The pain in Spain is a law that isn’t plain

For almost two years, mortgage rates have been on the rise in Spain, tightening the financial screws on thousands of Britons who have borrowed to buy a holiday home there. As recently as August 2005, the interest rate on a typical variable-rate mortgage would have been as little as 3.22%; by last month, it had reached 5.67%, adding more than €130 a month to the cost of a typical 20-year €100,000 (£68,000) loan.

If that wasn’t bad enough, an almost daily diet of bad news from Spain, including corruption scandals, problems with illegal building and talk of falling property prices, has scared off some of the British buyers who have been keeping the “costa” market afloat.

Not suprisingly, many property-owners have turned to holiday rentals to help pay the bills. But now another problem is looming: the need to have a tourist rental licence. Recent reports suggest that most holiday rentals in Spain are illegal without a licence, and can incur fines of €30,000 for unsuspecting owners.

Bad news travels fast, especially in online Spanish property forums, and many British owners are now fearful of being denounced by disgruntled neighbours. But don’t panic, because the situation isn’t as bad as it sounds. In reality, you need a licence only in some parts of Spain, and most owners are unaffected.

So, where do you need a licence to offer holiday rentals? Mallorca and Minorca, for a start. Planning to buy a flat in Pollensa and rent it out for part of the year to British holidaymakers to cover the mortgage? Then think again.

“In the Balearics, you cannot rent out private residential apartments,” says Isabel Loeffler, head of Loeffler Legal Centre, on Mallorca. “The only kind of residential property you can rent out is a detached villa, but only if you have a licence.”

The department of tourism in Palma, the regional capital, confirms this, and adds that licences to rent detached properties are no longer being granted on Mallorca. It is a similar story in the Canary Islands, because the authorities in both are keen to promote hotels over private rentals. Confusingly, licences are still being granted in Minorca.

One exception is apartamentos turisticos – a special category of property built specifically for letting to tourists. But these carry a raft of other restrictions and potential extra costs that make them unsuitable for buyers looking primarily for a property they can use themselves.

A quick search online, however, turns up thousands of private flats and villas to rent in both regions, many of which belong to Britons who may have no idea that they are breaking the law. With so many “illegal” holiday rentals going on, the law and the reality on the ground are oceans apart, which is not unusual in Spain. Furthermore, there is a lot of confusion about how the rules are interpreted and enforced.

“The situation is a bit of a mess,” admits Kate Mentink, 63, originally from Edinburgh. She lives in Calvia, southwest Mallorca, where she is a local councillor and deputy mayor, responsible for tourism and international integration. The municipality includes property hot spots such as Puerto Andratx and Santa Ponsa. “My department’s understanding is that all short-term rentals to friends and family are fine, provided you declare your rental income and pay tax,” she continues. “But renting to strangers through a tour operator or agency, or on the internet, is not allowed without a licence.”

Nobody I have spoken to can confirm that any fines have actually been paid in either the Balearics or the Canaries, although some owners have certainly been fingered by authorities. “Last week, we had a case in the town hall of a Briton who has been warned for renting out his apartment without a licence,” she says. “No further action has been taken, but he could be fined if he continues.”

Juan Carlos Martinez, head of Spanish department at the International Law Partnership, a London-based solicitors, says many owners are caught in a catch22 situation. “Of course, the best advice would be to get a licence. But they risk highlighting the fact that they are doing something illegal, even if it is widely practised.”

What about mainland Spain, where most Britons have their holiday homes? What is the situation for people such as Aileen Hutchinson, 57, a semi-retired health-and-safety professional from Derbyshire, who recently bought a house in Denia, on the Costa Blanca, with the aim of renting it out when she is not using it? “A disgruntled neighbour has warned us that we need a licence from the Spanish Tourist Board to rent,” she says. “With mortgages going up, this is a serious issue.”

Not to worry, according to Lee Jones, head of OPI Property Management and Lettings, a tourist-rental company with offices on the Costa Blanca and the Costa del Sol. “I can categorically state that you don’t need a licence to rent out a private apartment or villa to holidaymakers on mainland Spain,” she says. “We have had our specialist lawyers check this for us – and with 3,500 holiday rentals this season, we can’t afford to make a mistake.”

Despite Jones’s confidence, there is no doubt it is a murky area. As always in Spain, the law appears to vary from place to place. In Murcia, in the southeast, for example, anyone planning to let a private property to tourists must first register with the department of tourism, even though few bother. In most areas, however, you need only inform the local government about your plans to rent. It is hard not to believe that the real concern here is wanting to keep tabs on who is making money, to make sure that taxes are received. The best advice for anyone letting in Spain is check with a local lawyer, just to be safe.

Strangely, such restrictions do not apply if you rent out for a longer period – to someone spending the whole summer there, or to snow birds coming down from northern Europe for the winter sun. This can be more lucrative, too: although your tenants will typically pay less per week, there will be fewer voids and probably less wear and tear.

Don’t overdo it, though: rent out the property to someone for a year or more and, thanks to Spanish law, they will acquire all sorts of rights that could further complicate your life. Then again, nobody ever said anything in Spain was simple.

Mark Stucklin runs www.spanishpropertyinsight.com, an independent online consultancy

spanishpropertydoctor@sunday-times.co.uk

To search for properties in Spain on propertyfinder.com click here

To find properties for sale in Spain on properazzi.com click here

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