Renting Out

Many property owners look upon their purchase of property in Spain not simply as an enjoyable second home in the sun but also as an attractive investment. Letting the property is certainly very appealing and the demand for rental accommodation is generally very high. 60% of the 52 million tourist visitors to Spain (the world's favourite destination) preferred to rent a 'holiday home' rather than stay in a hotel - that's over 30 million people a year and one of the factors that makes the possibility of renting out a Spanish property so viable.

For a Times article about buying to let as an investment click here

Owners of property in the more exclusive areas of the Costa del Sol are able to charge the highest rents in Spain (including the Balearic and Canary Islands). It is therefore very important to establish the circumstances under which letting your property will be a worry-free and profitable operation and not a headache and a source of disappointment.

Long-term Lettings
The current Spanish Law of Urban Lettings went into effect on January 1, 1995. The most significant aspect may be the one relating to the duration of such lettings which oblige the landlord to renew residential letting contracts for up to five years, even if the contract was only made for one year.

If someone is renting a property on a one year contract "Vivienda" and the landlord tell them that they must vacate the property at the end of your lease, they can petition to the court for an extension of the contract for up to five years. If the landlord decides he wants to sell the property at any point during the contract, you, the tenant has the right to first refusal. If the landlord does not make this offer and the property is sold, they have the right to have the sale cancelled and buy the property themselves for the price declared in the sales documents. (This is usually much lower than the actual value of the property!) If they do not wish to buy the property and a new buyer is found, the tenant's contract must be honoured by the new owner. It is important to note that these laws only apply to long term rental contracts. There is no legal time definition for a long term rental; however 9 months+ seems to be the norm.

The rent, in these cases, can only be revised yearly to keep up with inflation and in accordance with the official Consumer Price Index. After five years, the landlord may choose to raise the rent as much as he chooses or notify the tenant to vacate the premises. It is important to stress that if you have originally given your tenant a five-year contract, you must send him an official notification of termination before the end of the contract; otherwise he is entitled to a further extension for two years at the same rent.

There are, however, instances when the landlord may terminate the contract even if the five year term is not over yet. If the property is materially damaged, or the tenant engages in illegal or immoral activities, or he sublets without consent the landlord can initiate the appropriate action to evict the tenant.

Similarly, non-payment of the rent allows the landlord to claim back the property. In all the above cases, the landlord has to go to court, provide appropriate evidence and in cases of non-payment of rent, the tenant is legally given the opportunity to deposit the arrears with the court at the last minute. Clearly the procedure is not hassle-free and may take a considerable time to resolve.

11 Months
Longer term rentals (as opposed to shorter 'holiday' rentals) are normally contracted for 11 months, which is normally taken to avoid obligations due under the one-year Vivienda contract.

Short-term Lettings
A safer and simpler way of benefiting from the investment potential of the property is to enter into a Contrato de Arriendo de Temporada (short holiday let). These short-term rentals also fetch good rents in high season and free the property for the owner at other times of the year. Short-term holiday rentals do not grant the tenant any automatic extension and the tenant must empty the premises on the date agreed. Short-term rental 'temporada' contracts cannot be extended. These types of contracts do not guarantee that the tenant may remain in the apartment after the agreed period. The law however, is on the landlord’s side and he can easily obtain an eviction order.

Foreign property owners can be assured of this legal protection when they let their holiday homes for periods of several months. However, they should still take some care with vetting tenants because the legal procedures for eviction of a tenant who refuses to leave can take more than six months, even when the law is on the landlord's side. There have been a number of recent cases in which unscrupulous tenants have signed up for holiday rentals, say for two months, and have then simply remained in the apartment without paying any further rent. Four to six months later, the landlord is able to obtain an eviction order, but the tenants have lived rent-free for that period. Even though a court enters a judgement against them for the amount of rent owed, they simply move to another town and do the same thing all over again.

Deposits
The law allows a landlord to take a security deposit to offset against any potential damages. The normal rate is is one month's rent for a residential property. The deposit is called a "fianza" and is normally placed with an independent third party, such as a property agent. If the landlord wants to hold the deposit himself request that the monies are deposited into an account that cannot be accessed without approval of an approved third party.

A Government Lettings Agency?
In an attempt to make more rented accommodation available, the Spanish government has proposed to set up an agency to encourage property owners to rent out empty flats and to persuade young people to see renting a property as an economically viable alternative to buying a house.

Details of this new government agency were released in March 2005. It will be called the State Renting Company (La Sociedad Publica de Alquiler) and will rent out privately-owned property on behalf of the property owners. The government aims to create a pool of 25,500 properties to rent in Spain over the next four years

The idea is for owners of empty homes (usually people who have bought property as a medium or long-term investment) to use the company as a kind of renting agency, handing over the right to rent to the agency, and to receive a monthly rent from the agency for a given period, say five years. This means that owners will not have to look for and interview tenants or chase after any unpaid rent. And they may even be able to claim the five years rent in one lump sum, which is bound to attract lots of people who would otherwise be reluctant to rent out their second or third properties.