Tell me how long you want to rent your house for and I'll tell you what contract to choose

If you are a homeowner and you’re thinking about putting your property on the rental market, there are three types of contracts that exist in the market that you should know about. The legal blog Sepín clarifies for us what the different lease models are based on their duration and other features, what differences there are between them and which law applies to each one of the contracts.

The news and information on tourist rentals seems to have left other types of housing leases out of the market. However, they exist and each one has its own particular characteristics, its regulations which apply to it and what each type of rental entails.

Depending on how long it lasts and other such features, you can rent a house for use as a main residence, seasonally or to tourists. For Begoña Costas, director of Sepín Arrendamientos Urbanos, we cannot forget that there are different rental formulas despite the 'boom' of the tourist apartment business, which seems to have banished other forms of leasing. There are many owners who increasingly invest in house to let in large cities and have to know all types of contracts.

Renting a property as a main residence

This type of rental contract is regulated by the Urban Leasing Law (Ley de Arrendamientos Urbanos or LAU) 29/1994, of 24th November, specifically in article 2, qualified as "property lease" and developed in Title II. It entails a traditional rental agreement, where the parties prefer a longer-term contract and some stability, since the tenant can stay at least three years in the house, unless they want to terminate the contract each year, communicating this decision thirty days before the end of the contract, as established in art. 9 of aforementioned legal precept.

As for tax obligations, the rental of housing is exempt from VAT, with this exemption extending to garages and annexes as well as to movable assets jointly rented. If, at the same time, the home is dedicated to professional activity, then it is subject to VAT, just as when the lease of a home is with a commercial entity for its employees.

This lease will be taxed with the Property Transfer Tax (ITP), the lessee or tenant being the one that must liquidate this tax through the use of stamped documents, in a variable amount according to the value of the lease and in accordance with what is regulated in each autonomous community.

The income generated for the lessor must be reflected in their personal income tax return, since it constitutes a profit that is classified as real estate capital yield, as long as it is not an economic activity.

Seasonal rental

This contract also appears regulated in the Urban Leasing Law 29/1994, in art. 3, apdo. 2, but here is categorised as "use other than housing", whose regulation is covered by Title III. The great advantage it has over renting as a main residence is that it is governed by the will of the parties, so the duration is that which is established in the contract and there is no minimum term.

This is the case when renting a property for the school year, over the summer or for a work transfer, and in which complementary hospitality services such as reception and cleaning are not offered, nor is it advertised on tourist rental platforms. In fact, if these requirements were met, it would be a case of rental as a tourist apartment, which we will analyse in the next point.

For example, a summer house on the beach rented for a week, fortnight or month which does not have other complementary cleaning services, changes of sheets or telephone switchboard, nor is promoted in tourist supply channels, will be a seasonal rental under the previously mentioned law.

With regard to the tax obligations of the parties in this seasonal lease, it is exempt from VAT, so the tenant only has to pay the landlord the agreed amount of rent. Companies renting the property would have to pay VAT, as reflected in the Binding Consultation of the General Directorate of Taxes 0274-08. However, some Courts state that the operations will be exempt from VAT if the name of the natural person who occupies the home appears in the rental contract.

The corresponding withholding of income tax will also apply since the landlord must declare the income of these rents as real estate capital returns.

Renting an apartment or property for tourist use

The “controversial rental boom”. This type of rental agreement is a very short-term lease, excluded from the Urban Leasing Law, but rather subject to the legislation of each Autonomous Community.

The controversy related to it was triggered by Law 4/2013, of 4th June, of Flexibility and Promotion of the Rental Market, when it added another letter (e) to the current article 5 of the LAU 29/1994, on "Excluded rentals". The precept states: "The following are excluded from the scope of application of this law: ... e) Temporary cession of the use of the entirety of a furnished and equipped property in conditions of immediate use, commercialised or promoted in tourist supply channels with a lucrative purpose, when it is subject to a specific regime, derived from its sectoral regulations."

Basically, these "tourist apartments" appeared, but this did not mean the “seasonal rentals” disappeared. Precisely, Law 4/2013, which reforms the LAU, at the end of the 2nd Preamble, indicates that "(...) hence, the reform of the proposed Law excludes them specifically so that they are regulated by specific sector regulations or, failing this, the regime of seasonal leases will apply, which is not subject to modification". Consequently, when the services that the regulations of each Autonomous Community or City Council have established for this purpose are not provided in the property, we will not be faced with a "tourist or holiday use" rental, but rather that stipulated in the LAU.

At the level of autonomous communities, many laws are being passed which regulate these requirements and define what is meant by tourist apartment. Hence, whenever there is a "specific regime" as indicated in art. 5 e), it will be subject to these and not to the LAU.

Regarding the tax obligations for this type of rental, statements must be submitted regarding the beginning, modification and cessation of activities that determine to what extent it’s subject to VAT (as a property letter), having to submit declarations and settlements and pay the resulting amount.

The amounts that the owners receive as income for the renting the property come under ‘real estate capital’ in their tax returns. If the lease is made for business activities, the amounts obtained are considered as economic activities, within whose specific section they must be declared.

In the event that the rental of tourist accommodation is not limited to the mere provision of real estate, but is complemented by the provision of services specific to the hotel industry, they would also be considered as income from economic activities.

The tax agency (Hacienda) has already started to control this business and the web pages that advertise these apartments must report the adverts from 1st January 2018. It is one of the new modifications to the General Regulations of the actions and the procedures of tax management and inspection and the development of the common rules of tax application procedures (RD 1065/2007, of 27th July) establishes: "the obligation to transfer the information of their advertisements to the specific Tax Administration through the intermediary "collaborative platforms" in the lease or transfer of use of properties for tourism purposes on the properties offered and the contracts undertaken."