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!

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

yes

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. VOV.

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7 illegal clauses in Spanish 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 €165 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). 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.

2.018 © Raymundo Larraín Nesbitt. All rights reserved.

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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 to provide you with clients (as most landlords are), you cannot benefit from a seasonal let.

 

* 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.

 

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.

2.017 © Raymundo Larraín Nesbitt. All rights reserved.

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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.

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.

Historic recap

Post-civil war Spain suffered 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.

                                           

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: 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 appli-ances 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 deficien-cies) 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 pref-erential 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 po-sition 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 therefor 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.

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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Andalusia's Holiday Rental Laws (Decree 28/2016)

Raymundo Larraín Nesbitt, February, 8. 2016

Lawyer Raymundo Larraín Nesbitt explains the new regulations governing holiday rentals just introduced in Andalusia. He gives us an overview of the Decree in force, the requirements landlords must meet, how to register your holiday rental in Andalucia and explains the steep sanctions for non-compliance.

Register through us in only 24 hours: Registration of Holiday Homes (Andalusia)

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

 

Introduction

Since 2013 I have highlighted the ongoing trend in all regions of Spain to pass legislation on private holiday rentals:

New Measures to Bolster Spain’s Ailing Rental Market
Holiday Rental Laws in Spain

Anyone who has read my articles here will know I am not in favour of these tourist rental laws because they have not been drafted with consumer’s best interests in mind, but rather with those of the hotel industry that fought tooth and nail to regulate this sector, and thwart what they call “unfair competition”.

Spanish politicians, and particularly those in Andalusia, have taken a string of controversial decisions in the last few years in the face of an anemic post-crisis recovery (i.e. the infamous worldwide asset declaration requirement (Model 720), stringent regional Holiday Rental Laws in various Spanish regions, the empty home expropriation decree for ‘social reasons’, a disappointing ‘Golden Visa’ residency investor scheme, draconian anti-money laundering laws etc.). These laws are proving to be highly unpopular with expatriates to the point of driving many away. Unsurprisingly many town halls are reporting of late that foreign population has taken a sharp dip in their census over the last few years (for example, the Marina Alta region of Valencia has lost a third of its foreign population). Maybe some expats have chosen to live under the radar to avoid complying with Tax Model 720 worldwide asset declaration, others have simply had enough and packed their things and gone back to their home country.

If Spain had truly a modern diversified economy these unpopular laws wouldn’t be such a big deal after all, and we could shrug it off. But the sad fact is that Spain’s GDP is unhealthily over-reliant on the Tourism and Construction sectors (over 20%), and this fact, coupled with huge unemployment levels that reach alarming all-time highs in Andalusia, make for a bleak picture. Perhaps regional politicians would do well to ponder carefully on the far-reaching consequences of decisions taken on the hoof. In my humble opinion there are many countries out there that are doing a sterling job at attracting foreign investments by adopting superb fiscal measures (chiefly Portugal). Spain should take a good hard look at itself and abandon its self-complacent attitude and start embracing competitive measures that would renew the market’s interest (especially amongst British, traditionally our largest market by far). Spain has all the makings to become the hotspot; all it requires is competent down-to-earth politicians passing tax-friendly laws that attract foreign investments. Is this too much to hope for?

In February 2016, after a long struggle, Andalusia finally passed its own regional holiday rental law in the wake of much upheaval. This article serves as a gentle reminder on this new law to all those landlords who are currently letting out property in the region of Andalusia or intend to in the near future. I strongly advise to heed the guidance I provide below and not to ignore this new piece of legislation. The fines for non-compliance are very steep (ranging from £1,500 to £115,000).

Anyone who thinks the Junta de Andalucía will not hound infractors and fine them harshly is deluding himself. The whole purpose of this legislation was geared from the outstart towards sanctioning offenders as those behind it had an axe to grind. Moreover in other parts of Spain town halls are already levying substantial amounts on the back of similar new laws. They are using new technology (‘web crawlers’) that methodically and relentlessly trawl internet to come up with non-regulated rentals that are advertised over the web. Authorities cross-reference this information against their public records and unregistered properties are brought to light as a result. Not to mention that at a time where Administration’s coffers are bereft post-crisis this represents a golden opportunity to hunt, apologies, I meant raise taxes and prop up politicians’ dwindling coffers (because gold statues and palaces don’t pay for themselves you know). God bless them all.

In Barcelona, for example, in two unrelated recent cases they have levied fines of £24,000 (source) and £70,000 on the same token (source).

A positive side effect of this law will be to bring into the open all the undeclared tourist rentals. So if after reading my article you become a law-abiding citizen registering your properties to rent them out as tourist accommodations make sure you are filing and paying your Non-Resident Taxes in Spain as well! It would be a faux pas to register them and not declare and pay tax on your rental income in Spain. EDIT 11th April: newspaper article from El País:  Taxman turns attention to hidden internet property rentals.

Let this article act as a stern warning to all landlords in Andalusia: The Taxman Cometh!

 

Andalusia’s Holiday Rental Decree

 

Andalusia approved on the 3rd of February this new decree which had sparked much controversy and debate. The final version has dropped some of the more contentious points but still retains many which are highly questionable in my humble opinion. Andalusia’s Holiday Rental Law was officially published in the BOJA on the 11th of February. Link to the new law:

Andalusia’s Holiday Rental Law.

The official name is Decree 28/2016, of 2nd of February of Tourist Holiday Rentals (viviendas con fines turísticos). The best way to go around it is simply analysing point by point what it establishes.

Obligation to Register your Property: as from the 11th of May 2016

In compliance with this Decree, and with Law 13/2011, of Tourism in Andalusia, landlords may register as from the 11th of May 2016 onwards, day on which this new Decree will come into force. Mr. Rafael Salas Gallego, Malaga’s Tourism Director, has confirmed the registry will not be operative before the 11th of May. So landlords now have a three-month deadline to gather all their paperwork and may start registering themselves as from the 11th of May onwards before Andalusia’s Tourist Registry (or ATR going forward). The Junta de Andalucía has promised public awareness campaigns to clarify on this new law.

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.

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 this decree:

• 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).
• Rural properties, located in what is legally classified as rural land, are expressly excluded as they are subject to their own legislation: Decree 20/2002. I have covered this in an in-depth article: Andalusia’s Holiday Rural Rentals.
• Landlords, or property management companies, that own or rent three or more properties, personally or through corporate structures, each located within a radius of 1 km from the reception office in the same unit (i.e. building, urbanization, condominium) will be excluded from this new decree (this is very bad news). They will be subject to the much harsher Decree 194/2010 (Apartamentos Turísticos) which basically equates these properties to a hotel. This has very serious restrictions on use i.e. landlords cannot use the property themselves for more than two months a year, they must cede the management of the units to a professional company for a minimum period of ten years etc.

Definition of Holiday Rental – What Properties are Included

The decree is rather vague on this point. Any property that complies with the following points will fall under the remit of this new regulation:

• The property is located in land classified as ‘residential’ (in other words, rural and tertiary land are excluded as they are each subject to their own legislation on rentals).
• The property is rented out to tourists regularly on a short-term basis (days, weeks, months).
• Reservation system is enabled. Reservations can be made.
• The property will be regarded to be rented out touristically when the landlord advertises it using specialized media. By specialized media it is understood companies who intermediate between landlord and tenant in exchange of a commission such as: travel agencies, real estate agencies, holiday rental websites (i.e. Airbnb, HomeAway, Tripping, Tripadvisor, Flipkey, VRBO etc.).

Examples of Private Holiday Rentals

All the following landlords fall under the remit of this new law and must comply with its terms or face hefty fines.

1. Mr. Raistlin Majere, and loving wife Claire, own a duplex in a beachside urbanization in Estepona and rent their property out three months a year advertising through HomeAway and similar niche websites.
2. Mr. Aedan Cousland owns a luxury villa in Benahavis, Marbella, which he rents out to affluent Arabs only during the summer season for a substantial return. He advertises only through upscale real estate agencies.
3. Mrs. Morrigan Flemeth and husband Alistair own and live in a Guest House in Fuengirola renting out rooms to tourists all year round. They advertise over internet.
4. Mr. Loghain McTir, UK resident, owns and rents three high-end properties through a management agency. Two of the properties are located frontline in Puerto Banús and the third one in the prestigious Sierra Blanca estate.

Rental Types

Properties can be let as a whole or else by rooms (like in a Guest House).

If it’s the whole property that is being rented out, no more than 15 lodgers will be allowed simultaneously at any time (think of a large villa).

If the property is being rented out by rooms, it is mandatory the landlord lives in the property himself. No more than 6 vacancies can be offered and each individual room cannot exceed four lodgers.

Lodging Requirements

Some requirements from the draft decree have been dropped i.e. wi-fi; which is now a moot point as it is no longer required.

• The property must have attained what is known as a Licence of First Occupation (LFO, for short). It is also known in some parts of Spain as First Occupancy Licence, Habitation Certificate, Habitation Licence, Licencia de Primera Ocupación, Cédula de Primera Habitabilidad, Cédula de Habitabilidad or Cédula de Ocupación. A LFO is a licence issued by the town hall (ayuntamiento) once the building works have been completed, which allows the purchaser to dwell in the property legally. The property developer is responsible for applying for this licence, once the Certificate of End of Construction has been issued. It ensures the property is above board complying with all planning, health & safety and disabled access laws both at a national and regional level. It is also very important as it is required by utility companies to supply the property with water, electricity, gas and telephone connection.
• Rooms must be ventilated and have blinds or shutters to obscure them when necessary.
• Rooms will have the appropriate furniture required for use by lodgers and in proportion to the number of lodgers per room.
• Air conditioning unit affixed in every bedroom including living room (as a fixed fixture, not as a portable device unit) when the property is offered between the months of May and September (inclusive). Landlords will be given one year to adapt the rooms to this requirement as from the time this law is passed (11th of May 2017).
• When properties are let during the winter season (October through to April, inclusive) a heater must be made available in every bedroom including living room (as a fixed fixture, not as a portable device). Landlords will be given one year to adapt the rooms to this requirement as from the time this law is passed (11th of May 2017).
• First aid kit.
• Landlord must provide physical or electronic brochures of the closest amenities, medical treatment facilities, parking spaces, restaurants, shopping centres as well as plans that detail use of urban transport, map of the surrounding area and general tourist guides.
• A complaints book will be made available as well as installing a large visible sign informing lodgers that a complaint book is available. Sample complaints form click here.
• Mandatory cleaning service at the start and end of every new accomodation.
• Clean sheets and bed linen as well as supplying a spare set.
• Provide lodgers with a working contact phone number of person to be held accountable for any complaint or query raised so the situation is addressed immediately.
• Provide instruction booklets to use household and kitchen appliances.
• Inform lodgers on property use restrictions (such as no smoking areas or pet restrictions) as well as on Community of Owners internal bylaws.

Holiday Rental Agreement & Registration Form

i. Holiday Rental Agreement

• It will have the details of the landlord, including a working telephone number as outlined in the previous section above to address complaints, the property’s unique alphanumeric code on being registered at the Junta de Andalucia, the reservation dates (arrival and departure dates), numbers of lodgers and total price of the holiday rental.
• If the agreement does not specify it, it is presumed the rental starts at 16.00 and ends at 12.00pm.
• The landlord, or person designated by him, will show the lodgers around explaining how the kitchen and household appliances work as well as providing them with security cards and access codes to the premises. If the tourist accommodation is included in what is known as a Community of Owners, the landlord must supply his guest a copy of the internal bylaws ruling the community so he adheres to them during his lodging.
• A copy of the signed Holiday Rental Agreement will be stored by the landlord for up to one year to provide it for inspection by the relevant Authorities.

ii. 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. Alternatively you can also use this other link (scroll down for the links).
• Registration forms must be stored by landlords for a period of up to three years for the inspection of the Security Forces.

Price and Reservation

• Price offered will be per night and all-inclusive. This means it must include all the following: utility consumption (water, electricity, heating, A/C), cleaning of (bed)room at the start and end of every new lodging, clean bed linen, taxes. The bill will give a detailed breakdown of all expenses including any extras requested by the guest (like in hotels).
• It is compulsory for a landlord, or person designated by him, to hand invoices to a guest for every payment made including the initial reservation fee (even if it is just for one night’s accommodation).

Following article 8.2, and for the avoidance of doubt, landlords can decide freely upon the rental terms on the following points (so long as the tenant agrees): price, bookings, reservation deposit and cancellations.

If a landlord does NOT word these terms in a short-term tenancy agreement then by default the following rules will apply:

• Unless agreed otherwise, the maximum reservation fee is 30% of the total price.
• If cancellation of the reserve is done over ten days in advance the landlord can pocket 50% of the reservation fee in compensation.
• If the cancellation is done under 10 days then the landlord is entitled to pocket the full amount of the reservation fee.
• If it’s the landlord that cancels he may do so without penalty over ten days in advance.
• If the landlord cancels under ten days he must pay a compensation to his guest of 30% of the final agreed total price.
• If the cancellation is due to a force majeure, then both landlord and guest are exempt of awarding compensation. Examples of such admitted by law courts are flash floods, earthquakes, strong winds, general strikes.

How to register your holiday rental in Andalucia – Inscription before Andalusia’s Tourism Registry (ATR)

All landlords that wish to rent out their properties in Andalusia must register their property before the ATR.

You can self-register here (as from the 11th of May 2.016 onwards):

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 will need to supply the following details:

• Property details, cadastral reference, number of potential guests according to its Licence of First Occupation.
• 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.
• Details of this inscription will be passed on to the local town hall.
• Once the property is duly registered before the ATR each dwelling will be assigned a unique alphanumeric code which – by law – must appear in all publicity offering the property to let (art. 9.4) i.e. internet webs, estate agency brochures, glossy magazine rental advertisements etc.

You will then be assigned a unique alphanumeric code i.e. VFT/MA/00001.

It goes without saying that any property let in Andalusia that does not sport said unique ATR code will be easy to spot and may result in heavy fines.

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.

If the landlord is sanctioned two or more times for very serious offences within a three-year period, the property will be struck off the ATR indefinitely.

Statutory Limitation of Sanctions

• Light offences: six months.
• Serious offences: one year.
• Very serious offences: two years.

The statutory limitation starts as from the time the sanction is imposed by the Administration. The time can be interrupted by the initiation of legal proceedings. If the administrative procedure is paralyzed for more than one month for reasons unrelated to the offender, the statutory limitation will be renewed once again (eventually time-barring the sanction).

Clandestine Activity

If the Authorities catch you red-handed renting out a non-declared property (that is not registered at the ATR) this will be regarded as a serious offence attracting fines ranging from £1,500 up to £14,000.

Conclusion

If you own 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. Do not chance it thinking they won’t catch you as one of the requirements to advertise rentals is to publish the unique alphanumeric code supplied by the ATR in all advertisements (article 9.4). Any offering made going forward that lacks said ATR code and you will be done for. Let alone the unbridled use of web crawlers to hound non-compliers which is proving most effective.

Bottom line, always be on the right side of the law. Hire a lawyer to ensure your property is registered to let and fully compliant with all the minutiae. Ensure you acquire all the gadgets the Andalusian law requires for each room listed above (A/C units, first aid kits etc) to avoid sizeable fines. And to close, do not forget to declare and pay tax in Spain on your rental income (you can read my article Non-Resident Taxes in Spain for more information on your tax liabilities as landlord).

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

Registration fees (per property): POA

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.

 

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. No delusional politician was harmed on writing this article. VOV.

2.016 © Raymundo Larraín Nesbitt. All rights reserved.

THE VIEWS EXPRESSED ARE THE AUTHOR’S ALONE

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Holiday Rental Laws in Spain – Explaining The Latest Changes

Raymundo Larraín Nesbitt, March, 8. 2015

Lawyer Raymundo Larraín Nesbitt explains the changes in landlord rental allowances (tax relief) in Spain spurred by the key ruling of the European Court of Justice (ECJ) from last 3rd of September 2014 (Case C-127/12), as well as the new holiday rental laws in Spain.

By Raymundo Larraín Nesbitt
Director of Larraín Nesbitt Lawyers
8th of March 2015

 

 

 

Introduction

I am going to split my article in two parts.

The first part deals with the batch of regional holiday rental laws that have swept the land becoming an ubiquitous requirement. Any landlord wishing to rent privately their Spanish property for a period exceeding one month in a year falls under the remit of this new regulation.

The second part deals with the changes in taxation related to rental laws brought about by European Legislation; specifically regarding applicable deductions and allowances at both state and regional level (Autonomous Communities).

 

I. Holiday Rental Laws

 

Definition

Over the past two years almost every Autonomous Community in Spain has zealously ruled on what is known as ‘viviendas de uso turístico‘ or private holiday rentals. These are laws which seek to regulate short-term touristic lets from private individuals and bring them in line with minimum (hotel) lodging standards. The laws in all Autonomous Communities are fairly similar so a couple of common denominators can be extrapolated. A touristic let is generally defined by two elements:

• A dwelling that is offered on a short-term rent to tourists employing the media (internet, newspapers, magazines, travel agencies etc.). There is great diversity in the offered lodging and may range from a letting a whole detached villa in a luxurious seaside resort to renting a single room in a Bed & Breakfast. Some communities expressly bar the possibility of renting a single room.
• The property is let out one or more times a year for a period that normally exceeds one month i.e. summer lets or winter lets in ski resorts. But they can also be rented for days, weeks or months.

Excluded Properties

In general, properties that meet the following criteria would be excluded from this regulation and would fall under Spain’s Tenancy Act (Ley 29/1994, de Arrendamientos Urbanos).

• Property that is lent to friends/family without any compensation (monetary or otherwise).
• Property that is let to the same person/s for a period that exceeds three months in a year.
• Rural property which falls under its own regulation.
• Landlords who own three or more properties in the same development or ‘urbanización’ fall under a different regulation: ‘apartamentos turísticos’ (not to be confused with ‘viviendas de uso turístico’ which is the topic of this article).
• No more than fifteen people can live in the same property.

Requirements

Touristic lets are generally obliged to meet the following criteria which by no means is a closed list (I only highlight the main ones). For an accurate list you should check the touristic rental law of the Autonomous Community where your property is located. Please read further below a region-by-region list of approved holiday rental laws.

EDIT October 2016: For the avoidance of doubt, as some people are reportedly getting confused, what follows is a generalisation. I have taken the draft holiday rental law of Andalusia as template to extrapolate generalities or common denominators to be expected from all regions, as regional holiday rental laws in Spain are in fact fairly similar with small variations. Touristic lets are generally obliged to meet certain criteria, though it varies by region, I list the main ones for Andalucia below. If, for example, you are interested in Murcia region, please check the local regional requirements of Murcia´s holiday rental law for the minutiae (I do not list them below!).

• The property must have attained what is known as a Licence of First Occupation (also known as First Occupancy Licence, Habitation Certificate, Habitation Licence, Licencia de Primera Ocupación, Cédula de Primera Habitabilidad, Cédula de Habitabilidad or Cédula de Ocupación).
• Full compliance with planning, health and safety, security and disabled access amongst other laws; both at a national and regional level.
• Rooms must be ventilated and have blinds or shutters.
• Free internet service available in every room.
• Air conditioning unit in every room (as a fixed fixture, not a portable device).
• When properties are let during the winter season (October through to April) a heater must be made available in every room that is let (as a fixed fixture, not a portable device).
• First aid kit and fire extinguisher.
• Cleaning service at the start of new lodgings.
• Rooms must have adequate furniture.
• Complaints book.
• Touristic guides, maps of the surroundings (books).

Non-Compliance

My advice is that landlords would do well to seek tailored legal advice and determine if their property complies fully with all laws. Failure to comply may lead to stiff fines. Fines range from hundreds to over a dozen thousand pounds.

E.g. landlord has not applied for a touristic letting licence from his town hall or the property is unregistered at the special register for touristic properties.

E.g. landlord is reported because he does not have a ramp built for disabled access.

E.g. landlord does not have a wi-fi connection set up.

E.g. landlord has not attained a Licence of First Occupation from local planning authorities.

My Take on Touristic Rental Laws

I had already written an admonitory article back in 2013 (New Measures to Bolster Spain’s Ailing Rental Market) on the worrisome trend the Autonomous Communities were following on enacting their own laws to regulate touristic lettings on the wake of Law 4/2013 which (clumsily) left the door ajar to them.

I feel compelled to excoriate these touristic rental laws which are a bad idea as in the best of cases they impose a new set of obligations (and associated expenses) on landlords which severely impact their rental income and at worst require a rental licence is attained under threat of hefty fines on non-compliance. In some cases individuals will not be even allowed to rent as these laws (artificially) stifle competition. At no time should public administrations limit the rights and usage of private homeowners to rent out their properties. It is a direct attack on private property which in my eyes is a red line that should not be crossed.

This unnecessary batch of new regional laws only make the prospect of renting for small-time landlords – which are legion – all the more difficult (acting almost as a deterrent) whilst at the same time make life easier on large powerful hotel groups as competition is removed. In other words, these regional laws thwart competition in a free market economy benefiting large corporations at the expense of the little people who make a meagre supplementary income by letting property out. The field is uneven.

Two years on, the majority of the seventeen Autonomous Communities which make Spain have jumped on the band wagon passing legislation on touristic lets. Landlords would do well to seek legal advice on whether their property complies fully with the new spate of regional regulation. Some of these laws (i.e. Balears) require that local authorities issue a ‘rental licence’ before you are allowed to let and impose hefty fines on non-compliance. The obligations are (formally) geared to set a homogenous minimum standard to rent property and in some cases require a substantial upfront investment which may negate altogether the very idea of letting as the numbers may not stack up in every case.

If you examine the new requirements landlords are expected to meet they resemble closely those we have come to expect from the hotel industry (i.e. free wi-fi, A/C units, professional cleaning service etc.). It stands to reason you cannot possibly demand from private individuals the same blue-ribbon lodging standards and services as those offered by financially powerful multinational hotel groups. It’s daft.

Private individuals in many cases will not have the financial means to acquire all the ‘minimum’ gadgets, let alone face the grim prospect of being fined dozens of thousands of pounds on non-compliance. If these regional laws are enforced harshly by authorities it will leave the burgeoning business of private home rentals to affluent people or groups; the only ones with the means to keep up with the frantic pace set out by regional authorities. Borrowing a quote from Thomas Jefferson — “There is nothing more unequal than the equal treatment of unequal people”.

Again the cynic in me asks cui bono? Who stands to gain more from such changes in home rental regulation? Definitely not landlords (or tenants for that matter). The powerful hotel industry does. Property has been let to tourists for decades without major hindrances (in fact Spain’s whole unbalanced and undiversified economy hinges on tourism and construction; they account for well over 20% of its GDP). Adding red tape is unnecessary and redundant.

Why now? Because after a huge property boom that lasted almost a decade the properties now on offer have trebled whilst demand remains stable. This has in turn dramatically increased competition for hotel groups which has severely dented their bottom line (and miffed their shareholders). They have relentlessly lobbied over the last years to curtail what they deem as ‘unfair competition’.

Competition is always good for the broad economy as it drives prices down and improves services not to mention job creation at a time when the economic recovery remains anemic (in Spain). Competition at its heart is what keeps people and companies on their toes. Remove competition and companies become complacent, services deteriorate and prices soar. In a competitive market bad companies are weeded out by consumers through natural selection. More so in the days of internet with professional bloggers that take delight on rating hotel accommodations for the benefit of all us punters. This is not about accommodating lofty ideals, it’s about being pragmatic in today’s tough world. A healthy robust economy demands competition to flourish and create jobs, period. Remember my words next time you have to pay for a pricey (hotel) lodging in Barcelona or Madrid.

You can find an insightful article from American journalist Kevin Brass (New York Times, Wall Street Journal) with poignant comments on the matter of (Spanish) administrations encroaching on private short-term lettings (for the benefit of the hotel lobby) from the 8th October 2014: Opinion: Attacks on Short-Term Rentals Are All Hype.

EDIT 9th of April 2015: Spain’s Competition and Market’s Authority (CNMC) has taken legal action against Madrid’s Holiday Rental Law on grounds of “anti-competitive practices that restrict consumer’s ability to choose (a service)”. More on this: Five-Day Holiday Rental Limit Challenged in Madrid.

 

Region-by-region List of Approved Holiday Rental Laws

 

Moving on from my rant, I have compiled a comprehensive list of the Autonomous Communities in Spain with approved touristic rental laws at the time of this article’s printing. The most high-profile absentee is Andalusia’s draft law which has sparked hot controversy. Regardless, I have included below a link to its draft bill out of interest to anyone.

EDIT 03/02/16: the autonomous region of Andalusia approved its Holiday Rental Law in February 2016. More on this matter in my article: Andalusia’s Holiday Rental Decree.

Holiday rental laws are here to stay. It is a landlord’s duty to acquaint himself and comply with the regulation of his own Autonomous Community. Some aspects of the below-listed regulations vary widely so it is highly advised professional advice is sought beforehand to be on the right side of the law. In some instances, such as Balears, holiday rental licences are fairly restrictive and hard to attain.

• Andalusia: Approved. Andalusia’s Holiday Rental Law explained in English. The new approved law: Decreto 28/2016, de 2 de febrero, de las viviendas con fines turísticos. Fines for non-compliance range between €2,000 to €150,000. Another important law which currently applies is Law 13/2011 of Tourism in Andalusia.
• Aragón: Decreto 167/2013, de 22 de octubre, del Gobierno de Aragón, por el que se aprueba el Reglamento de los apartamentos turísticos en Aragón
• Asturias: Updated regulation pending. Decreto 60/1986, de 30 de abril, sobre ordenación de los apartamentos turísticos and Decreto 34/2003, de 30 de abril, de viviendas vacacionales.
• Balears: More information in my updated article (September 2017) New Balearics Holiday Rental LawRequire a holiday rental licence for villas and townhouses; apartments are excluded. Decreto Ley 6/2013, de 29 de noviembre, por el que se modifica el artículo 52 de la Ley 8/2012, de 19 de julio, del Turismo de las Illes Balears
• Basque Country: Decreto 198/2013, de 16 de abril, por el que se regulan los apartamentos turísticos
• Canary Islands: Fairly restrictive. Decreto 142/2010, de 4 de octubre, por el que se aprueba el Reglamento de la Actividad Turística de Alojamiento and the new Reglamento de las viviendas vacacionales de la Comunidad Autónoma de Canarias. Read this post on the new holiday rental law for the Canary Islands.
• Cantabria: Decreto 19/2014, de 13 de marzo, por el que se modifica el Decreto 82/2010, de 25 de noviembre, por el que se regulan los establecimiento de alojamiento turístico extrahotelero en el ámbito de la Comunidad Autónoma de Cantabria
• Castilla-La Mancha: Unapproved.
• Castilla y León: Unapproved, only for rural tourism Decreto 75/2013, de 28 de noviembre, por el que se regulan los establecimientos de alojamiento de turismo rural en la Comunidad de Castilla y León
• Catalonia: Barcelona city is restrictive with new permits. Decreto 159/2012, de 20 de noviembre, de establecimientos de alojamiento turístico y de viviendas de uso turístico
• Extremadura: Unapproved / updated regulation pending. Decreto 182/2012, de 7 de septiembre, de ordenación y clasificación de apartamentos turísticos en Extremadura
• Galicia: For detached homes only; room rentals are banned Decreto 52/2011, de 24 de marzo, por el que se establece la ordenación de apartamentos y viviendas turísticas
• La Rioja: Unapproved.
• Madrid: Stays of less than five days and single room rentals are banned Decreto 79/2014, de 10 de julio, por el que se regulan los apartamentos turísticos y las viviendas de uso turístico de la Comunidad de Madrid
• Murcia: Updated regulation pending. Existing regulation is from 2005. Decreto 75/2005, de 24 de junio, por el que se regulan los apartamentos turísticos y alojamientos vacacionales
• Navarre: Updated regulation pending. Decreto Foral 230/2011, de 26 de octubre, por el que se aprueba el Reglamento de Ordenación de los Apartamentos Turísticos en la Comunidad Foral de Navarra
• Valencian Community: Decreto 92/2009, de 3 de julio. Reglamento de Alojamientos Turísticos y empresas gestoras de la Comunitat Valenciana.

 

II. Changes in Taxation Brought About by European Legislation

 

Landlord Rental Allowances

Following up on last month’s article regarding the ECJ’s landmark ruling of last 3rd of September 2014, which put an end to discrimination between residents and non-residents on taxation matters, these changes also affect rental laws.

Law 26/2014 of the 27th of November amends both the Personal Income Tax Act (I.R.P.F.) and the Non-Resident Income Tax Act (I.R.N.R.). These changes came into force on the 1st of January 2015. I had already referred to these changes in December’s and February’s articles: Taxes on Selling Spanish Property and Changes To Spain’s Inheritance And Gift Tax Law.

Law 26/2014 adapts and transposes the decision taken by the ECJ amending internal Spanish national laws. It brings to an end (fiscal) discrimination between residents and non-residents in a wide array of matters; for this article’s sake specifically on rental matters. EU-residents are now treated on par with Spanish residents on taxation matters relating to allowances and deductions. This translates into paying fewer taxes (as non-residents now qualify for deductions and tax allowances which were previously barred to them as these were earmarked for Spanish residents alone).

For the purpose of this article, when I make reference to ‘non-tax residents’ I will always be referring to citizens which are either tax resident in another Member State of the European Union or else in the European Economic Area (E.E.A.). Just to clarify, the below-listed changes do not benefit tax residents outside of the EU or EEA.

Rental Allowances – Situation Prior to the ECJs’ Ruling

Non-resident rental allowances were virtually non-existent prior to this ruling for private individuals. There were few instances in which you could offset rental taxes as they required you employed someone full time and had a permanent establishment in Spain. Obviously of little practicality which was not an option for the vast majority of non-resident landlords.

Post-ECJs’ Ruling – Changes to Spain’s Rental Laws

The ECJ’s key ruling of 3rd of September 2014 marks the inflection point which puts an end to (fiscal) discrimination between residents and non-residents. It forces Spain to amend its internal laws and accommodate the European principles on which the EU is grounded on. The significance of the ECJ’s ruling is that it has opened up the opportunity for non-residents to apply as from the 1st of January 2015 to the below-listed state tax allowances and deductions which were previously reserved only to Spanish residents. In addition, non-residents may also benefit from those set by the Autonomous Communities where the property is located which have a penchant of being more generous than state law.

When taxpayers are resident in another European Union Member State, or in the E.E.A., the expenses described in the Law on Personal Income Tax (IRPF) can be deducted when calculating the taxable base, provided that proof is supplied that these expenses are directly related to income earned in Spain and have a direct economic connection that is inseparable from the activity carried out in Spain. When expenses are deducted, a certificate of tax residency in the corresponding State issued by the tax authorities of that State must accompany the tax return.

Landlord’s State Allowances and Deductions for Private Home Rental

The following state deductions and allowances can be offset or deducted mitigating the tax bill without prejudice of additional compatible allowances set out by the Autonomous Community contingent on where the property is located. Please take legal advice on the latter for your particular case as for economy of space I will not be listing them below.

The above translates into higher returns for a landlord. Meaning non-resident landlords stand to profit from higher net yields on letting in Spain as from 2015.

Article 24.6 of the Non-Resident Income Tax Act (I.R.N.R.) makes a direct renvoi on these to art. 23 of the Personal Income Tax Act (I.R.P.F.).

1.- Physical Persons

A. Rental Tax Relief / Deductible Expenses (Art. 23 I.R.P.F.)

Proof must be supplied that the following expenses are directly related to income earned in Spain and have a direct economic connection that is inseparable from the activity carried out in Spain.

Interests arising from a loan to buy the property (i.e. mortgage).
Local taxes and administrative charges and surcharges that impact on the rental income or else on the property itself (i.e. IBI tax, rubbish collection tax).
Expenses arising from formalising rental contracts such as lets or sublets (i.e. Notary and/or Land Registry fees); legal defence (i.e. hiring a lawyer for tenant eviction purposes).
Maintenance costs may be offset; refurbishment expenses are excluded.

Examples of maintenance costs (deductible): repainting over flaky paint, plumbing, debugging, tennis court green mold cleaning, swimming pool pump replacement, annual lift maintenance, leaking faucet.

Examples of refurbishment expenses (non-deductible): glass curtains, double-glazed windows, parquet, marble floor, extension to property (outbuilding), tennis court, swimming pool, private lift.

Notwithstanding the above, refurbishment expenses may be claimed on selling the property by offsetting them against your Capital Gains Tax liability. Please read my article: Taxes on Selling Spanish Property.

Home insurance premiums (theft, fire, civil liability etc.). Please read my articles Home Insurance in Spain, Community of Owners’ Insurance Policies and How to Cancel your Home Insurance Policy in Spain. However claims arising from events that diminish the value of a dwelling are non-deductible i.e. fire
Utility invoices (electricity, water, gas and landline).
Concierge, gardening & security services (i.e. gated communities).
Home depreciation and amortization. The calculation is 3% on the highest value of the following two: home buying costs or cadastral value; the value of the land is excluded.

B. Allowances

• The 100% tax allowance on letting to under thirty-year-olds is supressed as from the 1st of January 2015. The allowance is now 60% on the net income regardless of a tenant’s age.

2.- Legal Persons

Those set out by the Company’s Income Act (Law 27/2014, of 27th of November).

Changes to Spain’s Rental Laws – Conclusion

Any change that implies paying fewer taxes is always welcome. The less Administrations meddle in private affairs and businesses, all the better.

If you own property in Spain and plan to rent it out for a period exceeding one month in a year I strongly recommend you seek legal advice to comply with the obligations set forth by your Autonomous Community.

Freedom is the right to question and change the established way of doing things” – Ronald Reagan.

American 40th US President (1981 – 1989). He steadfastly contributed to the Cold War victory which led to the fall of the Berlin Wall and the collapse of the U.S.S.R.

 

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.

 

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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.

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New Measures to Bolster Spain’s Ailing Rental Market

Raymundo Larraín Nesbitt, July, 8. 2013

The Government has drafted a new rental law in an attempt to bolster and streamline the ailing rental market, but curiously one of the biggest beneficiaries will be the hotel industry.

By Raymundo Larraín Nesbitt
Lawyer – Abogado
8th of July 2013

 

 

 

Introduction

Property ownership in Spain is deeply embedded in the national psyche as I have analysed over the years in my articles. Some would even call it a national obsession (followed by football and not necessarily in the same order). Property ownership is widely viewed as ‘superior’ to renting almost as a social status all unto itself (!). Several popular well-known mantras upholding such (false) belief have endured over the boom years. But the receding tide of prosperity, induced by this recession, has exposed them for what they always were – false myths:

  1. Alquilar es tirar el dinero” which loosely translates as ‘renting is throwing away (good) money’
  2. Another good one is “nunca bajan” translated as ‘(house prices) never fall’
  3. And last is my all-time favourite: “siempre lo podrás vender” translated as ‘(don’t worry) you can always sell it’; yeah right!

Spanish parents are obsessed with leaving their children property when they should really be concerned on gifting them a top-notch education allowing them a chance in life to win their spurs.

Unsurprisingly, because of this historical national fixation for property ownership 83% of properties in Spain are inhabited by their owners as opposed to only 17% being rented out. Compare these (very) sad figures with a far more developed rental market in Europe which boasts an average of 30 to 40% rental occupation. Moreover, all this money that is (foolishly) ploughed into property is a wasted opportunity cost that could be better put to use in the money markets investing in companies and start-ups, creating jobs and wealth, rather than saddling with debt legions of Spanish families who now face the grim prospect of a lifetime sentence in the form of a financial millstone around their necks for the remainder of their existence. A huge change of financial culture in Spain is urgently required in line with Protestant countries (historically more financial savvy) that can only be achieved through education from an early age at school. I venture that one positive outcome of this ‘recession’ will be that scores of Spanish will now be forced to rent as opposed to buying outright.

The underlying historical reasons on this fascination are numerous and exceed the object of this article so I won’t digress. What matters is that the Government, with millions of properties standing empty and millions more of young – and not so young – workers unemployed, has finally smelled the coffee. They have been busy drafting a new law in an attempt to bolster and streamline an ailing rental market in the hope of making it more dynamic and robust.

Ley 4/2013, de 4 de junio, de medidas de flexibilización y fomento del mercado del alquiler de viviendas

Ley 4/2013 is the law published in Spain’s Official Law Gazette on the 5th of June that heralds these changes. The official line is that it brings on a slew of novelties which will hopefully bring a breath of fresh air into a stale rental market. This new law significantly amends Spain’s all-important Tenancy Act (Ley 29/1994, de 24 de noviembre, de Arrendamientos Urbanos). Popularly known by its acronym ‘LAU’.

However I speculate that the ‘real’ agenda being pushed by this law is another and I elaborate further in my conclusion below. In my opinion this is yet another patchwork law that attempts, for the umpteenth time, to do something about Spain’s chronically failing rental market – and most likely will fall flat on its face.

Major Highlights of Spain’s Amended Rental Law

  • The exclusion of Spain’s Rental Act for touristic property lets. This is hands down the most significant change in my opinion made by this reform as it now purposefully leaves out what are known as ‘touristic tenancies’. The LAU used to rule on all tenancies (except those deemed as ‘luxury’ rentals). Touristic tenancies will now be ruled by Spain’s seventeen regional autonomous communities. To make it more complicated, not all autonomous regions have such laws implemented. Touristic rentals require a licence from the local administration. The matter is so complex that it easily merits its own article given the fact there are seventeen autonomous regions in Spain capable of enacting their own laws on the matter compounding it furthermore. Always making administrative matters easy.
  • The legally mandatory five-year rental period for long-term rents is now reduced to a three-year period.
  • As a direct result of the above, deposits must now be reviewed after the three-year period has elapsed (as opposed to the former five-year period).
  • The tacit renewal is reduced from a three-year period down to one year.
  • A landlord may now recover the possession of the property after a year has elapsed under certain circumstances. Unlike before, this now does not have to be expressly worded into the contract.
  • The landlord may now sell the property and the new owner may terminate the existing tenancy agreement so long as it is not lodged at the Land Registry. Before this law, the new owner was forced to respect the existing mandatory tenancy until it ended. This is a very welcome measure indeed. So for all new contracts signed after the 5th of June 2013 it would be advisable for a tenant to have their tenancy agreement lodged at the Land Registry if they want some degree of protection against the owner selling the property and the new owner moving in and have them vacated. On lodging the tenancy agreement if the owners sells on the property, the new owner will be forced to respect the tenancy for the mandatory three-year period (used to be five years before this law).
  • Tenants may now notify their landlords, at any moment, with only 30 days in advance of their will to terminate a tenancy provided they have already rented it for a six-month period. Before a tenant needed to wait until almost till the end of the tenancy or else face compensating the landlord for the lost rental if they decided to bail out ahead of time. Notwithstanding a suitable compensation can still be agreed. This is an advantage for tenants really, not for landlords, as it allows them more flexibility to terminate a tenancy.
  • If in agreement, the let can now be forfeited for a set period of time so long as the repairs in the property are shouldered by the tenant. This must be mutually agreed.
  • Both parties may now opt-out of the IPC, as the annual benchmark to increase a tenancy, and choose another index. IPC stands for ‘Índice de Precios al Consumidor’ which is a Consumer Price Index which is widely used in Spanish contracts as a benchmark to increase services in line with the annual rise of inflation.
  • It can now be agreed by both parties that long-term tenants may waive their pre-emption and buyout rights (‘derecho de tanteo y retracto’) in a resale as is stipulated in section 25 of Spain’s Tenancy Act.
  • Changes to Spain’s all-important Civil Jurisdiction Law, (1/2000 – LEC) to further streamline the eviction procedure. Non-paying tenants will now be given only a ten-day deadline to bring arrears up to speed. The more legal fat is stripped away, the more efficient and streamlined will the resulting eviction procedure turn out. This is frankly positive but hardly groundbreaking.

 

Conclusion: more beating around the bush

Although some of the above changes are indeed a positive step in the right direction, most are superficial. I remain largely sceptical of this new law because, once again, it doesn’t really address the main issues which historically hamper Spain’s rental market, and only beats around the bush.

So why on earth bother to approve a law that seemingly won’t make much of a change in the rental market? The cynic in me can’t help but think that, brushing aside negligible cosmetic changes in the overall picture, the real agenda being pushed is that of the hotel industry.

After a decade of booming construction, where thousands of new-build properties were bought en masse and let out to foreigners at large, the hotel industry has experienced massive losses as a result of all the unregulated competition from a myriad of humble property investors dotting the Spanish coastlines. It has reached the point where many first class hotels now close down during the low season, something unheard of previously. This new law – quietly but relentlessly – effectively introduces a restriction to letting by private individuals, leaving it to autonomous regional communities to rule on the fine details of what a touristic licence actually entails. Which is why I place it as the first, and most significant, point on reviewing and listing above the amendments brought about to Spain’s Tenancy Act (LAU).

One would have to ask oneself: who stands to benefit with this reform and whose interests are served by it? Cui bono? Certainly not the countless foreign small-time investors looking into buy-to-lets to make some money on the side to supplement their (meagre) income. Again an ill-conceived political measure that meddles in the economy that will prove to be counterproductive on the long-term as it will foreseeably deter would-be buyers who would have otherwise invested had they unrestricted freedom to rent. Talk about shooting oneself in the foot.

Forcing home owners across Spain to ensure their properties comply with the same regulations already imposed on hotels (minimum quality standards, health and safety, kitchen appliances etc.) is daft and may be safely labelled as an unnecessary exercise of interventionist legislation aimed to thwart or restrict the sacred use of private property (in benefit of the hotel industry). No to mention treating as equals those who are financially unequal as both hotels and private individuals stand to comply with the same set of standards if they want to attain a licence to rent. In any case, let’s not rush ahead as the fine details will be ruled by the seventeen autonomous regions so we will just have to wait and see before judging in advance regional legislations. Few communities have already ruled on this i.e. the Balearics.

EDIT 2015: My conclusion was correct. Fast-forward two years for the new batch of holiday rental laws that restrict private rentals:

Holiday Rental Laws in Spain - Explaining The Latest Changes – 8th of March 2015

 

Back on topic, to foster a robust rental market we’d be better off taking a bold stance and resolutely reworking the whole eviction system from the root rather than approve a string of half-hearted piecemeal laws which honestly will scarcely make a dent on matters. What would *really* kick-start the rental market in Spain would be chiefly:

  1. Change the predominant Spanish mentality towards rental and ownership achievable only through an early education at school. Rental must stop being demonised by society at large and accepted as a perfectly valid option in life. State and private schools should teach finance to children. A long-term goal.
  2. Have non-paying tenants evicted in less than ten days from a property instead of having to wait for months on end or even years to make it happen. A short to medium-term goal reworking the legal (procedural) system.

These two measures would greatly help to nurture and consolidate a budding rental market in Spain. Granted, it wouldn’t happen overnight. It takes considerable time to change people’s mentality. Besides, there are far too many legal constraints and guarantees safeguarding non-paying tenants’ rights. What about the landlords I ask? Long eviction periods lead to tenants trashing properties, to landlords losing rental to offset their mortgage repayments (which in turn may even lead to a repossession of the rented property), besides unnecessarily increasing tenant eviction legal fees paid for by distressed landlords. This nonsense should clearly be put to an end.

The rental sluggishness in Spain can largely be pinned down to landlords being afraid of renting out properties given how biased historically laws are in favour of (non-paying) tenants. This is the crux of the problem – fix it and you are half way there to pave the way to a robust rental market.

It is Spain’s ruling political class who wield the power to alter matters if they willed it – but I guess they don’t have the backbone for change; too unpopular and ‘politically incorrect’ or maybe they are simply complacent with the current status quo. Real statesmen do, at all times, what’s best for their country no matter the unpopularity or electoral cost. Because they have a long-term vision of matters with their hearts set in the country’s future prosperity as opposed to career politicians who take decisions on the hoof based on short-term opinion polls. Piecemeal attempts from career politicians will only further the pain and foreseeably set back recovery by several years.

But hey, politicians and lawmakers, in general, are also entitled to make a (very) nice living by drafting and publishing half-baked laws, such as this one, to justify their outrageous public stipends and perks whilst the rest of the country languishes bearing the brunt of an unending ‘recession’.

Off with their heads!” ? Lewis Carroll. Alice in Wonderland.

English writer, mathematician, logician, Anglican deacon and photographer.

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

Larraín Nesbitt Lawyers is a law firm specialized in conveyancing, inheritance, taxation, 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.

 

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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 politician was harmed on writing this article. VOV.

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Letting in Spain: The Safe Way

Raymundo Larraín Nesbitt, October, 10. 2012

Quo Vadis Hispania? At a time of widespread financial uncertainty and even political instability, you may want to read a few tips that will help you stay ahead in the letting game as a landlord in Spain.

By Raymundo Larraín Nesbitt
Lawyer – Abogado
10th of October 2012

 

 

Original article from 31st January 2.008

 

Introduction

Landlords in Spain are all too familiar on having been stung by troublesome tenants that made them wish they had never let their properties in the first place.

The aim of this article is to provide some tips on the pre-emptive measures and safeguards that ought to be put in place in advance of renting to achieve a hassle-free let.

1. Tenant Screening.

One of the major problems landlords face post credit crunch is the increasing number of non-paying tenants. Many ex-pat landlords rely on a let partially or wholly to offset mortgage repayments. No one wants to be tangled in a long protracted eviction procedure which may lead a landlord into arrears or even end with his property being repossessed. Spanish lenders pursue borrowers for negative equity even in their home countries as explained in my article Spanish Creditors Pursuing Debts Abroad (Recognition and Execution of EU Member State Rulings).

One of the best ways to avoid non-paying tenants is to take pre-emptive measures such as carefully screening candidates, weeding out those with unsuitable profiles. Haphazard screening can only lead you into trouble.

There is now a helpful website available that lists non-paying tenants in Spain: ‘Fichero de Inquilinos Morosos’ (FIM). For a reasonable small fee you will be able to search – in English – if your prospective tenant has actually defaulted previously on a Tenancy Agreement. There are professional defaulting tenants that roam the country in search of their next victim, preying preferably on trustful non-residents. In hard times such as these, many struggling landlords cannot endure the hardship of a financial leach that eagerly exploits Spain’s Tenancy laws’ shortcomings.

This website’s database is continuously updated with the input provided by both eviction rulings as well as by other users’ feedback. You can additionally include your own non-paying tenants in their list providing you comply and follow the online form’s instructions. Professional non-payers – who’ve made a lifestyle out of it – will already be included in this black list.

I would advise using this website only for those candidates who’ve been shortlisted in your screening process. You might as well spend a few dozen Euros now rather than having to fork out thousands at a later date in an eviction. Better safe than sorry.

2. Arbitrage Clause

Adding this clause to a tenancy agreement allows eviction associated disbursements to be curbed down significantly as well as saving considerable time.

This system was created back in 2004 and allows to significantly reduce both the associated expenses as well as the necessary eviction time compared to a normal court procedure (which spans normally ten months). However, this system only works if both parties, tenant and landlord, abide the mandatory Arbitral Award something which does not always happen as non-paying tenants may only be buying time with no real intention of paying the arrears. On which case the matter is passed on to a judge. On average it is estimated that 30 to 40 per cent of arbitrage cases are settled out-of-court. So it is not all that is cracked up to be to be honest.

The main advantage would be the swiftness in which the arbitral award is obtained. The Arbitral Court guarantees that a case will be examined within 30 days, often even less. This is particularly important in cases in which the landlord offsets the rent against his mortgage repayments and risks slipping into arrears which may lead to a bank repossession.

The second advantage would be the considerable amount of money it saves the landlord. It only costs €40 plus a further €300 in case of a protracted conflict (£240). A normal court procedure would have an average cost of at least €2,000 (£1,600).

It is only necessary to request it in a real estate agencies of your region homologated by the Arbitral Court or simply including it as a clause in a Tenancy Agreement waiving an ordinary court procedure – at least initially.

3. Rental Insurance

Increasingly you will find more and more insurance companies offering relatively inexpensive tenancy insurance charging typically a one-time annual fee equivalent to 60% to 100% of a monthly rental. This insures the landlord against the tenant defaulting, and covers lawyers’ fees during the eviction process (up to around €2,000). They also insure different scenarios i.e. a disgruntled tenant destroying the home furniture during an eviction procedure up to a pre-agreed capped amount. Normally this amount is in the region of €3,000.

These insurance companies evaluate the credit risk of a prospective tenant unlike banks with rental bank guarantees. So basically they already do a tenant screening on your behalf as its their own money that’s at stake. However the catch is that these companies picky and may be only interested in insuring tenants which are regarded as ‘very safe’ from a financial point of view. They would be looking for a would-be tenant matching the following profile: long term job contracts (“indefinido” in Spanish) and are earning above €1,200 gross pm. Nowadays it is no small feat post Labour reform (implemented early on this year) to find such tenants. The significant change in Labour laws has translated into widespread reductions of 30 pc in Spanish wages. Not long ago a ‘mileurista’ (someone who barely earns one thousand euros a month and has attained a university degree) was socially derided; now it is the aspiration of the better part of today’s soaring unemployed youth.

4. Rental Bank Guarantee

My advice for landlords is to request from a prospective tenant what is known as a ‘rental bank guarantee’ (“aval bancario”). Commercial leaseholds are the natural niche that requires bank guarantees as these types of lets are fairly steep. But the benefits can also be extended to home rentals.

This would ensure the landlord against a tenant defaulting. The landlord may execute said guarantee and the bank would be obliged to pay them immediately. The bank in turn would claim this amount from the tenant. This bank guarantee should ideally be made to secure the following 5 years even if the tenancy agreement is only for short term.

However there is a catch, claiming on this rental bank guarantee is no substitution for an eviction procedure, rather a compliment to it. For example, a tenant may default on the second month, the landlord after having sent letters claiming the owed rental to no avail, executes the bank guarantee (which secures for example six months’ rental). But the non-paying tenant will still be living inside the property.

Ideally rental bank guarantees should be exercised after an eviction ruling, not before. It is common place that tenants on Spanish coastal areas have, naturally, no assets of their own so after an eviction process the landlord is still owed the lost rental income. The bank guarantee could then be claimed on to offset this rental loss. The tenancy contract would also have to be terminated of course for breach of contract according to art. 1124 of the Spanish Civil Code. I advise you to hire a lawyer on doing this.

In the current bleak financial context in which non-paying tenants – particularly awash in coastal areas – are defaulting, this bank guarantee would act as a heaven-sent safety net for landlords ensuring payment once the eviction process is over helping to remove most of the associated stress – because the money is already there, locked up in a bank account.

A rental bank guarantee are ideally suitable for long term tenancy’s (eleven months renewable) not for short periods such as summer lets (one month or a couple of weeks). Luxury summer lets, particularly mansions and villas, would be the exception, warranting making good use of rental guarantees because of the amounts involved.

The drawback is that a bank guarantee is expensive and requires a tenant to deposit lump sum an amount of money at their own bank, typically 12 months rental, which is left in custody. On top of this, banks normally charge 1% of the amount, notary fees, opening interest and a quarterly interest. Not all tenants find themselves in a comfortable financial position to provide this bank guarantee upfront either because they lack the funds or, even if they do, are unwilling to have it tied-up until the guarantee elapses which could be anything as long as five years.

A bank guarantee does not ensure in any manner a tenant is financially sound – you have been warned. Unlike insurance companies offering rental insurance (see point three above), banks at no time carry out a due diligence on the tenant’s assets and financial ability. It merely guarantees that a tenant deposited an amount of funds equivalent to say twelve months rental which the landlord can claim upon default. The tenant cannot dispose of said funds until the bank guarantee elapses. Notwithstanding banks may include clauses that hinder the execution of the guarantee which is why I recommend you to hire a lawyer to help arrange these guarantees and avoid abusive clauses.

This guarantee is handed over by a tenant at the time of signing a rental agreement, never after. The landlord will hold it and deliver it back once the tenancy is terminated satisfactorily with no pending amounts owed.

In Conclusion 

Careful screening and weeding of prospective tenants as well as implementing rental insurance, a rental bank guarantee and finally but not least an arbitrage clause will vastly increase your chances of successfully letting property in Spain.

Landlords that risk overlooking the above listed time-proved tips will do so at their own chagrin.

 

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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. VOV.


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