Residential Rentals in the Canary Islands: Between Law and Market Reality

Rentals in the Canary Islands

Rentals in the Canary Islands

The Canary Islands are undoubtedly an interesting market for purchasing properties for income. The reason is quite simple: in addition to being a tourist destination 365 days a year, they have been suffering for several years from a now chronic shortage of accommodation, due to growing demand.

In this context, many investors, including Italians, purchase precisely to exploit these almost unique characteristics of the market; in this way they benefit on the one hand from the return that the property can offer by making it an income; on the other by its potential revaluation over time.

So far everything is clear and, at least based on my personal experience, all those who decide to invest here in the Canary Islands agree on this.

What, however, in my opinion, is a very common mistake (not to say practically unanimous) is to look at the investment by focusing only on the property, neglecting the aspect that then brings the economic result (which is the generation of income , precisely).

In practice, it is like wanting to participate in a car competition by focusing on the car with the best performance, forgetting that in the race the car will not go alone, but will be driven by a driver, who will then be truly responsible for the result.

Therefore, taking it for granted that you will find the perfect property from every point of view, have you ever thought about what will happen to the property the day after purchase?

What does the professional who assisted you in purchasing the property tell you about this?

Who will manage it? What will the management costs be? But above all, how will it be rented?

Let's leave aside short-term rentals for the moment, which deserve a separate discussion. Let us now focus instead on so-called "residential" rentals, i.e. intended for people looking for a house to live in.

It is good to know that here in the Canary Islands there are a number of illegitimate rental contracts, which would make any judge nervous (because some of them end up there).

We start from the assumption that rental contracts, in Spain, are distinguished by USE and not by DURATION.

In particular, the Ley de Arrendamientos Urbanos (the law regulating rents) distinguishes two types of use: “uso vivienda” (residential) and “distinguished use” (or de temporada).

In the first case it means that the tenant has the need for a permanent home, therefore a house in which to live indefinitely.

In the second case, however, it is understood that the tenant has a temporary housing need, therefore limited to a specific period of time.

The separate use is intended for people who need to stay on site for a specific reason, such as an Erasmus programme, teaching limited to one school year, a period of coaching in a detached work location, etc.

What we continue to see, however, is an unbridled use of distinct use as a "stratagem" to avoid falling under the obligation to extend the five years, which is instead provided for by law in the case of use vivienda.

So, what do you typically do? A "separate use" contract is signed, which although legal in form is nevertheless illegitimate in substance.

Why is it illegitimate? Because the use made of the apartment is clearly that of "vivienda", with the only difference being the duration limit.

When signing the contract, remember very well that the owner is trying to exclude the tenant's right (that of renewal up to the fifth year) expressly provided for by the legislator. And how is he doing it? Making false statements, i.e. declaring that the tenant's need is temporary, when in reality it is not.

What are the risks of this practice?

That if the tenant, upon expiry of the contract, does not agree and takes the contract to court, the judge will most likely "transform" it into a "uso vivienda" contract, as required by law.

The jurisprudence, following the lines dictated by the Supreme Court, has expressed itself in a multitude of similar cases, with an almost unanimous orientation in favor of the tenant.

One of the general principles of reference is in fact the "principle of irrelevancia del nomen iuiris", that is to say that "things are what they are, not what the parties say they are".

Remember that it doesn't matter what type of contract you have your tenant sign: what matters is the USE that the tenant is making of your property, regardless of how you set up the contract.

Owner notified…

Article by Marco Sparicius Real estate consultant in the Canary Islands

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