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By Maria Teresa Velasco Velasco Lawyers

Property rentals in Spain are regulated by two laws, the Urban Rental Law 29/1994 (Ley de arrendamientos urbanos) and the Civil Code. Contracts for residential property are highly regulated in compare to business premises, but in any case there is a large level of freedom in the agreement between the parties.

Contract duration

Short term contracts

Short-term/holiday let contracts (contrato de arrendamiento de temporada) may run up to 12 months and they require the tenant to vacate the property at the end of the contract.  It is very important that the rental states clearly that the property is not going to be the permanent residence of the tenant and that it is used as a holiday rental, or for temporary purpose. In these contracts the tenant does not have the right to extend the contract. They are not regulated by Urban Rental Law 29/1994. In this type of contract normally all the expenses are paid by the landlord unless is agreed in the contract.

Long term contracts

These contracts are regulated by the Urban Rental Law 29/1994 .The contract will be renewed automatically upon its expiration for periods of 1 up to a 5 years term, unless the tenant is not willing to renew it. The landlord is obliged to accept these renewals. The rent is normally paid monthly, typically within the first seven days of each month, (unless specified differently). Form of payment can be agreed, otherwise will be in cash at the property. During the first five years, the rent will be adjusted according to the official consumer price index (Índice de precios al Consumo – IPC), after that period the landlord can renegotiate the rent with the tenant. The deposit or “fianza” is normally one month’s rent. The amount is returned to the tenant at the end of the contract, providing that the property is in good condition, and the rest of the terms of the lease where met by the tenant.   The deposit cannot be used by the tenant as the final monthly payment. Unless specified in the contract, the tenant will have to pay utilities and community of owners’ fees, while the landlord will take care of property taxes (IBI). Personal property insurance is paid by the tenant and dwelling insurance by the landlord.

Landlord duties: Give property access to the tenant during the period stipulated in the contract, perform all necessary maintenance for the conservation and the habitability of the property excepts when the tenant provoked the deterioration, not interfere with the normal agreed usage of the property. If the landlord puts the property on the market, must notify it to the tenant who will have priority for the purchase of the property for the same price that the landlord is selling to a third party.

Tenant duties: Pay the rent within the agreed deadlines, its updates and all the expenses as agreed in the contract, use the property diligently for its intended purpose and return it to the landlord at the end of the contract in the same conditions as received, not execute modification or improvement works without the express written consent of the landlord, endure the necessary property maintenance works that are not deferrable to the end of the contract, communicate promptly to the landlord any problems or damages that affect the property, repair the damages coming from the ordinary day to day wear and tear, pay the deposit. The spouse or the people who live with the lessee will have the right to maintain the rental contract for at least two years after the leaseholder die.

This is not a full list as the contract might include additional duties, as long as they are not against the law or the public order.

Maintenance works

The lessee will be responsible for small repairs resulting from normal wear and tear. Article 1,555.2 of the Civil Code establishes that the tenant will have to maintain the property responsibly and for its intended purpose. This includes any garden or pool. Nevertheless the specific maintenance responsibility can be agreed in the contract. The lessor will have to take care of all other maintenance works necessary for the normal conservation and use of the premises/house unless the lessee is responsible, as specified by articles 1,563 and 1,564 of the Civil Code. It is not mandatory for the landlord to repair the house/premises if the damage is caused by force majeure (examples: fire, earthquake, flooding…). In this case the rental contract can be terminated. If the maintenance works are necessary before the end of the contract, the tenant will have to tolerate them. When the works last for over 20 days the leaseholder will have the right to a reduction in the rent, proportional to the area that cannot be used.

When the works are ordered by a public authority and prevent the normal use of the estate, the tenant can choose to suspend or terminate the rental agreement without the right to compensation. Suspending the contract means that both the rental period and the rental payments are suspended until the work is completed.

Urgent maintenance works

If the work is urgent the lessee is obliged to inform the landlord promptly. The tenant can at any time, after notifying the landlord, make urgent repairs to prevent harm or serious inconveniences, and immediately get a refund. If requested he will have to give access to technical experts and the landlord.

Improvement works initiated by the landlord

As in the case of maintenance work, if the improvement works cannot be delayed until the end of the rental agreement, the tenant must tolerate them, and if the works last for more than 20 days, again the tenant is entitled to a proportional reduction in the rent. In these cases, the owner must give at least 3 months notice, with the starting date, works and the duration. When the tenant receives the notice, he can cancel the contract within 1 month, unless the works impact on the usage of the premises is minimal. If the tenant chooses to withdraw from the contract, he has 2 months to vacate the premises before the works begin.

Improvement works initiated by the tenant

The tenant cannot make improvements that alter the configuration of the premises without the landlord’s express signed consent. Moreover the tenant cannot perform works that decrease the safety or the stability of the building. If the lessee executes works without authorization, without prejudice to the right to terminate the contract, the lessor can require the tenant to return the property to its original state upon vacating the premises.

Termination of the contract

The contract may be terminated by the Landlord if the tenant: Does not pay the rent or deposit, rents the property to a third party without the landlord’s consent, deliberately causes damage to the property, undertake repairs without the landlord’s consent, causes serious nuisance to the neighbours. At the same time the lessee can terminate the contract if the Landlord: Does not keep the property in habitable conditions (through repairs), disturbs the tenant’s dwelling use.

Taxes to be paid for the income received by landlords for long or short term rentals.

If the tenant is a company or a professional and decides to use the apartment or premises for business use, then the monthly amounts will be increase by 21% (current VAT). The VAT received has to be paid quarterly (in the first 20 days of the months January, April July and October); this is for all landlords irrespective of whether they are residents or not, and whether they run a business or not.  The tenant has to make a retention of 21% on the rent without VAT and pay in into the tax office account in the same quarterly periods.

When the property is not being lease for commercial purposes, the rent is not subject to VAT and there is no retention necessary the costs for maintaining the property are deductible for the landlord along with Lawyers fees and the interest paid to the bank for paying the mortgage on the property rented out.

Of course these are general guidelines, so get the advice from a lawyer to avoid any problems.