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Short vs. long term leases in Spain: what you need to know before signing the contract

Lease agreements in Spain are typically one of two main types: for permanent use of the property or a temporary, shorter-term use such as a holiday home.

When signing a lease contract in Spain make sure to do your research not just on the basics, such as the state of the property, the average price in the area and so on, but also on the small print of Spanish contract law so you know exactly what you are signing and what your rights are if any problems arise during the duration of the contract.

Duration of the lease

Although the law initially states that the duration of a lease can be freely agreed upon, long-term lease contracts of a primary home in Spain are typically for five years, and seven if the tenant is a company. According to article 9 of Spain’s Tenancy Act should the duration be less than five (or seven) years, then the parties may renew the contract on an annual basis until reaching the five/seven year mark unless the lessee (tenant) does not wish to continue with the lease, in which case they must notify the lessor (landlord) a minimum of thirty days in advance prior to the expiration date of the contract.

If after the first year of the lease the landlord or a direct family member wishes to occupy the property in question they may do so, by notifying the tenant of their intentions a minimum of two months in advance. If after three months of the tenant having vacated the property they see that the tenant or their family member has failed to occupy the dwelling, they may ask to continue as lessee of the property until the initial five years are up, or alternatively they may be paid damages by the landlord of an amount equal to a months’ rent for every year remaining until the five years were up.

Once the minimum duration of five or seven years is reached, if either party wishes to continue with the lease they must notify the other of their intention to renew at least four months in advance in the case of the landlord wishing to do so and two months in the case of the tenant. The contract may then be extended annually for a maximum of three years more, unless the tenant notifies the landlord of their intention to discontinue the lease at least one month in advance before the expiration date.

On the other hand, short term leases will be signed after having agreed upon an end date, with no option for automatic renewal. Should the parties wish to continue the short term lease, a separate contract must be signed, otherwise the tenant must vacate the property on the day of expiration of the contract.

Withdrawal of the contract

Although not expressly stated, it is assumed that article 11 of Spain’s Tenancy Act applies to both short (temporary) and long term contracts.

The article states that the tenant may withdrawal at any point after the first six months of the lease without being penalized, providing they notify the landlord a minimum of thirty days in advance. It is common practice for a landlord to include in the initial lease contract a clause stating that in the event of withdrawal the lessee must indemnify the lessor with an amount equivalent to one months’ rent for each year of the contract remaining: know that this is not required but the landlord is within their legal right to do so.

Rental price

As per article 17 of Spain’s Tenancy Act, the parties may agree freely upon the lease price. Typically the rent will be paid in monthly installments in Spain the first seven days of every month and via the means initially agreed upon (bank transfer, cash…). The landlord must provide the tenant with a receipt as proof of each monthly payment, unless the parties have agreed otherwise. For example, the details of a bank transfer can also serve as proof of payment.

The landlord may increase the rent on an annual basis upon renewal of the lease however they must be within the national guidelines of that year and no more than 20% of the initial lease price. (articles 18 and 19  of Spain’s Tenancy Act)

Security deposit

According to article 36 of Spain’s Tenancy Act, long term rentals of primary/habitual residences require a security deposit of only one month, whilst for a lease involving the use of the property for any other reason the landlord can ask for two months. Note that the latter does not apply for holiday rentals as they are generally short term and to ask for two months’ rent would be illogical. This quantity is therefore usually random and chosen by the lessor.

Energy Efficiency  Certificate

Whilst this certificate is required by law for both long and short term rental properties, any leases under four months will not require such documentation and the lessor cannot be legally obligated to comply if a potential lessee asks to see an Energy Efficiency Certificate.

Formalization of the contract

Article 37 of Spain’s Tenancy Act states that both parties can require the other to formalize the agreement in writing. Short term rentals can be verbal agreements, although we strongly recommend against entering into such a lease without laying down the terms and conditions to avoid future conflicts between parties.

VAT                     (Article 20.23-B of the Spanish VAT Law)

On a last note, long-term leases must be paid with IVA or VAT whilst short-term leases are extent from this tax, unless the lessee is an entity in which case they must pay VAT.

If you are considering leasing a home in Spain and need a lawyer, the Premier Law team would be happy to help.  Please contact us at info@premierlaw.net or +34 952 764 483.

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