Antonio Flores’ Blog

State in which our client's apartment was left by a defaulting tenant

Great expectation has been raised now that the new law on rental eviction procedure and a few other bits and pieces has been approved. Because what this new law intends to do is to help boot a defaulting tenant in a matter of days, or so it seems when you read it (it now talks about “days” as opposed to “months”). The reality however is that for all its good intents and purposes it is quite possible that landlords will still have to resort to switching off water and electricity supplies, calling in a couple of Liverpool heavies or hiring a failed guitarist to make nights unbearable by playing “Stairway to Heaven” outside the apartment for hours on end. The reason is that, even if the new law is clearly envisaged to speed up kicking out tenants, the stark reality is that Courts in Spain are so slow that it is difficult to see how switching procedures (to a quicker one) and reducing significantly the time to comply with an eviction notice (fifteen days) can succeed.

According to a report released by a Law Firm in Barcelona (Alboreca Abogados de Vivienda), after reading more than 2,000 Court rulings and interviewing a fraction of those poor landlords, the time to finally get a sentence to “launch” (as Spanish law calls it) your hated tenant averages six months and fourteen days. The problem is that you then need to execute this ruling so that eventually the police can effective throw the bastard out and this will take another three months and sixteen days so you are looking at an average of ten months in all…but then again it takes another eight months and five days to make up you mind to go to Court (getting in touch with lawyers, arranging meetings, paying them extortionate fees…) so after you add up it will almost take two years from when the monthly rental fails to show up on your bank account to when you can visit your “investment” property again. Not to mention of course that you should not expect a bottle of champagne with a with thanks note in the living room but quite the contrary: stolen fixture and fittings, destroyed furniture, missing kitchen utensils, dog crap all over the place and to get even more scatological (and not joking here), walls and curtains smothered in human fecal matter. So who the hell would want to rent with this prospect??

According to this report, 50,5% of defaulters are males and 35,7% females, the rest being companies. By nationalities, 74 out of 100 are Spaniards and the rest Brits, Germans and Romanians, by this order.

This same law firm has privately compiled a database with 6,000 Court rulings where “non-complying” tenants are named (unfortunately not publicly shamed) and so for a modest amount of money (7.50 Euros) one can know if we are dealing with the right guy. Obviously not all bad payers are registered, but if they happened to be registered and to avoid 7.50 Euros we incurred in thousands in losses, one would not be happy at all. This database should be also by checked by a lanlord who has a defaulting tenant, for a tenant which has had two court cases for the same reason can be prosecuted for criminal swindle, as opposed to a regular eviction case.

Fortunately enough, the law of averages says that finding a defaulting tenant is not always going to happen, and so it is quite possible that you will be able to have a beer or two with your tenant at some point during your commercial relationship with him/her because he/she has decided to do what all landlords are praying for, i.e., just pay the rent.

With the new law hopefully the almost twelve months from filing to firing will be reduced to, say, three or four months, we can only hope!

Antonio Flores Litigation, Property eviction in Spain, landlords, non paying tenants, Spanish eviction, spanish tenancy, spanish tenancy agreement, tenants

A recent report by the Association of Tax Inspectors in respect of rental income highlighted what we all knew: that very few landlords do actually declare any rental income. According to the inspectors, the biggest tax evaders are in Andalucía, where it is believed that only 26% of property owners declare this income to the Spanish Inland Revenue (of which, ostensibly, foreigners amount to…0 percent!). In total, €2,450 million of lost tax revenue.

It is not clear however how have they reached these conclusions but one thing is clear to me: I don’t know of anyone on the Costa del Sol (mostly foreigners) who has ever asked where should they pay their taxes.

The reasons, below:

1. Unwillingness to pay taxes (obvious).
2. Untraceability of the transaction as most of the deals are done in cash or are paid into non-resident bank accounts, of little interest to the Spanish Inland Revenue. Also, the sums are small and periodical so banks are not obliged to report back to the Central Bank of Spain.
3. Tenants are not obliged to withhold the tax and lodge with the Spanish Inland Revenue if the tenancy agreement is not of a commercial nature (Conversely, where a real estate agency is involved in the payments they will have to deduct the 24%).
4. Ignorance as to how to about paying the tax in the case of a non-resident.
5. In the event of willingness to pay, many non-resident owners are put off by the tax (24%), with no possibility to deduct costs (maintenance, etc.)
6. Lack of fear of the Spanish Inland Revenue.

But this blissful scenario is likely to change because the Spanish Inland Revenue is on a mission to trap tax dues with a clever and original proposal. They will force utility companies (water, electricity, gas) to supply details of consumption to identify the properties which are apparently empty but house a tenant in them.

This seems once again a futile attempt to convince owners that they need to pay taxes and judging by how it is released it looks more of a newsletter or circular carrying a declaration of intention, no more.

Antonio Flores Property, Taxes rental income in Spain, Spanish Inland Revenue, spanish property taxes, Spanish Tax Office, Spanish Taxman

Living in Spain as a resident has become a rarity among Spanish elite sports professionals. This includes Fernando Alonso, Sergio Garcia and Jorge Lorenzo, among others, who have their residence in tax havens such as Switzerland. Rafa Nadal and Alberto Contador (2-time Tour the France winner) on the contrary feel that paying taxes in Spain is a moral obligation.

The Spanish Inland Revenue and a couple of smaller political parties want to stop them from representing Spain internationally.They had already tried to implement this law some month ago but was it thrown out.

“Social scourge”, “tax cheaters”, “lacking in solidarity”, “miserable compatriots” are just some of the adjectives used to define these sports stars who could, if a law proposal succeeds, stop performing for Spain in future. But when is a person considered to be a resident in Spain for tax purpose and how can the tax office invoke residency of a certain individual in Spain so that he is forced to pay taxes on world-wide income? As with many other countries, any person staying in Spain for more than 183 days in a fiscal year (ending 31st Dec.) will be deemed a resident for tax purposes and is obliged to submit a tax return on world wide income. Unlike the UK, the 90-day rule does not apply in Spain but on the contrary other points of connection with the latter country do apply. To make it simple, the criteria used is one the following:

1. Spending more than 183 days per tax year.
2. Having the main center of its activities or economical interests, directly or indirectly, in Spain.
3. For companies, having most of the assets, directly or indirectly, in Spain or when the primary activity is carried out, as well as having the management centers, in Spain.

Nowadays it is extremely complex for the Spanish Inland Revenue (and presumably for other Tax Offices in the EU) to determine when is a person resident in Spain for the simple reason that passports don’t get stamped any longer. But if someone gets a letter from the Inland Revenue saying that they have detected that he/she is a resident for tax purposes and request payment of taxes on worldwide income the onus of proof falls on the tax subject. Showing water and electricity bills of a property in a third country is no longer a valid excuse for the Spanish Inland Revenue which has now increased the proof of residency by demanding a Certificate of Residency issued by the tax authorities of the third country, provided this country is not classed as a tax haven and that it has some form of tax information exchange agreement.

Where this third country is a tax haven the Spanish Inland Revenue will only let the tax suspect off the hook if he/she can prove that they are effectively spending more than 183 days per year in this country. The reason is that foreign taxpayers are being issued with what they consider as a “passive residents card” which does not oblige them to declare any income nor, ultimately, pay any taxes (normally only a small investment easy to comply with, such as lodging a few tens of thousands of Euros in a bank account or buying an apartment).

If the Spanish Inland Revenue and the Catalan Party CIU (Convergencia I Unio) can convince the Spanish parliament that fellow compatriots dodging taxes is immoral and that consequently they are to be stripped of the Spanish flag on their endorsements we may soon see Fernando Alonso and Sergio Garcia racing and hitting balls, respectively, for Switzerland, Lorenzo riding for Andorra or Pedrosa also riding but for England, leaving the poor(er) Nadal and Contador the burden of…building roads and council tennis courts for their beloved fellow compatriots.

Antonio Flores Taxes Spanish Inland Revenue, Spanish Residency, Spanish Tax Office, Spanish Taxman, Taxes in Spain

The development known as El Patio de Doña Julia, built by developer Evemarina is poised to become a real mess if our fears are confirmed. The chronology of events leading to Evemarina´s insolvency is known to those involved, except for the fact that the developer may have sold the whole development on the 21st of August 2009 to a company associated with Caja Rural, the savings bank financing the development.

We are naturally very worried, as we represent a large number of clients in El Patio de Doña Julia, most of whom already expressed their desire to pull out of the transaction due to a number of reasons, namely late delivery, faulty construction and presumably a lesser value than that reflected in the contract. So after we sent notice of cancellation (requesting full refund), and we received a letter back from the developer rejecting our demands and intimating that they would pursue our clients, it may soon transpire that the whole development has been handed back to the bank through a sale to a company called “Gestion de Inmuebles Virgen de los Peligros” (which in Spanish means nothing less than Virgin Danger Property Managers), without notifying legitimate purchasers with a valid contract.

Unfortunately Evemarina’s insurer ACC Zurich Insurance also rejected our attempts to cash the insurance policies on grounds that completion –with habitation license- had taken place in a timely manner, that is, before the final date to deliver the units agreed to in the contract. This date has attracted much controversy as it established an discretionary extension that has allowed Evemarina to finalize the works, in our opinion, without breaking the contract (thus preventing our clients to invoke this getaway clause so as to abandon a project for which they no longer had their hearts on).

If the above is confirmed, we can be faced with a scandal of significant proportions as not only Evemarina’s directors, but also the savings bank property management company, could be deemed to have engaged in a fraudulent scheme by selling the same properties twice without refunding the advance payments to the first buyers (in the case of Evemarina), and buying the units knowing that these had already been previously sold on a private purchase contract (in the case of Gestion de Inmuebles Virgen de los Peligros, AKA Caja Rural). This, may I add, will in most countries be construed as a criminal offense punishable with prison terms.

We will post regular updates on this blog post as we obtain fresh information.

Antonio Flores Litigation, Property ACC Seguros, El Patio de Doña Julia, Evemarina, Gestion de Inmuebles Virgen de los Peligros, Zurich Insurance