Landlords’ guide to long-term rentals

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• Landlords’ guide to long-term rentals

Long-term rentals offer property owners and investors a guaranteed way to make real estate pay every month, enabling you to cover costs and even generate earnings for the duration of the contract. But the legal obligations of letting property for long periods in Spain do favor tenants and limit owners’ rights. The following guide answers many of the questions landlords ask and may help you decide if you want to rent long-term.

1. Which laws apply to long-term rentals?
   Spain’s long-term rental marketplace is regulated by the Ley de Arrendamiento Urbano 29/1994 (usually referred to as LAU), but has been significantly modified since by successive governments. The latest revision, in March 2019 (Royal Decree 7/2019), introduced a number of changes to protect tenants, some to the detriment of landlords. All the information below reflects the most recent and relevant details for landlords.
2. How long can a long-term contract last?
   For as long as both parties agree. However, if the agreed duration is less than 5 years (7 years, if the landlord is a company), upon termination of the initial term, the contract will be automatically renewed for 12-month periods up to a maximum of 5/7 years in total, unless the tenant notifies the landlord that he or she does not want to extend it, subject to 30 days’ notice in writing, before the expiry date of the current term.
   Upon termination of the mandatory term (5/7 years), annual renewals up to a maximum of 3 additional years are also mandatory for the landlord, unless the landlord has not given 4 months’ written notice of non-renewal (2 months’ notice in case of the tenant), prior to the expiry of the original 5/7-year period.Tenants are free to terminate a contract after 6 months, subject to one month’s notice in writing, unless agreed otherwise. Both parties may decide that, in such a case, the tenant should compensate the landlord with the equivalent of one month’s rent for every year of the contract not fulfilled, including pro rata compensation for the first year.

   Finally, in the case that the landlord or direct family need the property for personal use, they may be able to terminate the contract after a minimum period of 12 months, as long as this is expressly agreed in the contract.

3. What are the mandatory and tacit renewal periods?
   Mandatory renewal means landlords are required by law to renew contracts annually up to a minimum of five years (or seven, if the landlord is a company), whereas tacit renewal means that if neither party terminates the contract (in writing, subject to four months’ notice for landlords and two for tenants) after the mandatory period expires, as long as the tenant pays rent, they can continue to occupy the property for up to three more years.
4. How much rent can I charge?
   Rental prices are freely negotiable in Spain. To work out what is reasonable to charge per month you can either compare with similar properties for rent on property websites or ask Terra Meridiana to help. We are experts in the local property markets on the Costa del Sol and can advise you on the optimum pricing to ensure you rent your property at the most favourable rate the market will accept.
5. Can I raise the rent during the term of the contract?
   Yes, but only if rent increases were agreed to by both parties in the contract. Otherwise, rent cannot be raised during the entire duration. In any case, annual increases cannot exceed the rate of inflation determined by the Consumer Price Index (IPC in Spanish), taking into account the most recent monthly rate officially published. For reference, the annual rate of IPC in Spain was 0.8% in 2019.
6. What about if I make improvements during the tenancy?
   If the landlord and tenant agree, improvement work carried out during the mandatory renewal period can result in a rent increase without requiring a new contract to be signed. In the case that work is done during the tacit renewal period, private landlords can increase the amount monthly rent up to 20%, depending on the improvements made.
7. How much can I demand as a deposit/guarantee?
   For private landlords, the minimum deposit is the equivalent of one month’s rent, plus up to two months’ equivalent in bank guarantees, for contracts with a duration of up to 5 years. For company landlords, the same conditions apply for contracts of up to 7 years, capping guarantees at a maximum of the equivalent of three months’ rent in total. However, if the period of the contract is longer than 5/7 years, landlords may request additional guarantees above and beyond two months’ equivalent.
8. What happens if I want to sell my property?
   Buyers are required to respect the terms of any existing rental agreements, as long as they were aware of them at the time of purchase, whether this has been registered with the Land Registry or not. However, when buyers were not aware of such an agreement, they are only required to respect it up to the mandatory minimum duration (5/7 years) and can then terminate the agreement, compensating the tenant with the equivalent of one month of rent for every year (up to 3) that the contract could have included.
9. Who pays estate agents’ fees?
   Landlords are required to pay any commissions and costs from estate agents for rental contracts. Fees may be negotiable in certain cases, but you find Terra Meridiana’s standard conditions here.
10. Is there anything else I need to know?
    While you can personally advertise a property for rent on the Internet, do viewings yourself and look after all the paperwork required to reach a tenancy agreement, estate agents like ourselves take the hassle out of renting a property and ensure all your obligations are fulfilled for a reasonable fee. Likewise, while there are rental contracts available online and landlords are free to sign private contracts with tenants, we recommend you consult a lawyer or gestor before signing any agreement. At Terra Meridiana, we can help with all these steps to rent your property securely and successfully