| Renting (2003-03-05)
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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.
| 
Renting Properties on the Canary Islands 
Lanzarote 
