Let-to-buy contracts: do not forget to add a clause forbidding sublets!

Raymundo Larraín Nesbitt, October, 20. 2017

By Raymundo Larraín Nesbitt
Lawyer and Director of Larraín Nesbitt Lawyers
20th of October 2017

 

Back in 2009, I wrote an article on the advantages of let-to-buy contracts as opposed to buying outright a property (Let-to-Buy in Spain: The Smart Choice). The idea behind the article was that if you waited long enough, you could benefit from a steep drop in property prices. In retrospective, the year 2011 marked the inflection point as property prices reached their trough in Spain and have been steadily rising ever since.

Resale property vendors have faced a challenging sales environment over the last years as sales remain sluggish (as opposed to off-plan properties and holiday rentals which have been booming in some areas in Spain). The bid for independence in Catalonia has not been helpful either to build up confidence in the resales market.

Given this sales scenario, I was struck the other day on being queried by the wording of a rent-to-buy contract. The landlords had drafted a contract, and in their haste to sell, had bent over backwards to be accommodating as much as possible towards the prospective would-be buyer. So much so, that the landlords had forgotten to add a clause whereby subletting was forbidden. This mistake was compounded by the fact that they had also agreed to arrange a let which was significantly below the market value to sweeten the deal. The property is in a prime location in Marbella…

In their desperation, and acting in good faith, the vendors omitted this clause on renting a two-storey townhouse (with – hopefully – a view to sell). Unbeknownst to the non-resident owners, the tenant was devious as they come. Wasting no time, the artful dodger immediately set about subletting the property to multiple tenants with a significant mark up. Given the properties prime location, it was rented out in no time. The ground floor was rented to a business, and the upper floors were rented out as a long-term contract.

The sly ‘tenant’, banking on the landlord’s good faith and desperation to sell, had made a shrewd move which netted him a substantial amount in a short span of time using in the process someone else’s property as if it were his own. Needless to say, the tenant has no intention whatsoever to buy the property and was unfazed when confronted on what he had done. The saddest part of it all was that it was perfectly legal.

 

We can learn from above the following:

  1. Legal contracts in Spain should be drawn up only by professionals (lawyers). We offer a professional drafting conveyancing service: rentals.
  2. Let-to-buy contracts should always have a clause forbidding subletting.
  3. Let-to-buy contracts should have a normal rental in line with the market. Do not go out of your way agreeing to below market rentals because you do not know if your tenant will end up buying your property (or not).  

 

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. Please contact us for a free initial consultation. 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.

 

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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.

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