Are you renting? Do not forget to add a clause forbidding sublets!

29 September 2021, 10:00

Renting out property in Spain has been highly profitable for landlords over the last years (Covid-19 pandemic notwithstanding). Landlords can expect net yields of 5% p.a. If to this you also add in the capital appreciation, you’re looking at two-digit gains per year. We’ve covered this topic extensively in previous articles:

Rentals climb for fifth consecutive year in Spain! – 12th February 2020

8 tips to rent like a pro in Spain (Buy-to-Let) – 3rd February 2021

That said, there are caveats landlords should be aware of on renting Spanish property. In today’s post we are only going to focus on one aspect: sublets.

Everyone is aware of the huge boom over the last 5 years of holiday rental companies. Some devious entrepreneurs have piggybacked on their success using other people’s property to their gain! They do this by signing long term tenancies and then subletting them short-term as holiday rentals, even leasing individual rooms!

This behaviour is in fact illegal and is expressly forbidden by Spain’s Tenancy Act in its art 8, where it is stipulated that sublets require the express (written) permission from a landlord.

Nonetheless, I would even go further. I strongly advise to add in a special clause to rental contracts expressly forbidding sublets.

In costal areas, where holiday rental demand is rife, unscrupulous tenants regularly take advantage of landlords (particularly non-residents) and may offer their properties unbeknownst to them as holiday rentals even marketing them through popular holiday rental portals. In the majority of regions of Spain, in order to offer a property as a holiday let, you first need to attain what’s known as a ‘tourist licence’ and comply with all the legal requirements, under threat of stiff fines. Some landlords are completely unaware their property is being sublet and offered in holiday property portals. On being fined, it would always be the property owner who is found liable, not the devious enterprising tenant-made-landlord.

Another issue are sales. Some property owners have had their properties on the market for quite some time and may have grown somewhat desperate to sell. With a view on selling, they may warm up to the idea of accepting a rental contract with an option to buy. In principle, there is nothing wrong with this, the problem is the buyer’s real intentions.

Some unscrupulous tenants, posing as would-be-buyers, take advantage of desperate owners’ good faith, forcing them to accept a rental price that is well-below the current market value with the aim of sweetening the deal and purportedly entice the tenant to (hopefully) sign on the dotted line and buy the property at some point. In reality, the tenant has no intention whatsoever of buying and all they really want is to drive a hard bargain to lower the rental price as much as they can so they can quickly turn around the property and sublet it.

Wasting no time, the artful dodgers will immediately set about subletting the property short-term to multiple tenants at a significant mark-up. Given the properties prime location, it would be rented out in no time.

Sadly, this story is all too common. Sly ‘tenants’, banking on landlord’s good faith and desperation to sell, regularly push rental contracts which have no banning sublet clause. This shrewd move nets them a substantial amount in a short span of time, using in the process someone else’s property as if it were their own. As the landlords are carefully chosen, they tend to be non-resident, and only happen to realize what’s going on years after. Needless to say, these tenants have no intention whatsoever to buy the property and remain unfazed when confronted on what they’ve done.

We can glean from above the following lessons:

All tenants should be carefully screened, particularly those with options to buy.
Legal contracts in Spain should be drawn up only by professional registered lawyers. Always ask for a lawyer’s practising number as we have professional indemnity insurance in case of malpractice or negligence. We offer a competitively priced drafting conveyance service: Rentals (contract-drafting)
Let-to-buy contracts should always include a clause forbidding sublets.
Let-to-buy contracts should have a rental price in line with the market, never below. Do not fall over backwards agreeing to below-market rentals because you do not know if your tenant will actually end up buying and you may be shooting yourself on the foot.
You should not agree to sign option-to-buy contracts that tie you in for several years.

Further reading from IDEALISTA: