PARODILAWYERS

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LANDLORDS: HOW DO I DRAFT MY RENTAL CONTRACT TO PROTECT MY INTERESTS?

We are constantly dealing with cases of homeowners who have rented out their properties without receiving proper legal advice. They have only been advised by an agent responsible for managing the rental or somebody else equally lacking in knowledge of Spanish Law.

As a result of the lack of adequate legal advice, many problems may arise after the signing of the contract: non-payment of rent by the tenant, damage to property, a tenant unwilling to return the possession of the property at the end of the agreed rental period, automatic extension of the duration of the contract against the will of the landlord, etc.

It is at these times that landlords suffer from not having received appropriate legal advice before the rental contract was ever signed. One of the most frequent errors that we find when reviewing rental contracts that have already been signed by our clients (without our advice, of course) is the duration of such contracts: 11 months. This duration had been agreed as the landlord had tried to avoid the rental contract being automatically extended up to 5 years. This is completely incorrect thinking. The key factor to avoid in the contract being automatically extended up to a maximum of 5 years is not that the initial duration of the contract is less than a year; the decisive point is that the property in question is different from the tenant’s primary residence (irrespective of whether the contract states a duration greater than one year). Thus, it is vital that the address stated on the contract for notifications to the tenant is different to the one of the property rented. The tenant must also confirm that this other property is his/her primary residence. As a result of these type of mistakes, many clients are forced to accept an extension to their rental contracts despite the fact that the term indicated in these contracts was 11 months and because they have not stated that the property was for other purposes (sale, rent, own use, etc).

Another of the most common errors found in these contracts is to attribute the jurisdiction to the courts in the locality of the rented property if there is a need to resolve any dispute arising from the implementation and interpretation of the contract .

The judicial procedures for eviction may take many months and in some cases up to a year – a situation that causes additional problems to the landlords. There is a simpler, cheaper and quicker way to resolve these disputes: arbitration.

In our opinion, there are many advantages to the resolution of disputes by means of arbitration – especially the speed in resolving them. The deadline for resolving a dispute via arbitration is 25 days after the submission of the request for arbitration. In Spain, these resolutions are executable in the ordinary courts as they have the same force as a judicial decision.

Having the appropriate legal advice at the time of drafting a rental contract can cost very little (from 300 Euros) but can save lot of money, inconvenience and trouble at a later date

PROBLEMS WITH MY MORTGAGE.

Can I resolve my problem by simply giving the keys to the property back to the bank?

For many years we have seen how easy it has been for both residents and non-residents to obtain approval for a mortgage loan for a house purchase.

The purchase of the property was made at a time interest rates were very low and when it was simple for the owner to rent out the property and when the owners could easily sell their homes at a price that allowed them to not only pay off their mortgage but also make a profit.

However, this situation has changed in recent years. Rentals (like sales) are not as easy nowadays. This has caused many owners to have difficulties in paying their monthly mortgage instalments.

Given this situation, the owners are asking what their alternatives are.

On many occasions, the mortgage loans not only funded 100 % of the price but also the costs associated with the purchase and mortgage. Sometimes this even included the cost of furniture and fittings. In these cases, the costs incurred by the owners in the purchase process have been little or none.

The first reaction that these owners who have purchased their housing at almost zero cost is to stop paying their mortgage without taking any further action when they have difficulties in either renting or selling their homes. They think their debt will be simply cancelled once the mortgage is executed by the bank. In other words, they think they can resolve the problem by simply giving back the keys to the bank.

Even when the owner has covered part of the acquisition cost with their own funds, they sometimes attempt to resolve the problem by stopping to pay the mortgage without any further action. They accept the loss of money invested in the purchase but think that in this way the problem will disappear once the Bank has executed the mortgage.

This approach is incorrect in both cases.

In Spain, the debtor (either resident or non-resident, Spanish or foreign) is always responsible for their debts. All their assets are at risk and not just the mortgaged property. If during the mortgage execution procedure the property is not sold at public auction at a figure that allows the bank to cancel the debt, then the debtor will remain responsible for the balance of the debt. All their property and assets are thus at risk, wherever they may be (Spain, United Kingdom etc).

This means that if an owner stops paying the mortgage every month without attempting to negotiate with the bank a resolution to the problem, then the bank will stop the mortgage. In the current economic situation, it is more than likely that the creditor will not be able to cover thepayment of the debt from the sale of the property at auction. Next the creditor will claim the balance of the mortgage-debt firstly in Spain and subsequently in any countries in which it has record of the debtor having assets and/or income.

Given this situation, the best choice for owners is always to negotiate with the banks.

Negotiation with the Bank should focus on two aspects:

- Increase in the term of the mortgage with a view to reducing the monthly payment amounts.

- Through debt cancellation by means of ‘dación en pago’.

It is important to stress that it is not always possible to reach an agreement with the bank. It depends on of the personal circumstances of each debtor, the debt and the percentage that this debt represents against the value of the property.

Through the dación en pago, the debtor “sells” the property to the Bank, who in exchange cancel the debt. This option involves a series of expenditures (notary, registration, property, taxes, etc) The responsibility of these payments should be negotiated with the bank.

Is always advisable to have recourse to the services of a professional who will advise you and assist in negotiations with the bank in question. This can be the difference between a positive outcome to the negotiations and not. The cost of such advice can range from 300 euros and 1000 euros if you get a positive result to the negotiations. This can be the difference between resolving the problem or not.

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