Rights and obligations of landlords under Spanish rental law - part 2
In the previous article I discussed the rights landlords have under Spanish law. In this second part, I will discuss the obligations under Spanish law. Although these rights and obligations are not exhaustive, it gives you an idea of what to expect if you would like to let your property.
1. Public deposit
Landlords ask for a deposit (fianza). The deposit serves as a guarantee for the landlord, to cover possible damage and deterioration the tenant may cause in the property, not related to normal use of the property. It amounts to one month's rent for houses and two month's rent for offices. This deposit should be paid to the Agencia de Vivienda Social-Fianzas de Arrendamiento in Madrid within 30 working days as of the moment the rental contracts starts.
2. Returning the deposit
Once the rental contract has been terminated and the property seems to be in a good state and there are no outstanding bills for gas, water, electricity, you have to ask the Agencia de Vivienda Social-Fianzas de Arrendamiento to return the deposit and return it to the tenant. This should be done one month after the return of the keys, otherwise the tenant may claim interest.
3. Taxes and expenses
‘Gastos de comunidad’ and ‘Impuesto de Bienes Inmeubles’ (IBI, local municipal property tax charged by the town council) will in principle be paid by the landlord. However, Spanish law offers the possibility for this to be agreed upon differently in the rental contract.
Garbage tax should in principle be paid by the tenant, as it is he who makes use of this service. However, many landlords opt for paying this small amount of tax.
Many landlords who let their property seem unaware that they are subject to Spanish income tax on their rental income. This applies to both residents and non-residents. Even if your tenant pays you in your currency into your bank account at home, legally this income arises in Spain because the property is in Spain. In this respect, be aware as a landlord of these obligations.
Tenants who make tax declarations in Spain are now required to list their landlord's name and tax identification number on their income tax declaration along with the catastral reference of the property they rent.
The Spanish tax man has softened the rental income tax by introducing a reduction of 60% in rental income for tax purposes. This applies to official residents of Spain and non-resident EU citizens. Non-resident landlords from non-EU countries still have no deductions.
The net rental income is the amount of rent due after deducting usual day-to-day running costs for the period in question. Deductions are for example:
- local municipal taxes such as IBI (Impuesto sobre Bienes Inmuebles).
- repairs and maintenance.
- managing agents’ fees and commissions.
- interest on loans for purchase or improvement.
- depreciation of 3% per year of the cost of the property (excluding the land value).
- Spanish mortgage interest, provided the mortgage was used to acquire or improve the let property.
As a result of the reduction by the tax man and the deduction of expenses many landlords will pay little income tax.
A non-resident EU citizen is taxed on the net rental income after expenses from Spanish property at the rate of 20% for EU/EEA (European Economic Area) residents.
For everyone else (non-resident and non-EU citizen) the tax is 24% on gross income without any deductions for expenses or interest costs.
If you own a property in Spain that is not your main home, a purely notional or theoretical rental income is deemed to arise for periods where the property is not actually let, based on 2% of the official value (valor catastral) of the property as shown in the IBI notice for the year (whether you are resident in Spain or not). When a property is empty for a part of the year and rented for another part of the year, you calculate the average income for the part of the year the property is empty.
Please note that we at Quilantro are no tax advisors. If you want professional and tailor-made legal tax advice, we recommend you contact a tax advisor (asesor fiscal) specialized in Spanish tax law. Or, whether you are a resident or non-resident, you can call Hacienda's own consultation number – 900 333 555- to have your questions answered by the tax man's own consultants.
4. Energy performance certificate
Landlords who sell or rent a house need a mandatory energy performance certificate. Protected buildings and monuments will be excluded, as well as places of worship or residential buildings that are subject to a lease for less than four months a year.
Each property needs a label similar to those already used in electrical appliances indicating how efficient it is in terms of energy consumption. This label is currently used for new houses and classifies each property with a color code according to a scale of from “A” (the most efficient) to “G” (least efficient).
5. Repairing and maintaining the property
Repairs and maintenance can be a topic of some discussion. According to Spanish law, the landlord pays for all the necessary repairs except for those related to damage caused by the tenant.
Minor repairs related to normal use of the house should be paid by the tenant. So, what are minor repairs? It is generally accepted in case law that repairs costing between 100 and 150 euros or less are considered to be minor repairs.
6. Respecting the tenant if you want to sell the property
If you want to sell your property, you cannot terminate the rental contract.
However, if you want to buy a property with tenants in it, it depends on the question if the rental contract has been registered at the Property Register (Registro de la Propiedad). As a buyer, you have to respect the rental contract if the rental contract has been registered at the Registro de la Propiedad.
If the rental contract has not been registered with the Property Register, as a buyer of the property you can terminate the rental contract, giving a 3 month notice period to the tenant. In this case, as the new landlord you have to compensate the damages the tenant may suffer from leaving the property.
7. Have the gas installation inspected
Every landlord who has a gas installation in his property needs to have it inspected every 5 years. The gas company will contact you to make an appointment, however, bear in mind it is your responsibility that his inspection will take place.Did you miss a specific obligation you think that should be mentioned? Please contact me. Or do you want more information about the property package or other services we offer?
© Lilian Hermans - Quilantro