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Renting a property for a short period of time when you first come to Spain is one of the best options as it gives you the chance to get familiarise yourselves with the country, its people, the climate and customs before you decide whether you would like to have a longer rental contract or whether you wish to take the plunge and buy a property.

Contract time

Short term contracts

Short term 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 habitual residence of the tenant and that it is a holiday rental, for moving etc…
In these contracts the tenant does not have the right to extend the contract.

Long term contracts

These contracts are regulated by the Urban Rental Law 29/1994 (Ley de arrendamientos urbanos 29/1994). The contract will be renewed automatically upon its expiration for periods of 1 up to a 5 year term, unless the tenant is not willing to renew it. The landlord is obliged to accept these renewals.

The rent agreed on in the contract is normally paid monthly, typically within the first five days of each month. The form of payment must be specified in the contract. 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 change the rent as stipulated in the contract or if it is not specified, can renegotiate the rent with the tenant.

The deposit or fianza is normally one month’s rent or perhaps two months if the property is furnished.  This is returned to the tenant at the end of the contract, providing that the property is in the same good condition as when it was first rented.   The deposit cannot be used as the final monthly payment.

If the landlord has to do any work on the property then he has to inform the tenant. The tenant could request a reduction in the rent if the property becomes uninhabitable partially.  The landlord has to maintain the property is in a good state of repair and it must be habitable, he can be asked to make repairs although the tenant should pay for the repairs due to normal wear and tear or any breakages.

The rental amount can increase if improvement work is done on the property, but only when the work is carried out after the five year contract period.  The amount for the work will be the result of applying the type of legal interest on the money, increased by three points on the investment made, but never exceeding 20% of the amount of rent being paid.   The tenant cannot modify the property or interfere with the stability or safety of the property without prior written consent of the owner.  Any other legal requirements agreed on by the Landlord and the tenant can be included in the contract.

The spouse or the people who live with the title holding tenant will have the right to maintain the rental contract for at least two years should the main tenant die.

If the landlord puts the property on the market, then the tenant will have first refusal for the purchase of the property for the same price that the landlord is selling to a third party.

What amount of compensation should the tenant give if he leaves the property before the end of the contract?  Normally it is the equivalent to one month’s rent, but this should be established in the contract, if not and an agreement cannot be reached it is the courts who will decide.  The Landlord can insist that the tenant pays the rates (IBI), the cost of necessary repairs (with the limitations previously mentioned) and the costs for services and supplies.  Subletting is permitted with the written consent from the Landlord or if stated in the contract.

The landlord might require the tenants to sign an inventory of the property contents; this may be attached to the contract. The penalty for missing or damaged items will be taken out of the deposit.

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 Tenant 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 resident 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 subject to the current VAT (21%) and the landlord will make a deduction of 18%.  The VAT received has to be paid quarterly by the landlord or his fiscal representative  (in the first 20 days of the months January, April and July); this is for all landlords irrespective of whether they are residents or not, and whether they run a business or not.  The 18% retention has to be paid by the tenants in the same quarterly periods, and these amounts can be used when doing your tax returns in the following year.

When the property is not being rented for commercial purposes, the rent is not subject to VAT and there is no retention necessary.  The income should be declared by the landlord in his tax returns the following year.  (For example: the rental received between 01.01.09 and 31.12.09 should be declared and paid in the tax returns of 2009 which are presented between 01.05.10 and 30.06.10).  The costs for maintaining the property are deductable for the landlord along with Lawyers fees and the interest paid to the bank for paying the mortgage on the property rented out.

The taxes to be paid if the landlord is a non-resident is 24% of the rental amount obtained, there are no possibilities for any reductions at all.  The payment to the tax office is done quarterly using the form 215.

Of course these are general guidelines, but on the whole if you get the advice from a lawyer and the contract is written up by your lawyer then you should have no problems.