The Spanish property industry is taking note of new legislation recently approved by the country’s Council of Ministers relating to reforms for the rental sector of the market. The royally decreed law is still to be published in the Spanish Official State Gazette (Boletín Oficial del Estado, or BOE) and will include almost every point from preceding rulings plus measures relating to annual income and the creation of a new housing price index.
Each autonomous region in Spain will now define their own standards for rental fees related to individual housing policies and the tax incentives in each part of the country. A State Reference Index is to be established before the end of the year that will include information from relevant parties including tax authorities, registrars and online property portals. This official guidance will contain details relating to monthly rental payments paid in specific districts within each city and town and will be updated each year.
Among the most important parts of the new legislature are amendments to the Law on Urban Leases (Ley de Arrendamientos Urbanos or LAU) pertaining to the creation of a rental contract. These include the following:
- The extension period for a long term rental contract, which was previously three years, has now been increased to five years.
- A rental deposit will be the equivalent of one month’s rent and any additional security payments agreed must be limited to the total amount of two months for short term rentals.
- In the event that either landlord or tenant do not wish to renew a lease, both parties must adhere to strict terms of notice: landlords four months, tenants two months.
- It is important for a landlord to include within contract details relating to their right to give a tenant notice in the event that they, or an immediate family member, requires residence of the property in situations such as illness, death or divorce.
- New owners of a property with an existing tenant must respect the full length of the existing lease.
Details relating to tax benefits:
Local authorities will now have the responsibility of establishing tax deductions on the annual IBI property tax (Impuesto sobre Bienes Inmuebles) paid on rented homes. There will also be possible exemptions from payments of ITP Transfer taxes (Impuesto de Transmisiones Patrimoniales) and Stamp Duty.
Professional & local advice
It is essential for any investor purchasing real estate in Spain to take sound advice from a local legal professional in relation to contracts and tax benefits relevant to the autonomous region in which the new property resides.