Luxury rentals in Spain explained

Raymundo Larraín Nesbitt, March, 4. 2024

Lawyer Raymundo Larrain explains luxury rentals and their unique legal advantages.

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By Raymundo Larraín Nesbitt
Director of Larraín Nesbitt Abogados
8^th of March 2024

You are probably aware of Spain’s Tenancy Act (LAU, in Spanish). This law is somewhat infamous because it (over)protects tenants (read biased) at the expense of landlords’ rights. The logic behind this is that lawmakers view tenants as the weak party in need of protection. Thus the LAU is heavily biased towards tenants to the point it crosses a thin red line and may even act as a deterrent cutting down the supply of suitable rented accommodation (specifically long-term), which in turn drives rental prices further up harming tenants. The law of demand and supply at work.

You will have likely heard that *all* long-term rental contracts in Spain are subject to the LAU, right? Well, not true. Meaning landlords can take advantage of legal loopholes to neatly circumvent lenient LAU tenant entitlements. Nuances are at play.

A number of rental contracts fall outside the remit of Spain’s Tenancy Act, such as seasonal contracts, holiday rentals, accommodation for military personnel, luxury rentals, and more. Today’s short article is going to focus on the latter, on luxury rentals. Known in Spanish as alquileres suntuarios.

In plain English, luxury rentals fall outside of the scope of Spain’s infamous LAU, which opens up a slew of advantages for landlords. In effect, luxury rentals give landlords the upper hand, as they are able to legally override all the pesky tenant entitlements laid out in the LAU.

What conditions need to be met for a rental contract to qualify as a luxury rental?

In short, either of the two:

The property rented is 300 m², or larger.
The monthly rental exceeds 5.5 times the average minimum wage. For 2024, that’s a €7,300/month rental.

If one, or both, of the above conditions are met, the rental contract is excluded from the protection of the LAU.

What legal significance does this have?

In short, a lot.

Basically, it means that all the thoughtful entitlements the LAU meticulously lays out for the protection of tenants do not apply. Meaning landlords are greatly favoured because all the lenient entitlements and rights the LAU rules on are waived legally, leaving the contract to be ruled only by the will of the parties. The legal significance of this is huge, as it basically conveys a huge leverage to landlords, if they play their cards right.

This is done because our lawmakers surmise that a luxurious rental contract is signed by a tenant who is either a shrewd businessman or an affluent person; either way someone who does not warrant the protection of our (biased) tenant laws, such as the LAU.

Advantages of luxury rentals: practical examples

Unlimited security deposits. Standard long-term contracts, subject to the LAU, are capped at a one-month security deposit (fianza, in Spanish). In luxury contracts, landlords are free to demand, for example, the equivalent of a full year’s rental in advance, or more, as a security deposit.
Freedom to terminate contracts. In standard long-term contracts, subject to the LAU, you can pull out only after 6 months have passed. In a luxury contract, you may pull out at any time, even on the following day.
Heavy penalties apply to early terminations. Following on the above point, in a standard long-term contract it could be agreed that if a tenant pulls out after 6 months a capped penalty applies which equates to the months left to complete a full year, on a pro rata. That, by law, would be the maximum. However, on luxury contracts there is total freedom; a tenant could be liable for all the rentals left to complete a full year. I.e. over €100,000 if you pull out a week after signing for whatever reason!
Standard eviction rules do not apply – evictions are (greatly) expedited. As opposed to standard rental agreements, where a tenant is regarded as the weak party and in need of legal protection, in luxury rentals both parties are viewed and treated as equals. This translates in practice to landlords being able to instigate fast-tracked eviction procedures that only last a couple of months, as opposed to standard ones, which under new laws, can take up to several years. In short, evicting tenants in luxury rentals follows an expedited procedure that lasts months, not years.

Conclusion

If you plan to sign up for a luxury pad in Spain, whether a villa or a penthouse, you are strongly advised to take legal advice before signing on the dotted line. Spending a few hundred euros in a lawyer’s advice can save you from losing, or being sued, over €100,000, or more!

From a landlord’s perspective, luxury rentals are a win-win. The freedom this type of contract confers landlords on wording clauses cannot be overstated enough. Landlords are normally constrained to work within the narrow legal framework and limitations of the LAU in standard lease agreements. By contrast, luxury rentals allow total freedom to landlords, placing them in a position of great power.

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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. Ní neart go cur le chéile. VOV.