrial designer. He was the chairman, chief executive officer (CEO), and co-founder of Apple Inc.

 

Larraín Nesbitt Lawyers, small on fees, big on service.

Larraín Nesbitt Lawyers is a law firm specialized in conveyancing, litigation, taxation, and inheritance. We will be very pleased to discuss your matter with you. You can contact us by e-mail at info@larrainnesbitt.com, by telephone on (+34) 952 19 22 88 or by completing our contact form.

Article also published at Spanish Property Insight: 7 illegal clauses in Spanish rental contracts

 

Legal services Larraín Nesbitt Lawyers can offer you

 

Rental-related articles

 

Please note the information provided in this article is of general interest only and is not to be construed or intended as substitute for professional legal advice. This article may be posted freely in websites or other social media so long as the author is duly credited. Plagiarizing, whether in whole or in part, this article without crediting the author may result in criminal prosecution. VOV.

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Seasonal lets: an alternative to holiday rentals

Raymundo Larraín Nesbitt, October, 8. 2017

Lawyer Raymond Nesbitt goes on to explain how seasonal lets can be a viable alternative to holiday home rentals in some instances.

By Raymundo Larraín Nesbitt
Director of Larraín Nesbitt Lawyers
8th of October 2017

 

 

 

Photo: Cala Llombards, Majorca, Spain.

 

Introduction

Are you fed up with the intrusive and obnoxious new regulations on private holiday home rentals in Spain? *cough* Balearics *cough*

Did you know that, at times, landlords can circumvent these restrictive regional regulations offering their properties as seasonal lets instead? I.e. no rental licence is required. Were you aware that thousands of properties all over Spain are rented out legally every year as seasonal lets to tourists without much of a hindrance?

Interested? Read on.

Definitions, definitions

  • Holiday-home rental: short-term contract that spans between a day and a month (varies between regions in Spain). Accommodations are offered through touristic channels (see further below) such as online property portals with an online booking system.
  • Seasonal let: is a type of contract whereby a landlord rents a property not as a permanent abode. It can be either short-term (days, weeks) or long-term (months, years). Seasonal long-term lets are NOT subject to the raft of tenant entitlements set out by Spain’s Tenancy Act (which only apply to rentals that constitute a permanent abode) and most certainly do NOT require a rental licence.

 

Comparison: Holiday Home Rentals vs. Seasonal Lets

 

 

Private holiday home rentals

 

Seasonal let

 

Applicable law

regional holiday home regulation

Spain’s Tenancy Act (LAU)

Rental registration required

yes

no

Rental licence required?

yes, in some regions i.e. Balearic Islands

no

Urban property

yes

yes

Rural property

no

yes

Commercialization (offer)

touristic channels

forbidden to use touristic channels

Online booking system

yes

no

Accommodation time

less than 2 months (varies between regions)

no time limit (days, years)

Can you rent out individual rooms?

yes

yes

Guest number limitation

yes

no

Accommodation mandatory requirements

yes i.e. bed cleaning, A/C

no

Place of permanent abode

no

no

Tenant entitlements

no

no

Rental deposit

varies

two-month rental

VAT

usually exempt*

exempt

Subject to regional property inspections

yes

no

Fines (non-compliance)

humongous. Varies significantly between regions.

no

Civil liability insurance required?

yes, in some regions

no

Forbidden to rent out

 yes, in some regions

no restrictions

Enforced

locally (with regional variations)

nationwide

Licence of First Occupation required?

yes

yes

Rental tax relief available?

yes

yes

Tax on rental income to be declared and paid in Spain?

yes

yes

 

 

Advantages of a seasonal let

  • No registration necessary: registration of the property for rental purposes is not required.
  • No rental licence required: you do not need to attain a rental licence from the Authorities.
  • No expensive improvements: you don’t need to install in your property WIFI, A/C, hire insurance to comply with the law.
  • No property inspections: your property will not be subject of inspections by the regional Authorities.
  • No fines: unlike holiday homes, seasonal lets are not liable to be fined by inspectors.
  • No time restriction: unlike holiday homes, you can rent out for more than 2 months. You have the flexibility to rent out either short or long term.
  • No intermediaries necessary: you will not be paying any commissions.

 

Disadvantages of a seasonal let

  • You need to build up your own client base: if you are reliant on third parties (holiday platforms) to provide you with clients (as most landlords are), you cannot benefit from a seasonal let, sorry.

 

* With or without VAT?

In principle, as a general rule, VAT is not applied to holiday rental homes. However, if you offer any of the following below your rental may be regarded as assimilated to offering hotel accommodation in which case you need to invoice everything with VAT which impacts the profit margin of the business increasing its costs:

  • Concierge service.
  • Daily changing of bed linen.
  • Daily changing of bath towels.
  • Daily cleaning of property/room.
  • Room service (food and beverage), catering.
  • Bed & Breakfast.
  • Other ancillary hotel services such as: daily press, laundry cleaning, luggage storage service, accommodation booking (holiday reservation).
  • Other.

 

What is understood by ‘Touristic Channels’?

It is a bit of a grey area to be honest and may vary from one region to the next. Almost every region in Spain has approved specific regulation on what is understood by private holiday rental homes. Regulations vary from one region to another; you are strongly advised to seek legal expertise on your particular region. More details in my article  Holiday Rental Laws in Spain for a full region-by-region list of approved holiday home rentals. Offering a property through a touristic channel automatically tags it as a holiday home subject to strict regional laws.

As a generalization, if a property is offered with any or all the following points it is regarded as being advertised through a touristic channel:

  • It is marketed and offered by intermediaries. It is understood as companies or professionals who mediate between landlord and tenant in exchange of a commission such as: travel agencies, real estate agencies, online property portals (i.e. Airbnb, HomeAway, Tripping, Tripadvisor, Flipkey, VRBO etc.).
  • Online reservation system enabled. Bookings can be viewed and made over internet.

 

Does this article mean that landlords have carte blanche to simply sidestep stern regional holiday regulation at their whim using seasonal lets instead?

No. It takes a case-by-case approach. Not everyone will qualify for a seasonal let e.g. landlords who market their properties through touristic channels.

Talk to a lawyer, we can confirm if you can benefit from it and draft a contract for you.

Do I need to declare and pay tax on my rental income in Spain in both cases?

Yes.

We have a competitive taxation service that deals with Holiday Home Accounting Service (HRAS).

On average, we are able to reduce a landlord’s rental income tax by 40% using tax relief (also available to non-residents). Ask us.

 

Conclusion

Most landlords wrongly assume they must rent out their Spanish property to tourists in compliance with all the new batch of regional rental laws featured in the press - which is simply untrue.

For decades, landlords all over Spain have been letting their properties out to tourists using seasonal lets without a problem. Seasonal lets at times are by far a superior option than renting out as a holiday home. In some regions in Spain the requirements of the new rental laws are so overzealous (read daft) that you are expected to offer a private home on par with the services offered by a four-star hotel. Seasonal lets cut through the red tape and may save landlords thousands of euros on the long run.  

Not all landlords are required to offer their properties as holiday home rentals and comply with the cumbersome (and often expensive) new regional rental regulation. In some instances, landlords would be far better off to simply offer their properties as seasonal lets which do not have associated restrictive requirements i.e. you don't need to install A/C in every room (Andalusia), you don't need to attain a rental licence (Balearic Islands), you do not need to hire an insurance cover etc.

Seasonal lets exist since 1994 and you never hear landlords complaining over them - that should tell you something.

On the other hand, regional holiday home laws are fairly new (post 2013) and you hear most landlords moaning bitterly on them; or worse, not being allowed to rent out because they do not meet the stringent requirements set out in these laws!

You may be surprised to learn you can opt for a seasonal let instead saving yourself considerable time, money and hassle. You could avoid home inspections and steep fines altogether!

In some cases, even landlords who are forbidden to rent out their properties under the current regional holiday home regulation may be stunned to find out they can in fact rent them out as a seasonal let without much of a problem!

Don't be goaded into using new rental contract types that only exist for the benefit of powerful hotel lobby groups. Be smart and make it easy on yourself – speak to professionals!

Be proactive, talk to a lawyer. We can make it happen.

 

“Hecha la ley, hecha la trampa.” – Spanish saying.

 

Loosely translated as “for every law, there is a loophole.”

Larraín Nesbitt Lawyers, small on fees, big on service.

Larraín Nesbitt Lawyers is a law firm specialized in conveyancing, taxation, litigation and inheritance. We will be very pleased to discuss your matter with you. You can contact us by e-mail at info@larrainnesbitt.com, by telephone on (+34) 952 19 22 88 or by completing our contact form to book an appointment.

 

Article originally published at Spanish property Insight: Seasonal lets: an alternative to holiday home rentals.

 

Legal services Larraín Nesbitt Lawyers can offer you

 

Holiday-home letting related articles

 

Please note the information provided in this article is of general interest only and is not to be construed or intended as substitute for professional legal advice. This article may be posted freely in websites or other social media so long as the author is duly credited. Plagiarizing, whether in whole or in part, this article without crediting the author may result in criminal prosecution. VOV.

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New Balearic Islands Holiday Rental Law

Raymundo Larraín Nesbitt, September, 8. 2017

Lawyer Raymond Nesbitt briefly explains the new landmark amendments made to Balearic Islands' Holiday Rental Law (Law 8/2012).

By Raymundo Larraín Nesbitt
Lawyer – Abogado
8th of September 2017

 

 

 

 

Introduction

The Balearic Islands Administration has recently approved Law 6/2017, of 31st July 2017 which introduces a batch of significant changes to its 2012 Tourism law. These changes came into force on the 1st of August 2017, on the day after they were published in the Balearic Islands Official Law Gazette (BOIB).

Because of how significant I think they are, and their wider impact on the short-term Balearics rental market, I am compelled to devote September’s article to shed some light on them. To clarify, this is not a new law that has been passed, they have simply amended 2012 holiday rental law. As this law was passed five years ago, I will not be analysing it as everyone should already be familiar with it and I already mentioned it in my recap article of 2015 Holiday Rental Laws in Spain.

I will briefly highlight the major changes to my mind without going into the minutiae.

 

EDIT 12th September: As reportedly there seems to be some confusion over my text, for which I profusely apologise, I will try to clarify the situation.

The confusion stems from readers not being familiar with the Balearics Tourism law of 2012, which I already mentioned I would not be analysing in this article. My article may seem baffling if you are unfamiliar with said law because I took for granted readers already knew it as it is a five-year-old law (which clearly was my mistake).

The matter of holiday homes is highly controversial amid Balearic politicians. This bill has been consensuated by political parties with opposing views and some of them even abstained from voting it in open disagreement with its thrust. Whereas some political parties welcome the idea of private holiday home rentals, others want to outright ban them. As a reflection of these polarising views, the bill is cobbled together with inherent contradictions which lead to some grey areas and confusion.

All existing rental or tourism licences are valid, regardless of whether you are resident or non-resident. So, if you have attained already a tourism licence you can continue business as usual. Going forward, this bill sets a one-year moratorium on issuing ALL new rental licences (Declaraciones Responsables de Inicio de Actividad Turística or DRIATS for short) for both detached properties and tenements within a community. Consells Insulars and town halls will now need to determine in their planning zones which areas are apt for private holiday home rental.

A new rental modality has been introduced for main homes where the landlord has his habitual residency. In other words, you must be resident in the Balearics to rent out your property as a holiday home under this new modality (the exact terms are unknown and will be developed by further regulation). To attain this new type of rental licence you must comply with the requirements I set out in my text below. Does this imply that non-residents can no longer apply for rental licences? No, it doesn’t mean that.

After the one-year moratorium has elapsed, hopefully the local Administrations will have defined clearly the boundaries of the new touristic areas where new rental licences may be issued (for both residents and non-residents alike). Any property outwith the specially earmarked ‘tourism zonings’ will not be able to attain a coveted rental licence (with the only exception if they already had one issued before this regulation was passed last August).

The logic behind this new rental modality, exclusive to residents, is to allow locals, who apparently are struggling to meet their mortgage repayments (sic), to make a supplementary income renting out their properties to tourists for a maximum of 60 days within a calendar year. Additionally, locals allegedly struggle to find affordable accommodation, particularly in Palma and Ibiza, which has sparked a social backlash on holiday homes this summer and Tourism in general. This public outcry has led local politicians to seek a sustainable tourism growth model which apparently has already hit a glass ceiling in the Balearic Islands.

The pervading idea behind the bill is to restrict furthermore rental licences and even go as far as to reduce them gradually over the next years. By the same token, new draft laws will restrict the number of properties a single individual can rent out to avoid speculation and concentration of properties in few hands which drives rental prices upwards (tut mir leid, Bettina). Year-on-year holiday home rental prices have increased by a whopping 40% in Palma city alone.

Batch of changes

 

Holiday-home

  • A new rental modality has been introduced which requires the landlord to be resident to rent out. Only properties that constitute the permanent residence of a landlord can be rented out under this new rental type! Let us examine the significance of this with an example for ease of comprehension: a British national resident in the UK, who owns a second holiday home in Port Andratx, may NOT rent it out as, by definition, he is a non-resident and it is not his main residence.

 

       These properties can only be rented out for a maximum of 60 days within a calendar year. The landlord must have applied and attained a most sought-after rental licence issued by its consell or local town hall which is entirely at the discretion of the local Administration and is contingent on the zoning of your property (PIAT) and if it is earmarked as suitable for holiday rental.

       This new law introduces an overall capped number of beds (currently set at 623k) with each island being assigned a quota. This figure is planned to be reduced gradually over the next years by as much as 100k. No new rental licences will be issued over the next year until the touristic planning zones are determined by the town halls.

    Oh, and I forgot to add that even if you manage the herculean feat to attain a coveted rental licence, the rental permission is renewable every 5 years providing you fulfil all the requisites – again. Meaning after five years they may not renew it, in which case you can’t rent it out after all.

  • When the property is marketed, in all publicity it should clearly state the rental code of the property.
  • A novelty of this bill is to allow for the first time ever for properties within a Community of Owners to be offered and marketed as private holiday homes. This can only be done if the majority of the property owners have approved it in a General Assembly and this agreement has been lodged at the Land Registry. In other words, if a Community of Owners forbids the use of properties as holiday homes a landlord cannot (lawfully) rent out his property (in the Balearics).
  • The person who markets the property must inform the Police of every lodger of age 16 and over in compliance with Spain’s Security law.
  • Short-term lets are restricted to 30 days (one month) to the same tenant and may not surpass this limit.
  • Only properties with a minimum of 5 years antiquity can be marketed as holiday homes (unless specific regulation states otherwise) and must have been used as a private residence.

 

Fines

  • Unlicenced holiday rentals (clandestine lettings): Landlords who offer rental holiday homes without having a rental licence issued by the Administration can now be fined between €20,000 to €40,000 (per property!).
  • Failure to communicate to the Administration change of property ownership on holding a rental licence (selling property). May result in fines of up to €4,000.
  • Serious offences: are now fined between €4,001 to 40,000.
  • Very serious offences: are now fined between €40,001 to 400,000.

 

Registering your holiday home to pre-empt fines – You can still be fined for non-compliance!

It should be noted that the fact you apply for a rental licence while you wait for it to be issued by the consell does not exclude you in any way of being fined in the interim.

Moreover, as I care to explain in my blog post regarding the region of Andalusia, if you apply for registration but you lack some of the prerequisites (i.e. your property does not have a mandatory Licence of First Occupation issued, article 50) you are breaking the law and you will be (heavily) fined by the Administration. Which is why I advise all landlords not to register their holiday homes unless they are fully compliant. Ignorance on the law’s finer terms will not be accepted as an excuse not to be fined.

Conclusion

If you are looking to buy property as an investment in the Balearic Islands (Mallorca, Ibiza, Menorca and Formentera) and plan to rent it out short-term, you may want to look elsewhere in Spain.

Pushed by a lack of affordable accommodation for natives, local politicians seek to limit the ability of property owners to rent out their properties as holiday homes; specifically targeting non-resident landlords. Clearly this matter is a serious local problem, but I question the right approach is to limit the ownership rights of property owners. I venture that limitation on planning permits and adopting a sustainable development growth model would perhaps be a more advisable alternative (read investor-friendly) as opposed to curtailing owner’s rights.

The changes brought about will also have unforeseen market consequences, possibly drumming up speculation, as properties within areas apt for holiday home rentals will likely be more valuable than identical properties in excluded areas from private short-term rentals.

This new regulation is so restrictive and has associated such stiff fines that it is honestly not worth all the hassle and risk of getting caught red handed without a rental licence. Many other regions in Spain (i.e. Andalusia) have more landlord-friendly regulations with laxer terms and lenient fines in comparison. Not to mention how they have enabled a system of online whistle-blowers with a whiff reminiscent of the best the U.S.S.R. had to offer the world, not. These measures have Kim Jong-un’s seal of approval.

This new regulation unabashedly wants to paint into a corner private holiday rentals, demonising them, making them a most unattractive proposition. It will likely be the death knell of the burgeoning private holiday rental industry in the Balearics on the heels of dubious local political interests. This new regional law in my opinion is borderline unconstitutional as it is a frontal attack to private property which is a legal right enshrined in art. 33 of the Spanish Constitution. Furthermore, it induces pernicious asymmetrical inequalities in regional holiday home regulation which may have a broader impact on foreign investment diverting funds to other more investor-friendly regions in Spain to the detriment of the Balearics.  

I will self-restrain myself and resist the urge to comment on the attack to a free market economy and how these measures (artificially) stifle competition. I had already ranted at length on these counterproductive consequences and who they (really) benefitted in my articles of 2013 New Measures to Bolster Spain’s Ailing Rental Market and in 2015 Holiday Rental Laws in Spain. Unfortunately, time has proved me right in all my comments.

Ultimately, it may be needed for the State itself to step in decisively and curb the law-making enthusiasm of regional politicians; centralising regulation of holiday home rentals under common standards to iron out provincial lopsided regulation. This would be truly ironic, given how the Government itself in 2013 opened the legislative floodgates, leaving the door ajar for all regions in Spain to pass new laws on private holiday rentals. The Government should backtrack on its (derailed) policy and rein in legislative power on a matter of national importance to the Spanish economy.

Regardless, if you still remain unconvinced by my remarks and decide to fearlessly plough ahead and rent your property out, I strongly advise you to take legal advice on your Balearics holiday home rental as the new laws in place are so complex and the fines on non-compliance are humongous.

I should clarify this new law should not affect your decision-making if you are simply buying property in the Balearics with a view to enjoy the property yourself (in lieu of renting it out as a holiday-home). Balearics is a beautiful place to live in, despite its delusional politicians.

 

“Politics: the art of creating new problems where none existed.”

 

Larraín Nesbitt Lawyers, small on fees, big on service.

Larraín Nesbitt Lawyers is a law firm specialized in taxation, inheritance, conveyancing, and litigation. We will be very pleased to discuss your matter with you. You can contact us by e-mail at info@larrainnesbitt.com, by telephone on (+34) 952 19 22 88 or by completing our contact form.

Article also published at Spanish Property Insight: New Balearics Holiday Rental Law

 

Legal services Larraín Nesbitt Lawyers can offer you

 

Holiday-home letting related articles

 

Please note the information provided in this article is of general interest only and is not to be construed or intended as substitute for professional legal advice. This article may be posted freely in websites or other social media so long as the author is duly credited. Plagiarizing, whether in whole or in part, this article without crediting the author may result in criminal prosecution. No delusional politician was harmed on writing this article. VOV.

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Urban Rental Law in Spain – Spain's Tenancy Act (Ley de Arrendamientos Urbanos, LAU)

Raymundo Larraín Nesbitt, May, 8. 2016

Regular legal-contributor Raymundo Larraín Nesbitt gives us an overview of the urban rental law in Spain (or LAU as it is known in Spanish) which is applied nationwide. This law rules on long term tenancy agreements, amongst other rental types.

Marbella-based Larrain Nesbitt Lawyers has over 16 year’s taxation & conveyancing experience at your service. Our team of native English-speaking lawyers and economists have a long track record successfully assisting expats all over Spain. You can review here our client’s testimonials.

Article copyrighted © 2016. Plagiarism will be criminally prosecuted.

 

By Raymundo Larraín Nesbitt
Director of Larraín Nesbitt Lawyers
8th of May 2016

Introduction

The importance of the LAU (Spain’s Tenancy Act) cannot be understated as it constitutes the backbone of most tenancy agreements in Spain.

It should be noted I have greatly simplified the LAU for ease of comprehension but in truth its intricacies and nuances are far more complex than I care to explain. It is highly advisable that readers interested on the matter browse the section below on ‘related articles’ (at the end of this article) which are focus-specific and deal with tenant evictions for example.

To better understand its latest incarnation from 1994 it becomes necessary that I digress with a brief historic recap that helps to explain how we got here in the first place.

EDIT: 4th March 2019. Following new rental laws, some aspects of this article have changed significantly. i.e. the duration periods for long-term rentals.

Historic recap

Post-civil war Spain suffered from a chronic housing shortage. At the time families were large and needed all the protection they could muster from Authorities. This strong bias towards the protection of tenant rights became so deeply embedded in the psyche of lawmakers that it pervades all rental laws even to this very day.

As a general rule a tenancy agreement is ruled by the rental law that was in effect at the time of its signing. We can broadly distinguish the following rental laws:

•    Rental law of 1.964 (texto refundido).
•    Decreto Boyer of 1.985.
•    Rental law 29/1994 of 29th of November – Spain´s Tenancy Act (often abbreviated to LAU in Spanish).
•    Law 4/2013, of 4th of June which significantly amends the LAU of 1.994. More on these changes in my in-depth article New Measures to Bolster Spain’s Ailing Rental Market.

The law from 1.964 created some obscene anomalies called ‘alquileres de renta antigua’ which basically forced landlords to keep renting out to tenants during their whole lifetime at a mandatory fee which in some cases was shockingly ten times below the market price (sic) in prime locations in Madrid, Barcelona and elsewhere. Even worse, the widow and/or children could ‘inherit’ the tenant’s position and also be entitled to a ridiculously low-priced rental for the remainder of their lives. This created perverse surreal situations that would even make Kafka blush. Needless to say this was hugely detrimental to the interests of landlords which were afraid to rent out.

As newer rental laws were passed this tenant bias has been gradually watered down to within ‘reasonable’ limits more in line with the today´s market reality.

The law which is currently in force is the LAU from 1.994 with the amendments brought about in 2.013. It is this law that I will be analysing point by point going forward. This law still holds a pro-tenant whiff albeit to a much lesser extent than its predecessors.

Legal Framework

Urban rental laws are ruled by both the Civil Code (articles 1.542 et seq.) and by the LAU of 1.994.

The Civil Code acts only in a subsidiary manner on what is not expressly ruled by the LAU which has pre-eminence.

Scope of the law

The LAU deals with both long term and short-term rentals, among other rental types (i.e. commercial lets as well).

As a general rule, long term rentals are very regulated and tenants are very protected having a number of rights and entitlements. There is a clearly a pro-tenant bias as outlined in the historic recap section above. Lawmakers are drawn to protect the weak party, the tenant.

Arrendamientos para uso distinto del de vivienda (which includes the subclass known as 'seasonal lets') on the other hand have a much greater degree of flexibility and freedom to negotiate the tenancy´s clauses without being constrained by rules. This is because lawmakers regard both parties as equals and therefor leave to them to rule on their contractual relation exercising a minimum degree of intervention.

The afor goes on to explain why some landlords try to pass off long term rentals as if they were short-term rentals to circumvent all long term tenant´s rights. This seldom works out in practice and when the tenancy agreement is challenged at court it is labelled as a long term rental. More on this in a section below on the eleven-month contract myth.

Excluded lets

There are several excluded property types from the LAU. The only one I'm going to mention are luxury rentals. Luxury rentals are excluded from being ruled by the LAU and are not subject to all I write below. Luxury rentals are governed by their own clauses. A luxury rental is defined as a property over 300 m² or which monthly rental exceeds 5.5 times Spain’s minimum wage.

                 

Ley de Arrendamientos Urbanos (LAU)

 

Rental deposit

We have to distinguish whether a dwelling is used, or not, as permanent abode.

a.    As a permanent abode

E.g. standard tenancy agreement to live in a property for several months

By law, the deposit is one-month´s rental and paid in cash. The parties are NOT free to negotiate a higher deposit. Demanding a two-month deposit, for example, is null and void. Normally in Spain´s 17 regions this deposit is paid into an escrow account that is safeguarded by the Administration to ensure tenants recover their deposit (less any damages).

For example, in the region of Andalusia you need to comply and submit model 806. Additionally, the Administration is legally compelled to refund a tenant his rental deposit (less damages) within one month after the tenancy agreement is terminated. If it takes longer delay interests accrue which currently are significantly higher than what you can expect from a high street lender.

In practice, largely due to ignorance, rental deposits are paid by tenants to landlords (not to third parties such as public Administrations) which may create serious issues down the line when the tenancy agreement is terminated and the tenant exercises his right to recover his deposit as some landlords are notoriously reluctant to refund them unless legal action is taken against them.

b.    Use other than a permanent abode

E.g. commercial premises, or a dwelling which purpose is not to be used as a permanent abode i.e. seasonal contract.

The law states it will be a minimum of a two-month deposit. The parties are free however to increase the amount.

                                         

I. Use of a Property as Permanent Place of Abode

 

Rental

As stated in the article´s introduction even today´s most recent rental law incarnation is somewhat pro-tenant. Specifically article 6 states that any agreement made contrary to Title II of the LAU will be null and void.

A tenant does not lose his legal position even if he stops living in the property, as long as he is not legally separated or divorced, and his spouse and or his underage children still continue living in it, he will still be regarded for all intents and purpose as a tenant.

•    Lease

This takes place when the tenant cedes his legal position in the contract to a third party who becomes the new tenant. It is only possible with the written authorisation of the landlord. Landlords can word a tenancy agreement to forbid leases.

•    Sublet

This takes place when the tenant in turn sublets rooms or section of the house to third parties. Only partial sublets are allowed, not whole. The landlord must give his prior consent in writing. The sublet must always be for a rental inferior to the main one. Subletters are not entitled to the mandatory or tacit contract renewals explained below, only tenants. A landlord can however word into the tenancy agreement to forbid sublets.

•    Duration

For tenancy agreements signed after the 5th of June 2.013 the following rules apply. Tenancy agreements signed before said date have a different set of rules which can be very convoluted.

If no period is specified it is over understood the rental will be for one year. A long term rental is not defined by renting to the same individual for a period of time equal or greater than12 months. This is a common blunder. A two-month rental can be for example regarded as long term by a judge. What matters is not the duration of a rental but the purpose which is given to a property. If the property is used as a permanent abode then it is regarded as a long term rental irrespective of whether a rental lasts 3 years, one year or six months.

a.    Mandatory renewal: Landlords are legally compelled to renew the rental for annual periods up to three years (before 2.013 it was five years). Tenants, at their own discretion, may opt on whether they choose to renew or not for a further year (up to a total of three years). In other words, landlords are at the expense of a tenant´s whim on whether he wants to stay in the property for a total of 3 years, landlords have no say.

•    Renewal notification period

Tenants must notify their landlords with at least 30 (natural) days of their intention to renew their contracts for a further 12 months.

•    Exception to mandatory rental renewal

After one year, landlords are given the opportunity to opt out of it providing one of the following cases is met:

Landlord notifies his tenant with two months’ notice he needs the property for himself or else for a first degree relative as a result of separation, divorce or marriage nullity declared by a legal ruling. If a landlord does not occupy the property himself or else a relative of his, the now ex-tenant is entitled at his choice to either compensation or else to return to his former home (costs of moving will be borne by the landlord).

b.    Tacit renewal (silent renewal): if after three years of rental none of the parties notifies the other giving at least 30 days’ notice then the rental is renewed for a further year (totalling four years).

•    Tenant wishes to terminate the rental agreement ahead of expiry date

A tenant can legally opt out of the tenancy providing more than six months have elapsed since the contract came into force giving his landlord at least 30 days’ notice. The parties are free to negotiate a compensation to the landlord in such a case on the lost rental.

Notwithstanding the spouse or partner of the tenant may opt to remain in the property in which case they must notify the landlord up to 30 days after the tenant leaves the property. The wife will continue to pay the rental in exactly the same conditions as before.

Rental fee

There is freedom to negotiate on its terms. If nothing is agreed, it will be monthly (a landlord cannot request more than one month´s payment ahead) during the first seven days of every month.

A landlord must give his tenant an invoice for every month´s rental – this is mandatory – unless payment is agreed, for example, by bank transfer in which case there is more than enough prove of payment.

The rental will be updated yearly according to a mutually accepted financial benchmark such as the IPC (Spanish Consumer Price Index) which offsets the effects of inflation bringing it in line with today´s values. This indicator is currently negative.

•    Improvements

If a landlord carries out refurbishment works that constitute an objective improvement of the property, i.e. installs a Jacuzzi, then he is entitled to increase the rental.

•    Utility expenses

As a general rule, all expenses subject of an individualised consumption meter reading (gas, water, electricity etc.) are borne by a tenant.

•    Taxes and Community fees

Normally a landlord is responsible for paying IBI tax (akin to the UKs Council tax) and the community fees. But it can be agreed otherwise if both parties accept.

•    Refurbishment & maintenance expenses

It is the landlord´s responsibility to pay for these. If these extend more than 20 days the tenant is entitled to a reduction in the rental in proportion to the surface he can no longer use as a re-sult of the ongoing works.

•    Damages

If a damage is due to normal wear and tear, i.e. leaking faucet or faulty washing machine, then it is the tenant who must pay for it. It is presumed that all household goods and kitchen appliances are handed over in perfect working order at the start of a rental. The onus to prove otherwise falls on a tenant. Articles 1.562 – 1.564 SCC. Which is why it is highly advisable a tenant carries out a thorough check of all the house (snagging list pointing out any flaws or deficiencies) prior to taking possession of the property. A tenant can categorically not withhold rental money as a result of, for example, a faulty household appliance or defective pool lights or engine. More on this in my article Renting in Spain: Top Ten Mistakes.

Pre-emption and Buyout rights

Tenants have a series of rights that landlords must respect when it comes to selling the property. These rights can be enforced at a law court (and frequently are).

i)    Tanteo (pre-emption right): the landlord who wishes to sell on a property is legally bound to notify his tenant of the sales price and other key sales conditions. The tenant has up to thirty days to notify his landlord on whether he wants to exercise his right of buying the property with these same conditions. If he is interested in buying it outright, a tenant is first in line and has priority to jump over any other buyer.

ii)    Retracto (buyout right): if the landlord failed to notify the tenant of his intention to sell on the property the tenant can file a law suit once the new buyer notifies him of the sale. The tenant will have thirty days as from the time the new owner notifies him to exercise his right to occupy the property. The tenant will need to come up with the money to buy the property in that period and lodge it before a law court.

Waiving pre-emption and buyout rights

Both landlord and tenant may agree that a tenant relinquishes his two rights. This is frequently agreed and built into tenancy agreements. Needless to say, this only benefits the landlord, not the tenant.

This can also take place when a single buyer buys all the properties in one building or when a landlord sells multiple properties within the same building. In these two cases a tenant’s preferential acquisition rights are waived as they could jeopardize a larger transaction

Lodging a Long Term Rental at the Land Registry – Advantages

Long term tenants are advised to lodge their long term tenancy agreements at the Land Registry for their own protection against third parties i.e. landlord defaults his mortgage and falls into arrears. His lender executes the contract and attempts to repossess the property. A tenant´s position is stronger if his tenancy agreement was already lodged at the Land Registry. He can in fact negotiate with the lender to leave ahead of the rental´s expiry date in exchange of a suita-ble compensation for his aggravation.

Contractual termination

Either party can denounce the tenancy agreement for breach of contract based on art. 1.124 of the SCC.

Reasons which allow a landlord to terminate the tenancy agreement ahead of the expiry date:

•    Lack of payment
•    No deposit fee paid
•    Non-consensual subletting or leasing
•    Damages caused to the property ex profeso or non-consensual works carried out.
•    Activities which are deemed bothersome, unhealthy, hazardous or illegal.
•    The dwelling ceases to be a permanent abode and is used for other purposes.

Reasons which entitle a tenant to terminate the tenancy agreement ahead of the expiry date:

•    The landlord fails to carry out the necessary maintenance or repair work to which he is obliged.
•    The disruption in the use of the dwelling caused by a landlord by way law or fact.

 

II. Use of a Property other than as Permanent Place of Abode

  

Broadly these refer to renting out a property to someone who is not going to use it as his permanent abode or residence.

Properties and uses include, but are not limited to, the following ad exemplum:

•    Arrendamientos por temporada (i.e. seasonal contract which can be either short or long term)
•    Commercial lets
•    Professional lets
•    Teaching outlets
•    Industrial outlets

Freedom of Negotiation

Lawmakers understand that both parties are in equal rights. For this reason, they do not believe that one of them is in need to be ‘tutored’ by way of laws; think of a businessman who rents out a commercial premise. The law doesn´t think that a tenant, who is a professional, is in a weak position and therefor is in no need of protection.

This translates into almost total freedom between the parties to adopt the clauses they think are best to rule on their contractual obligations so long as they do not oppose the laws, the morality or public order. Whilst the general practice is a two-month deposit for commercial premises (as per law) I stress there is leeway to negotiate, particularly on high-end commercial lets. For example, a beachfront pad located in a prime location such as Puerto Banus (Marbella) could set you back 12 months. Particularly if you are a non-resident tenant with no ties to Spain, a landlord will ask for more cast-iron financial guarantees (to hedge himself) as you may be perceived as a risky option.

In such cases the parties will be subject in first place to what they have contractually agreed, to the LAU in what they have not expressly ruled and finally and in last instance to the Spanish Civil Code.

The Eleven-Month Contract Myth

Early on in my career I heard of this ‘magic’ contract that was meant to be the universal panacea to all landlords’ griefs; behold the power of the eleven-month contract (roll drum)! This was a contract devised to supposedly deviously circumvent the LAU and its mandatory stipulations that (overly) protect tenants at the cost of landlords.

Well I´m sorry to break it out but eleven-month contracts are just poppycock. They are regularly quashed in Spanish law courts every day. Anyone who signs such a tenancy agreement deluding themselves into thinking they can magically skip all the tenant rights I have meticulously laid above to pass off the contract as short-term let or as an arrendamiento de temporada instead of a long term rental is in for a rough (and costly) ride.

It doesn´t matter one iota what the parties to a rental contract want to label or call it. What ultimately matters to a judge, who wields the power, is the use that is given to a property. If the property is used by a family, the kids go to school on a daily basis, the wife and husband work, they have hired high-speed internet services and or cable tv you can call it an eleven-month contract all you want but the judge will rule the property is ultimately being used as a permanent abode and therefore merits the full protection of the LAU. In which case all the rights I have painstakingly collated in the first roman numeral above will apply i.e. mandatory three-year renewal at the sole choice of a tenant amongst many others.

Private Holiday Rentals

Spain is divided administratively into 17 regions. Since 2.013 many have passed their own laws on holiday lets which, by definition, are short-term rentals.

Private holiday lets are ruled by these regional decrees and are expressly excluded from the LAU that I have described thoroughout this article. More on this can be gleaned from my in-depth article on the matter: Holiday Rental Laws in Spain. This article contains a full list, region-by-region, of all the holiday rental laws currently in force. Residential holiday lets and rural rentals are ruled by different regional laws.

As an example in the region of Andalusia:

•    Rural rentals are ruled by: Decree 20/2002: Andalusia’s Holiday Rural Rental Decree.
•    Residential property (private holiday rentals) are ruled by: Holiday Rental Laws in Andalusia (Decree 28/2016).

Each region in Spain has similar laws in place. It is advisable landlords acquaint themselves with them as some regions are fairly restrictive (i.e. Balears) and require a licence to rent out and impose hefty fines on landlords for non-compliance.

Energy Performance Certificate

Following new regulation, if you rent out in Spain you will need to hand over to your tenant what is known as an Energy Performance Certificate (or EPC). This includes both short-term (i.e. holiday rentals) and long term lets. Non-compliance may result in a landlord paying fines to the Autonomous Community where the property is located. Just follow this link to my blog post which explains in detail what an EPC is and how to get one.

Conclusion

You should hire a lawyer from the onset before you commit yourself signing on the dotted line of a tenancy agreement. All agreements should be put in writing and worded into the rental contract. Quite often these contracts are flawed or have clauses which are null and void as templates are frequently used which tend to perpetuate errors.

Unfortunately, practice tells me that most clients only come to us after they have signed and have landed themselves in hot water. The legal fees they wanted to save themselves will now be threefold at least.

Bottom line, for your own good, hire a competent lawyer from the outstart before you sign a tenancy agreement or any other legal document for that matter. You will save yourself money and aggravation on the long run.

In memoriam Andreea Tulin

Le dedico este artículo a nuestra querida compañera del máster Andreea Tulin. La mejor de entre todos y mejor persona aún. Tus compañeros no te olvidamos. D.E.P.

Verde que te quiero verde.
Verde viento. Verdes ramas.
El barco sobre la mar
y el caballo en la montaña.
Con la sombra en la cintura
ella sueña en su baranda,
verde carne, pelo verde,
con ojos de fría plata.
Verde que te quiero verde.
Bajo la luna gitana,
las cosas le están mirando
y ella no puede mirarlas

– Federico García Lorca. Romancero Gitano, Romance Sonámbulo.

Child prodigy, exquisite Spanish poet, playwright, and theatre director. Outstanding member of the Generation of 27. Assassinated at a young age by Nationalist forces shortly before the outbreak of the Spanish Civil War. His body was never found, his legend grows on.

 

Larraín Nesbitt Lawyers, small on fees, big on service.

Larraín Nesbitt Lawyers is a law firm specialized in taxation, inheritance, conveyancing, and litigation. We will be very pleased to discuss your matter with you. You can contact us by e-mail at info@larrainnesbitt.com, by telephone on (+34) 952 19 22 88 or by completing our contact form.

 

Legal services Larraín Nesbitt Lawyers can offer you

 

Letting related articles

 

Please note the information provided in this article is of general interest only and is not to be construed or intended as substitute for professional legal advice. This article may be posted freely in websites or other social media so long as the author is duly credited. Plagiarizing, whether in whole or in part, this article without crediting the author may result in criminal prosecution. VOV.

2.016 © Raymundo Larraín Nesbitt. All rights reserved.

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Decree 20/2002: Andalusia’s Holiday Rural Rental Decree

Raymundo Larraín Nesbitt, April, 8. 2016

As foreign buyers return to Spain in increasing numbers, some will be tempted by the dream of a rural idyll in the Spanish countryside, where some of the most beautiful scenery in Europe can be found. However, the risks of buying in a rural environment are significantly higher than in consolidated urban areas. Regular legal-contributor Raymundo Larraín Nesbitt explains.

Photo credit: Spanish Property Insight

By Raymundo Larraín Nesbitt
Director of Larraín Nesbitt Lawyers
8th of April 2016

 

Introduction

As a result of publishing last month’s article on Holiday Rentals Laws in Andalusia (Decree 28/2016), which applies only to residential properties, I got asked to write up something on rural holiday rentals in Andalusia.

Decree 20/2002 is in fact a fourteen-year-old law so rural landlords should not be going overboard over it regarding fines for non-compliance. I stress I am not advocating for non-compliance, merely observing that this law was passed well over a decade now.

Due to the sheer length of this decree, this article is by no means exhaustive. In fact I have greatly abridged the decree focusing only on the points that will interest the vast majority of rural landlords. It is advisable landlords get hold of their own translated copies of this long decree as I will not be analyzing all the minutiae as it interests only a minority of people (specifically Annex III dealing with rural houses which goes into a wild level of detail on the requirements one must comply with i.e. size of toilets).

Andalusia’s Holiday Rural Rental Decree

 

Andalusia approved on the 29th of January 2002 this decree (sic). Andalusia’s Holiday Rental Law was officially published in the BOJA on the 2nd of February of the same year. This decree has been amended several times over the last decade by numerous laws. The most up-to-date version is this one which reflects all the legal changes:

Decreto 20/2002

The official name is Decree 20/2002, de Turismo en el Medio Rural y Turismo Activo.

This includes the following types of rural property:

• viviendas turísticas de alojamiento rural (better known by its acronym VTAR).
• casas rurales.
• complejos turísticos rurales.

The best way to go about it is simply analysing point by point what it establishes.

Obligation to Register your Rural Property for Rental Purposes

In compliance with this Decree, and with Law 13/2011, of Tourism in Andalusia, landlords need to register before Andalusia’s Tourist Registry (or ATR going forward).

You can download and fill in the form supplied by the ATR called ‘Declaración Responsable‘ and hand it over at one of the ‘Delegaciones Territoriales de Turismo’ once completed. Registration is free unlike in other regions of Spain. More details on registration in a section further below titled ‘How to Register your Holiday Rental in Andalusia’.

If your command of Spanish is low, you can hire a lawyer to do this on your behalf in exchange of a reasonable fee.

Excluded Properties

The following properties are excluded from being regulated by Decree 20/2002:

• Properties which are lent to friends or family without an exchange of money (free).
• Properties that are let to the same individual for a continuous period of time exceeding two months. In which case it will be regarded as a standard rental agreement subject to Spain’s Tenancy Act. More details in my in-depth article: Spain’s Tenancy Act (LAU).
• Residential properties, located in what is legally classified as urban land, are expressly excluded as they are subject to their own legislation: Decree 28/2016. You can find more details in my in-depth article: Holiday Rental Laws in Andalusia (Decree 28/2016).
• Apartamentos Turísticos which are ruled by Decree 194/2010.
• Villages with a population census over 20,000 will not be considered rural for the purpose of this decree.

Holiday Rural Rentals: Definition

Article 9 defines them. They will comply with the following three points:

• To have the appropriate architectonic rural characteristics of the region they are located in.
• To be integrated with the natural surroundings.
• To meet the minimum requirements set out in this Decree for each rural type available.

Types of Rural Lodgements

• Rural houses (casas rurales).
• Rural hotel lodgments and rural tourist rentals (establecimientos hoteleros y apartamentos turísticos rurales).
• Rural tourist resorts (complejos turísticos rurales).
• Other.

ANNEX I: Specialization of Rural Properties

 

Rural properties can be classified in different groups depending on their specialization:

• Agro tourism. Exploitation of agricultural and livestock resort which lodgers can participate in its activities.
• Rural hostel. Devised for short-term to explore and enjoy the rural surroundings and nature. It will have kitchens for the use of lodgers besides being able to offer its own food catering. Rooms for up to three people will be allowed in bunk beds. A ratio of one toilet for every 7 lodgers.
• Nature classes. Thought to educate tourists on Nature’s ways. Group orientated.
• Forest housing. Linked to the exploitation of forests, mountains, lakes and water related natural resources.
• Mill.
• Cave house.
• Huts. Wood or straw thatched dwellings.
• Cortijo house. Used to exploit the surrounding fields i.e. plantation.
• Farm school.
• Hacienda. A more complex and larger structure than a cortijo i.e. olive plantation
• Refugio. Structure devised for mountain hikers to dwell in a few nights in hard to reach locations in the wilderness.
• Other. This includes all rural property that do not qualify for one of the previous categories.

 

ANNEX II: Mandatory Minimum Structural Requirements of Rural Lodgings

 

• Access to wheeled vehicles must be enabled with visible signposts. Brochures with directions on how to get there must be supplied to tourists. If the landlord cannot do this he must provide himself the means of transport to and from the lodging premises.
• Drinkable water. Not inferior to 200 litres per lodger if not connected to the mains grid.
• Electric energy.
• Fully stocked first aid kit.

Rental Types

 

As mentioned in the article’s introduction I will skip whole sections of the Decree and focus only on the two typical rural properties rented out by expat landlords.

1. Rural Houses (casas rurales)

• Independent structures.
• No more than three dwellings within the same building as a limit.
• No more than 20 lodgers allowed at any time.
• They will be classified in two categories: basic and superior. Superior has obviously more stringent requirements to meet.

Annex III holds a full list of requirements rural houses must meet to be rented out legally. For reasons of space I will not be including it. It is strongly advised that landlords download Annex III and have it fully translated. Annex III can be found in pages 21 to 24 of this PDF link: Decreto 20/2002.

2. Rural Rentals (viviendas turísticas de alojamiento rural or better known by its acronym VTAR)

• Architectonically independent stuctures such as labour house, tool huts, barns, cowsheds, stables etc.
• Offered to the public in general to be rented one or more times a year on a short-term basis.
• To offer strictly only lodging services (not additional services such as restaurant facilities or daily change of laundry and bed linen)
• No more than three dwellings allowed in the same building.
• Maximum of twenty vacancies offered.
• To be adequately furnished.
• The lodging cannot exceed 3 months within a calendar year.

Registration Form

• All lodgers, not just the one making the reservation, will be fully identified in compliance with current Security laws (popularly dubbed as ‘Gag’ Law). Lodgers will supply a copy of their personal ID/passport. Like in hotels, all guests will be required to fill in and sign a registration form on entry. In compliance with art 7.2 this registration form must be then sent to the Police or Guardia Civil for every guest over the age of 16 years old within the next 24 hours of the accommodation following Security Laws from 2003 (Orden INT/1922/2003, de 3 de julio, sobre libros-registro) and from 2015. You can send a copy of the filled in and signed registration form personally, by fax or else by e-mail. Registration forms are standardized by law; click here for a sample copy.
• Online registration: follow this link to submit by e-mail to the Guardia Civil a copy of your completed Registration Form.
• Registration forms must be stored by landlords for a period of up to three years for the inspection of the Security Forces.

How to register your Rural Holiday Rental in Andalucía – Inscription before Andalusia’s Tourism Registry (ATR)

All landlords that wish to rent out their rural properties in Andalusia must register their property before the ATR prior to offering and advertising rentals or else face being fined for clandestine activity.

You can self-register here:

Enrolment at Andalusia’s Tourism Registry.

Download, print and fill in the form supplied by the ATR called ‘Declaración Responsable para el acceso o ejercicio de la actividad’; specifically the annex on page 7. Once done, hand it over physically at one of the ‘Delegaciones Territoriales de Turismo’ in the region where your property is located. It can also be completed online if you have a digital certificate enabled. Unlike in other regions of Spain registration is free in Andalusia. You can find a translated version of the form in English here.

• Complete the Declaración Responsable meeting the requirements outlined above in Annex II & III depending on your rural property type.
• Passport copy of landlord and/or NIE number will be required.
• Property details, cadastral reference, number of potential guests. Supply copy of last IBI receipt that mentions ten cadastral number. More on IBI tax in my article Non-Resident Taxes in Spain.
• Landlord’s personal details and an address for official notifications.
• Details of management agency or designated person if landlord appoints someone to act on his behalf. Any change in details must be communicated so the ATR remains accurate at all times.
• Dates on when the rural rental facility is set to open.
• Mandatory insurance policies (if applicable).
• Details of this inscription will be passed on to the local town hall.

Fines and Sanctions

They are divided into three categories:

a.- Light offence. Can be either a written warning or a sanction with fines up to €2,000.
b.- Serious offence. Sanctioned with fines ranging from €2,001 up to €18,000. The premises may be shut down temporarily at the authority’s discretion (for periods less than 6 months), the rental licence may be revoked temporarily.
c.- Very serious offence. Sanctioned with fines ranging from €18,001 up to €150,000. The premises may be shut down temporarily at the authority’s discretion (for periods spanning between 6 months to 3 years), the rental licence may be revoked indefinitely.

Clandestine Activity

If the Authorities (La Junta) catch you red-handed renting out a rural non-declared property (that is not registered at the ATR) this may be regarded as a serious offence.

Conclusion

If you own rural property in the region of Andalusia, and plan to rent it out as a tourist accommodation, make sure your property is first registered before the ATR. And to close, do not forget to declare and pay tax in Spain on your rural rental income (you can read my article Non-Resident Taxes in Spain for more information on your tax liabilities as landlord).

 

Larraín Nesbitt Lawyers, small on fees, big on service.

Larraín Nesbitt Lawyers is a law firm specialized in taxation, inheritance, conveyancing, and litigation. We will be very pleased to discuss your matter with you. You can contact us by e-mail at info@larrainnesbitt.com, by telephone on (+34) 952 19 22 88 or by completing our contact form.

 

Legal services Larraín Nesbitt Lawyers can offer you

 

Related articles

 

Please note the information provided in this article is of general interest only and is not to be construed or intended as substitute for professional legal advice. This article may be posted freely in websites or other social media so long as the author is duly credited. Plagiarizing, whether in whole or in part, this article without crediting the author may result in criminal prosecution. VOV.

2.016 © Raymundo Larraín Nesbitt. All rights reserved.

 

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