Letting your property | Duquesa Estates

LETTING YOUR PROPERTY OR BEING A TENANT IN SPAIN

Buying to let is nothing new in Spain. It has been going on for a long time. Nevertheless, there is a genuine boom in this form of investment right now.

With today's low interest rates and high rentals, you can buy a flat on the Costa del Sol, mortgage 70% of the purchase price, and sit back while your rental income pays off the mortgage.
If you are paying mortgage interest of five or six per cent effective annual rate and your rentals are bringing in a return on capital of seven or eight percent, you are making a profit of two or three per cent.
This doesn't seem like much, but you are doing it with the bank's money, not your own, and you are paying for your property.
You also enjoy capital appreciation as your property grows in value. Many Costa del Sol properties have doubled in value in the past five years, for example, making them a better investment than today's sagging stock market.
This certainly sounds like a tough deal to beat, not only for thousands of investors but also for people who do not consider themselves as investors but rent out their Costa property sporadically or regularly to help pay off their mortgage until they are ready to retire here.
While you are raking in the rent money, though, you should remember that you have certain obligations, both to the Spanish tax man and to your tenants. Being a landlord in Spain is not altogether without problems or risks.

And, of course, being a tenant also involves not only rights but obligations to your landlord.
Spain's current Law of Urban Lettings, the Ley de Arrendamientos Urbanos, went into effect on January 1, 1995, but many renters, especially foreigners, are still unaware of its provisions.
The law brought some good news for those Spanish property owners who are stuck with sitting tenants under the pre-1985 law, and it also brought good news for tenants who were victims of arbitrary price rises under the law in force from 1985 to 1995.
The 1995 law ended a maze of contradictory Spanish legislation that made life difficult for tenants and landlords alike and all but ruined the rental property market in Spain.
Two of its main provisions make life easier for both landlords and tenants.

1. The current law ends the forcible extension provision of the 1964 law, which made rental contracts indefinitely renewable by the tenant. The present law allows landlords gradually to raise the old controlled and ridiculously low rents of 1964 to market prices today and, eventually, to recover their own property.

2. The law also provides tenants with more security than the 1985 law stipulated, now obliging landlords to renew residential contracts each year for up to five years.

We must distinguish three possible situations for rentals existing in Spain today, depending on when the original contract was made.
1964-1985: Under the terms of the rental laws in effect from 1964 to 1985, tenants were so protected that landlords gave up in despair and stopped building rental apartments, which led to a critical housing shortage. Almost half a million apartments in Spain are still occupied under this old law, which protected a tenant so strongly that he could pass on his rights to his children and even his grandchildren. Further, his rent could never be raised, or raised only by a small percentage related to the inflation rate.
Incredibly, there are almost 500,000 apartments in Spain whose tenants pay less than 50 euros a month, and in Madrid there are grandchildren of the original tenants living in spacious flats in prestigious areas and paying rents of only five euros a month. Until 1985, the landlord was helpless to do anything about it, even though his real estate tax is 1,500 euros a year and his community fees are another 1,000 euros. Next door, another tenant might be paying 1,200 euros a month for the same type of apartment, having signed his contract after 1985.
Some foreign property owners on the Spanish Mediterranean coast fell into this trap before 1985. Thinking to make a little money on their holiday flat or eventual retirement home, they rented it out, with a contract for some specific time period.
Later they were horrified to discover that their tenants refused to vacate and become entitled to the forcible extension of their contracts, regardless of the landlord's desire to end the letting and recover his property.
Many landlords chose to leave their apartments empty rather than risk the dangers of a sitting tenant. Landlords refused to repair the crumbling buildings that brought them no profit, and nobody would even think of constructing new rental property.
1985-1995: Revised rental laws passed in 1985 by the Socialist government aimed to remedy this situation in the best capitalist way, by making rental properties good business. The revised law provided that all contracts ended when they said they ended, without provision for forcible extension. The law also ended any restrictions on rent increases. Landlords immediately began to raise rents sharply and to offer short-term contracts with little protection for the tenant. Now it was the tenants who suffered, because they were unwilling to settle into a flat from which they might be evicted in one year's time, or be forced to pay sharp increases.
1995: The 1995 rental law now in force is designed to provide a better balance between the rights and needs of tenants and landlords and to bring at last a final solution to the generations of sitting tenants.
The present law provides that residential contracts, as distinct from short-term holiday lets, are subject to yearly renewals up to five years. Rental contracts are usually made for one year but the law requires that the contract is renewable for a total five-year period of tenancy.
A landlord can offer a contract of two years or three years but, if the tenant decides that he wants to stay on, this contract is renewable for a total period of five years. If the tenant himself wishes a contract of only two or three years, this is all right. The rent can be revised upward by an inflation factor each year.
At the end of the five years, the landlord can raise the rent as much as he chooses, either for his new tenant or for his existing tenant, if he chooses to stay on at the new and higher rent.

Tenancy Matters

Whether you are a landlord or tenant, not requesting professional legal advice when you are going to sign a written rental contract or agreement concerning residential or commercial property, can cause serious problems to you in the future.
This is one of the most delicate parts of the Spanish Law and, therefore, before signing any document the right guidance and advice is vital.

Oral agreements are legally valid in Spain but we strongly recommend you have a written lease that includes appropriate clauses to protect your interests.
Although the Spanish Law governs the rights and responsibilities of tenants and landlords, the Law allows them to establish special clauses and terms in these rental contracts.
There are many points that must be clearly detailed. A part of the contract specifies the name of the landlord and the tenant, the location of the property, the duration of the lease and the due date and amount of rental payment, the agreement can include any other legal provisions to which both parties agree, such as:
- Warranty of habitability. Landlord must provide a safe and sanitary place for tenants. Landlord can be required to provide fire extinguishers and such fixtures as ovens, refrigerators, sinks, etc.
- How communications and notifications of agreements, problems or misunderstandings between landlord and tenant will be resolved.
- What happens when repairs legally required are not made by landlord or tenant?
- When and how much can the landlord increase the rent.
- Who has the maintenance responsibility?
- Guidelines for any repairs to the house.
- It is possible to sub-let the property?
- Penalties for breaking the lease by the tenant or landlord.
- The possibility that landlords or tenants have of passing their rights and obligations to another person.

Before signing, please let your lawyer read the lease carefully and suggests deleting or changing any clauses that in his or her opinion severely limit your rights or can prejudice you in the future.
Finally, if you are relocating or just want to spend your holidays in Spain, here you have useful advice about your rights and obligations when renting or letting a property in Spain.

Basic legal provisions in any rental agreement

According to the afore-mentioned Spanish Law, rental contracts shall be firstly governed by the agreement the parties had settled, when this existed, and secondly by the Law of Urban Lettings.
These are only general guidelines and not definitive statements of the law, all questions about the law's applications to individual cases shall be directed to a Spanish lawyer.
The following provisions shall be contained in the rental contract:

- Details of landlord and tenant
- Description of the property
- The contract term
- Amount of rent and payment terms
- Any other legal provisions that the parties agree

"Being a tenant also involves not only rights but obligations to your landlord"

“Many landlords chose to leave their apartments empty rather than risk the dangers of a sitting tenant.”

"Before signing, please let your lawyer read the lease carefully and suggests deleting or changing any clauses that in his or her opinion severely limit your rights or can prejudice you in the future"

1. The contract time period
Both parties agree the term for which the property will be rented. You may rent the property for a long or a short term. The distinction is very important as Spanish law provides with less rights to short-term tenants

Short term rental contracts

Short-term rental contracts (contrato de arrendamiento de temporada) require that the tenant vacate the property when the contract ends. This type of contract is normally used for holiday letting.
The short-term condition must be specified in the contract, which duration may run for up to 1 year.

Long-term rental contracts

You can settle a long-term rental contract, which duration exceeds 1 year.
If the contract does not exceed 5 years duration, it will be renewed automatically upon its expiration for periods of 1 up to a 5 years term, unless the tenant is not willing to renew it. The landlord is obliged to accept these renewals, except when he had previously stated in the contract that he needs to recover the property for his own use before running the 5-year period.
After the 5 years' term, the owner may rescind the contract, provided that he had given the tenant 30 days' notice before the end of the contract, otherwise the contract will be automatically renewed for 3 years, unless the tenant refuse this renewal.
When the contract does not provide its duration, rental contract will run for 1 year.

2. The deposit
Upon signature of the rental contract, tenants are required to pay the landlord a deposit (fianza) equal to 2 month rent payment, in order to guarantee that the property will be returned to the owner in the same state as before the occupation.
This deposit cannot be used to pay the rent to the landlord.
This deposit will be returned as the tenant moves out, assuming that the property is in good conditions.
After 5 years of rental contract, rental increase will require an increase of the deposit.

3. The rent
The amount of rent is agreed between both parties. Normally rent is monthly paid in the first 5 days of the month. On no account must the landlord ask for more than 1 month rent to be paid in advance. Payments should be made as stated in the contract.
Tenant shall receive a written receipt

justifying that the rent has been paid, unless it is accredited by other means; e.g. proof of payment through bank transfer. Make sure you get these receipts or any proof of payment as these constitute an implicit contract.
During the first 5 years, rent will be increased or reduced according to the consumer price (inflation) index (Índice de precios al Consumo - IPC). After that period, rent will increase according to what both parties agreed when signing the contract.

4. About the expenses
Although expenses produced for daily use of the property, such as Community fees or real estate tax (IBI), must be paid by the landlord, tenants may be required to pay them when it had been expressly agreed by both parties in the rental contract.
Tenants must pay gas, electricity and telephone bills, unless otherwise is agreed.

5. Inventory
Tenants may be required to sign an inventory of the property contents (furnishing, fixtures and fittings…) and the state of them. It is important to check this carefully, as every item outlined on the list shall be returned when you move out in the same order as listed, otherwise you might lose your deposit.

6. Repairs in the house
The landlord must make all necessary to keep the property in a fit and habitable condition; however landlord is not responsible for repairing any damage caused by the tenant.
Tenant shall make those small repairs on account of the property daily use.
Urgent maintenance repairs may be undertaken by the tenant in order to avoid serious and immediate damages in the property, these must be made previous notice to the landlord, repair costs will be returned to tenant.
The landlord must give the tenant three-months notice of the landlord's intent to undertake repairs affecting to health, hygiene and comfort in the property. In this case tenant may renounce the rental contract within 1 month from the notice. If the tenant decides to stay, he may get a reduced rental rate in relation to the dwelling rooms that cannot be used because of the repairs.
These are only general guidelines and not definitive statements of the law, all questions about the law's applications to individual cases shall be directed to a Spanish lawyer.

7. Sale of the house rented. The tenant's right of pre-emption
If the landlord is willing to sell occupied property during the life of the rental contract, the tenant has the right of pre-emption (derecho de tanteo), which means that he could buy the property in priority to other purchaser.
Landlord must first offer the property' sale to tenant, who will have 30 days to reply. If the landlord does not make this offer, or the property is sold at a lower price than the offered one, the tenant could, within one month following completion, have the sale annulled and purchase the property for the price declared in the sales' document.
Pre-emption rights' renunciation agreement will be valid only for rental contracts that exceed 5 years time period.
No pre-emption right can be applied when the rented house is sold together along with the rest of properties that form part of the same building.
If you buy an occupied property, you acquire the rights and obligations of the vendor, and therefore, not until 5-year validity period of the rental contract has been completed, may the rental be terminated.

8. Landlord/tenant's subrogation in favour of third parties
The parties of the rental contract may be substituted for another person, who will acquire all rights and obligations of the old tenant or landlord.
The landlord may be substituted when he sells the rented property to a third party.
The tenant may be substituted when he got divorced or died. In such a case his descen

dants or spouse could stay in the property up to the termination of the rental contract.

9. Can the tenant let the property to a third party?
Previous notice to landlord, the tenant may sublet a portion of the rented property to another person for the same period he had contracted. Landlord must always give his written consent to tenant.
The rent that the third person shall pay to the original tenant must be lower than that stated in the rental contract.

10. Taxes
Landlord is liable to pay income tax at a rate of 25%, assuming that he is a non resident whose Spanish property is rented.
You can deduct maintenance expenses from your Spanish income tax.

11. Having the rental contract rescinded
a) The landlord may rescind the rental contract when the tenant:
Does not pay the rent or deposit.
Rent the property to a third party without the landlord's consent.
Deliberately causes damages to the property.
Undertakes repairs without landlords' consent.
Causes serious nuisance to the neighbours.
In any of these cases you need the services of Spanish lawyer in order to obtain a court order against the tenant.
b) The Tenant may rescind the rental contract when the landlord: "Fails to make the necessary repairs to keep the property in a fit and habitable condition or Disturb the tenant's dwelling use

12. Taking action before the Spanish courts
Many problems may arise when renting/letting a property. You may disagree with your rental contract duration, the rent increase, tenant refusing to move out, tenant failing to pay the rent…
Normally, disputes regarding to rental are processed through ordinary civil proceeding (procedimiento civil ordinario).
You should report your complaints to a spanish lawyer, he will conduct your formal complaint, going to court when necessary.
Renting out your property in Spain comes with the same pros and cons you might find anywhere.
You can handle the rental of your flat, villa or other property yourself, or you can put it into the hands of a property management company. However, do check credentials carefully as all manner of problems can arise when dealing with a less than reputable company. For instance, there have been

cases of rental managers letting property while owners are out of the country, and then keeping the money for themselves. An inexperienced manager might also be less than adept at sorting the wheat from the chaff when it comes to accepting clients.
Finally, by law you are supposed to declare rental income, but many properties are let on the black market with only verbal agreements between landlord and tenant. Be advised that should you choose this route, a contract still exists between you and your tenant in the eyes of the law, and should any disagreement arise, your tenant need only prove payment of the last month's rent in order to initiate a complaint against you.
Holiday rentals have separate rules. The new law does not affect short-term holiday rental contracts, called arrendamiento de temporada, and as we need three more pages to explain these differences, we better leave it for the next issue.