The different ways of renting a property

If we are the owners of a property that we do not use and we want to earn an income from it without losing the property,it is necessary to evaluate the different rental options that the Law offers us. Each has its advantages and disadvantages, and the choice of one or the other will depend on several factors, such as the location, the expected profitability or the risk to be taken.

With that in mind, we could talk about four different types of rental: rental for use as a permanent residence, seasonal rental, holiday rental or room rental.

El primero de ellos, el alquiler para uso de vivienda, es el más conocido de todos. It is considered as such when the dwelling is to be the tenant’s habitual residence. Through this type of rental, the tenant may remain in the property for a minimum of 5 years, according to the latest reform of the Ley de Arrendamientos Urbanos, which is the applicable law. The only exception is if we need it at a given moment for ourselves or a direct relative, in which case the contract can be terminated beforehand.

This type of contract gives security to both parties, to the tenant who knows that he will be able to stay there for a certain number of years and to the landlord, who, if he has chosen the right tenant, will have the security that the property is safe and secure and a regular income from the rent.

Until the last reform, the tenant had to pay Transfer Tax (ITP) on the property. Nowadays, the landlord is the only one who has to pay taxes on the rent, specifically, to declare the profit as income from real estate capital in the IRPF, or as income from economic activities, if he/she is professionally engaged in renting.

The next type of rental we will look at is seasonal rental. This type of lease means that, although the tenant will use the rented property as his or her home for a period of time, it is not intended to be his or her habitual residence, but is there for specific and temporary reasons. This will be the case, for example, of homes that are rented out during holiday periods, but without offering ancillary services such as cleaning, linen change, breakfast, etc., and without being promoted on tourist channels. Or, for example, the case of a student who rents a flat in another city during the school year.

This type of lease is also regulated in the Ley de Arrendamientos Urbanos but, unlike in the previous case, the duration of the contract will be that freely agreed by the parties, with no maximum or minimum term, although normally the duration will be less than one year.

As advantages of this contract, we could point out the greater freedom of agreement, the possibility of fixing a higher rent (we all know that student or holiday flats are usually more expensive than a regular home). If you are in a tourist or student area, it can be an option to take into account.

As disadvantages, we could talk about the misuse of the flat by the tenant (e.g. bringing more people than agreed to live in the flat, or having parties). In any case, it is possible to require several months of deposit or any other guarantee, since the law does not prohibit it, as it is not a habitual residence.

As for the tax implications, they are the same for both parties as in the case of rental housing.

The next category to be analysed would be the much talked about“holiday rentals”. They are defined in the Law as “The temporary transfer of use of the entirety of a furnished and equipped dwelling in conditions of immediate use, marketed or promoted in tourist offer channels and carried out with a lucrative purpose, when it is subject to a specific regime, derived from its sectorial regulations”.

Until the reform of the LAU in 2013, they were not excluded from it and were considered seasonal leases. After this modification, the regulations that each Autonomous Community approves to regulate them will apply to them. In the absence of such regulations, the Ley de Arrendamientos Urbanos (Urban Leases Act) will continue to apply.

In these cases, the landlord must register for VAT as a provider of services for the rental of goods, paying the VAT he receives from the invoices to the tenants. Likewise, you will have to pay personal income tax on the income you receive, as income from real estate capital or, in the event that you offer ancillary services typical of the hotel industry, such as changing sheets, breakfasts, cleaning, etc., the income received will be taxed as income from economic activities.

This type of rental is logically only possible in tourist areas where there is a demand for them. The profitability is higher than in the two previous cases, but it also requires more maintenance costs or personal effort in terms of cleaning, check-in and check-out, continuous key handovers, etc.

Finally, a brief reference to room rentals. The typical situation is also that of student flats, or people who live alone and want to share expenses with others. This type of rental, with shared access to common areas such as the living room, kitchen and bathrooms, is not subject to the Urban Leases Act, but to the Civil Code. This implies freedom of agreement regarding the conditionsof the contract, such as its duration.

The Courts have ruled that this type of rental cannot be considered as housing, as it is considered that a single room with the right to share the use of the rest of the premises cannot meet the needs of a person’s habitual and permanent residence.

Having clear that there are these 4 ways of making our housing profitable through renting, theis advisableto contact an expert lawyer who will inform us about the possibilities of our specific case, inform us about possible risks, foreseeable costs or benefits and who will draw up the lease contract that we specifically need for our situation.

Montosa Solicitor will be pleased to advise you, please do not hesitate to contact us.