At present in Spain, there are more than 3 millions properties that are empty without tenants. Real estate market specialists identify various reasons for this state of affairs, including:
Imbalance between the rights of the Tenant and those of the Landlord which make the latter wary of taking the risk of putting the property on the rental market.
- Lack of market knowledge. Many landlords set unrealistic rental levels in the hope of recouping investments made during the real estate boom years.
- Lack of competition in the rental marketplace.
- Lack of professionalism in the rental market, resulting in landlords not taking advantage of the most effective marketing channels.
Last May the government issued a draft law to restructure the whole real estate market, with the intension that it will be passed before the end of the year. Here are the main points of the project, always taking into account that there might be further changes before it gets onto the statute books
- Tax breaks for rental incomes of non-residents. Exemptions of 60% on rentals for income declarations of non-resident landlords. This will increase to 100% if the non-resident landlord is resident in the EU and the tenant is both less than 30 years and has a total income higher than the IPREM level (IPREM stands for “Indicador Público de Renta de Efectos Múltiples” and it is a reference salary used for the calculation of grants and unemployment subsidies).
- Power to recover the property. The landlord will be able to recover the property by giving a two-month notice to the tenant with the condition that the landlord or one of his close relatives will move in and use it as main residence.
- Easing of the eviction process. It will be possible to quickly terminate the rental agreement on grounds of non rental payment. This will be done by using a court injunction and thus avoiding an order from court. Presently it takes several months to evict the tenants because of the need of a order from the court. Additionally a new judicial process will be set giving the tenant 10 days to pay outstanding rentals.
- Agreement between the parties on rental increase. Presently the rent is updated annually using the IPC (Indice de Precios al Consumidor in English “Consumer price index”). It will be possible for the landlord and tenant to agree on the way the rent will be updated every year.
- Agreement between the parties on preferential purchase right. Presently the tenant has the preferential purchase right for rental contract of less than 5 years. It will be possible to agree to ignore this right .
- Increased purchase predictability. Presently buyers of a property with existing tenants are forced to keep that tenant for at least 5 years whatever the duration of the contract. This will no longer be a legal obligation if the contract is not inscribed in the land registry. However, if the contract is inscribed the buyer will have to keep the tenant according to the contract duration.
- Reduction of compulsory rental contract extensions. Compulsory contract extensions will be reduced from 5 years to 3 years, while the tacit renewal is shortened from 3 years to one year.
- Freedom for tenants to terminate the rental contract. The tenant will be able to terminate the contract without any penalty just by giving a one-month notice.
- Tenant protection in case of property purchase. If the contract is inscribed in the land registry, the buyer of the property will be forced to abide to what is stated in the rental contract.
The effects that these measures will have on the Spanish rental market which are designed to stimulate it are unclear and just by changing the law may not solve all the problems. Hopefully, it will nevertheless encourage landlords to transfer properties from the depressed sales market to the rental sector.