Luxury rentals explained

By ML
Director of Alanda Properties

You are probably aware of Spain’s Tenancy Act (LAU, in Spanish). You will have likely heard that all long-term rental contracts in Spain are subject to the LAU and must abide by its terms.

But are they really? Spoiler: no!

There are a number of rental contracts that fall outside the remit of Spain’s Tenancy Act such as seasonal contracts, holiday rentals, luxury rentals, and more. Today’s short blog post is going to focus on the latter.

What conditions does a rental contract need to meet to avoid being subject to the LAU? In short, these two:

1. The property being rented is larger than 300 m2.
2. The monthly rental exceeds 5.5 times the average minimum wage. That is on or over 6,416.7 euros/month for year 2022 (changes every year).

If either, or both, of the above conditions are met, the rental contract would be excluded from the protection of the LAU.

What legal significance does this have?

In short, a lot. Basically, it means that all the thoughtful entitlements the LAU meticulously lays out for the protection of tenants (read totally biased in favour of tenants) do not apply. Meaning landlords are greatly favoured because all the lenient entitlements and rights the LAU rules on are waived legally, leaving the contract to be ruled only by the will of the parties. The legal significance of this is huge as it basically conveys a huge leverage to landlords, if they play their cards right.

This is done because our lawmaker surmises that a luxurious rental contract is signed by a tenant who is either a shrewd businessman or an affluent person; either way someone who does not warrant the protection of our (biased) tenant laws, such as the LAU.

Practical examples on its importance

1. Standard long-term contracts, subject to the LAU, are capped to a one-month security deposit (fianza, in Spanish). In a luxury contract a landlord is free to demand a full year’s rental (or more) in advance.
2. In standard long-term contracts, subject to the LAU, you can pull out only after 6 months have passed. In a luxury contract, you may pull out at any time (but there will be consequences); on the very next day even.
3. Following on the above point, in a standard long-term contract it could be agreed that if a tenant pulls out after 6 months a capped penalty applies which equates to the months left to complete a full year, on a pro rata. I.e. in the region of 3,200 euros. That, by law, would be the maximum. However, on a luxury contract there is total freedom; a tenant could be liable for all the rentals left to complete a full year. I.e. over 70,000 euros if you pull out a week after signing it for whatever reason!

Conclusion

If you plan to sign up for a luxury pad in Spain, whether a villa or a penthouse, you are strongly advised to take legal advice before signing on the dotted line.

Spending a few hundred euros in lawyer’s advice can save you from losing, or being sued, over 100,000 euros, or more! 

Contact me at Alanda Properties if you are buying or selling property on the Costa del Sol and Sotogrande. You will be surprised to learn the deals this new market has to offer on prime locations.

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