Renting (2003-03-05) (www.immo7.com)

Real Estate Rental on the Canary Islands (Laws/Obligations/Tips)

Earnings from property rental can be a huge part of an individuals monthly income. In any case it is important to know the spanish law and which details are dealt by the Canary Government separately.
The rental of properties can be roughly divided in: Long Term Home Rentals, Short Term Property Rentals like Holiday Homes and also Commercial Objects such as Offices and other empty spaces intended only for commercial use. Depending on th type of rental there are different laws which must be considered.
The Rental Laws are specially orientated to protect the rights of the Landlord. For example: the rental minimum contract period is 5 years which can be of course extended in yearly contracts. Shorter periods of rental (Short Term) are under special regulations contemplated in the Spanish “Código Civil” (Civic Conduct Regulation) and the “Ley de Arrendamientos Urbanos” (Urban Rental Laws). A powerful Landlord protection is also guaranteed for these cases. In these special cases the amount of the rental can be agreed between the Landlord and the Renter. Normally the same amount of a month rent is paid as a deposit. Unless otherwise stated in the contract, the Renter has priority to buy the property if it would be sold. If the Landlord decides to sell the property he must tell the Renter at least 30 days before signing any sales contract. Within this time the Renter can buy the property to the price made public unless any other agreements have been made.

When renting Holiday Properties we have to make a difference between commercial rentals for tourism also known as “Explotación Turística” (Touristic Exploitation) which are not under the normal Rental Laws and the rest of the Rentals intended for tourists. The Touristic Exploitation is defined as a Touristical Rental with a renting period between 3 and 45 days where specific rental rights and certain conditions must be met which are all included in the Spanish “Código Civil” (Civic Conduct Regulation) and some extraordinary laws.

The laws applicable to the rental of Holiday Homes are covered by the standards of the Spanish Real Estate Management Law 7/1995, which assures a minimal and standard quality of touristic rental which is not very well accepted by the Landlords. The law says that renting homes to tourists is only allowed with an official permission.
The difference between Holiday Rentals and the “Normal” Renting is made depending on the length of the rental period itself. By contracts under 6 months it is considered a Holiday Rental where as longer periods normally correspond to Long Term Contracts.

If the property is part of a block of flats the Landlords are forced to let themselves be represented by a Rental Marketing Company in case they want to rent the property. Landlords thinking about renting the property privately should be aware of all the backdraws of doing so. In the first place it is not allowed and apart from that the community will charge with very high interests any income proceeding from the rental. The Landlord must know also that renting new constructed properties to tourists is only allowed in case the complete lock of flats is being used for the same purpose and if the building is older than when at least 51% of the flats are being rented.

A permission for renting individual properties in touristical areas is relatively easy to get where on the other hand the permission for renting properties outside of the main touristical areas could prove to be difficult. The Association AEDL (Agencia de Empleo y Desarrollo Local) only gives permission to properties older than 50 years registered by them and these must meet some specific conditions as well. The AEDL is the only recognised authority for issueing these permissions and representing the Landlords for the rental directly. There are plenty of unhappy Landlords regarding this situation but for the moment we don’t recommend anybody thinking about buying a property if their only purpose is renting it to tourists.
The Association for the International Promotion of Tourism on the Canary Islands threats to send an accusation to the existing Law to check if there are any weaknesses between the spanish laws and the european regulations.

If the renting object is a business local or office, the renting period can be agreed unconditionnaly between the Landlord and the Renter. If no agreement is made can be decided upon the type of rental payment. This means that if the Renter pays yearly the rental period would be 1 year. Another case that might arise is the possibility of property sale. The Renter has priority in case he should be interested in buying the property. Apart from this in some cases the Renter also may be compensated by customer loss. Both of these possibilities can be excluded if stated in the contract.

For commercial properties the Renter is allowed to transfer the contract agreement to the next Renter with the same conditions, as far as the Landlord is informed with enough time in advance and that this is not excluded in the contract. The Landlord can profit from the transfer (traspaso) by rising the rental price up to 20% and clever Landlords have an option to secure a part of the transfer as compensation by sealing a private insurance.
Although Rental Homes have a very strong law protection for the Landlord, the Empty Space (offices) Rentals are far more complicated to manage and have several different laws to deal with. If the property’s contract is not registered in the Landregister, then the property buyer and from then on new Landlord is not forced to keep the existing contract.

What should a Landlord regarding Tax be aware of?
In the first place he should know if he is totally or partially covered by spanish tax law. If the owner or Landlord lives longer than 183 days in Spanish territory then he is totally under the regulation of Spanish tax laws and must as well declare tax from any income earned in foreign countries. Since it’s almost impossible to prove how much the person effectively lives in Spain there are other factors that come in consideration like if the person has a “Residencia” (residence permission) or if it is being negotiated then the person will be considered totally covered by Spanish Law. Another possibility is the ownership of other inheritances or properties. If most of the properties are in spanish territory, then the Landlord is also covered by the spanish tax laws.
If the Landlord is only partially covered by spanish tax laws then the regulations for double tax agreement between Spain and the foreign land are valid. Income from renting properties in Spain will be declared in the foreign country although any spanish tax paid will be included to the foreign tax declaration.

The tax for property owners is required for both spanish and foreign people. This tax includes the property register, the income and the wealth tax.

The Land regsiter tax is imposed by the community. The amount is very low with approximately 0,4%. The final tax applicable will depend on the property situation, the value of the land register and the individually set tax coefficient.
The determination of the income tax can be calculated by applying 25% tax on a ficticious income (2% of the land register value). In case the property is owned by a company then no income tax is applied.
Residents pay income tax corresponding to their individual income. The tax applied depends on the income and ranges between 15% and 40%.
Residents and non-residents must pay a small wealth tax for spanish propoerties owned. Included in the wealth tax are all types of properties, stocks shares and cash assets. The tax applied for a capital wealth under 167.000 Euro is only 0,2% for companies but this rate is much higher for owners.
When sealing a contract for renting homes there is no value added tax (VAT). On the other hand if the rental is an office then the VAT is 4,5% of the rent.

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