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lavinia
01-03-2010, 01:33 AM
This is the discussion thread for the article Lease-To-Own Purchase Or How To Profit From Spain's Market Downturn (http://www.marbella-lawyers.com/articles/showArticle/spanish-lease-to-own-in-spain)

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Hello Raymundo,
Great article! If one wanted to pursue this option, how would one do it? i.e. what exactly would I advertise and where would you recommend that I advertise to get the best exposure? Also, do you know people who have done it and what there experience were? Finally is there a spanish version to this article? Thank you in advance and apologies for all the questions.
Best,
Lavinia Osbourne
lavinia21@hotmail.com

Lawbird Lawyer
01-08-2010, 11:49 AM
Dear Lavinia,

Thank you for your kind words and apologies for the belated reply.

There is no Spanish version of any of my articles, only in English.

Regarding advertising this option, you would really have to ask an estate agent on this point. As for how it works out, it´s just a normal rent contract with this special clause. So it pretty much works like any other tenancy agreement.

The experience we´ve had is that it´s becoming increasingly popular as today´s market provides the right breeding ground for it to work well. I´ve only given a general overview of such contracts, there are many specialities. There´s freedom to draft such agreements.

I.e. you can include clauses whereby for example the first two years of rental 100% of the rental premium is deducted from the sales´ price but starting from the third year onwards you reduce it following a sliding scale. So on the third year year you may deduct only 80%, on the fourth year 70% and so forth. This can be agreed so as to incentivate the purchase of the property as soon as possible.

The main caveat of this contract is that the discount must be real and significant. It´s fairly pointless to offer a rent-with-an-option-to-buy contract at a 2007 price. The whole point of signing such a contract is to be offered a significant discount in relation to today´s market so as to attract potential buyers. I write this because I´ve observed quite a few vendors offering rent-to-buy contracts with ridiculously overpriced properties. As they are unable to sell their properties they offer this type of contract at exactly the same sale´s price of three years ago (the peak of the property boom in Spain), this will not do.

Buyers will simply not sign such contracts at such high sales´prices and will just wait until there´s a steep price drop. If the landlord can afford to wait, fine; if not then he ought to price the property realistically and tag on the aforesaid discount if he´s to offer a rent-to-buy successfully. Nowadays selling a property successfully and pricing it correctly go hand in hand

Regards,
Raymundo LarraÃ*n Nesbitt

Suzie C
01-19-2010, 03:43 PM
I was forwarded this article by a friend, and it certainly sounds very interesting, with advantages to both parties.

I would be interested to know who would bear the cost for the upkeep and maintenance of the building, because under normal lease agreements it is the responsibility of the owners (landlords) to maintain the building.

To me, agreeing to sell at a low price, (particulrly if waiting would achieve a higher sale price) whilst also bearing the burden of building maintenance and upkeep seems to be quite a disincentive for the owners, although hugely beneficial to the would be purchsers / tenants.

Lawbird Lawyer
01-19-2010, 05:07 PM
Dear Madam,

There's freedom in Spain to decide and agree whom pays what in private contracts as long you do not breach our laws, moral or the Public Order (art 1255 of the Spanish Civil Code)

Normally, as you suspect, it would be the landlord who pays for the building's upkeep, yes. Just like in any other Tenancy agreement.

As I write in my article:



It’s a tug of war on which a consensus, balancing both opposed interests, must be sought.


You must both find a middle point yielding in your positions so an agreement can be made possible. It is up to the parties to find and strike this balance. You have freedom.

Basically a rent-to-buy contract works just like any other Tenancy agreement only that the tenant has an option-to-buy the property at a competitive price should they choose to. In the case of developers being the option grantors it may be slightly more tricky (from a fiscal point of view).

The idea of rent-to-buy is catching on and is becoming increasingly more popular nowadays given the fact that lenders are not... lending. Last year for example, as I've written in other posts, all our conveyance procedures involved exclusively cash-buyers. We have many people interested and lined-up to buy bargains but if banks are not lending then sales just fall through despite the continued advertisements that lending is back to normal.

A rent-to-buy contract allows genuine would-be-buyers to get a foot on the property ladder at a price well below today's market (BMV) in the hope that credit will flow once more in 1 or 2 year's time. Borrowers whose loan applications are rejected now will be accepted in a couple of year's time when the credit market easen's up giving way to a new property cycle (boom-bust).

Credit is the lifeblood of our property industry, if lenders sap it away everything grinds to a standstill unless you are a cash-buyer, of course; and there are few of those. That's why cash is king nowadays.

Rather than sitting on empty property for the next 5 years (with the risks of break-ins, dampness, mould, general decay etc) some landlords would be better off offering this option to potential buyers who are now unable to secure a mortgage loan out of no fawlt of their own. Under normal market circumstances they would be given credit.

Many landlords are still in a denial stage on the price of their property and I understand them, no-one wants to take a loss. But sooner or later it has to give and someone will have to cave in. We will probably reach within the next two years a capitulation stage when thier savings are depleted and weathering off the storm no longer seems like a plausible option for many struggling to keep their heads above water. Better to be smart and take the plunge now than waiting until it's too late in my humble opinion. At least you have a choice now.

In any case, as I've written, these contracts will no longer be available once the market gathers pace with the slightest expectation of a market recovery; so it's pretty much a case of do it now or never.

Yours faithfully,
Raymundo LarraÃ*n Nesbitt

FC.
02-23-2010, 03:39 PM
Hello,

This is a fantastic site, full of very useful information and I will recommend it to anybody looking to buy a property in Spain.

We're currently looking at an older property that is available as either a sale or as a rent to buy, for financial reasons we prefer the rent to buy option. The problem is that since the property was not maintained for the last few years, it now needs a lot of renovation work to make it livable. The owner proposed that if we choose the rent to buy option, we should cover the cost of renovation because it will increase the property value. Is there a standard way to deal with this situation? My concern is what will happen if either party brake the lease?

Thanks in advance of your advice.

Lawbird Lawyer
02-23-2010, 04:00 PM
Thank you for your kind words.

It makes sense that if you are looking into renting with an option to buy it is actually you who pays for these renovations.

If it were the landlord who paid for them it would make sense he charged you a higher monthly let to offset the expenses incurred. The landlord has no guarantee that you will eventually buy the property from him so it could be labelled as an unnecessary expense for him.

Another matter is if the property is not fit to dwell in i.e. the water is undrinkable, the house is infested with mould and decay, the electrical system is in disrepair etc. the landlord must let a property that is fit to dwell in (Art 21 of the Tenancy Act) and is obliged to mantain the property fit for purpose without raising the let because of it.

So basically there is freedom to decide on who pays for renovations unless they are regarded as essential to make the property habitable.

Yours faithfully,
Raymundo LarraÃ*n Nesbitt

Biskit
02-01-2011, 11:45 AM
Dear Raymundo, Thank you for posting such an informative and well written article. It has already helped us in our current situation. My wife and I are interested in purchasing a house on a buy-to-rent scheme. We've been made an offer by the owner which we're not happy with at the moment and will be making a counter offer. The owner has suggested a 3 year option where he would retain 10% of the rent in the second year, and 50% in the third. He also requested a 10% deposit. This all seems very steep. We have managed to decide on a deposit closer to 3%, and will be aiming to get 100% of the rent back the first 2 years, and maybe 80-90% in the third.

What I'm wondering about is the next step when, and if we decide to go ahead with the purchase. Would we then have to find another deposit for the bank in order to retain a mortgage?

htb55
02-20-2011, 07:12 PM
Hi Biskit, Ive just read your post... we are also interested in purchasing a property rent to buy scheme...we re at the 'just thinking' stage. Would like to ask you a few questions ...not sure if we can private message on here??

Ken Millingham
12-02-2011, 12:18 AM
great article. Can you tell me what costs are associated the rent to own as fr as taxes etc are concerned?

Unregistered
08-09-2012, 02:51 AM
Hi

I am rather late to this thread and hope it is still monitored.

After entering into discussions with a Spanish resident living in the UK who is selling a house in Spain I wonder if this type of tenancy agreement would suit the situation.

What we are planning so far is that I pay an agreed asking price for the property over 5 years possibly 8 and that my monthly payments should add up to the selling price. Effectively the vendor is giving me a mortgage. I have spoken to a few solicitors and they do not seem to be able to help with the contract writing.

The vendor has a mortgage of 20,000 Euros and what we seem to be agreeing is that I pay the purchase price over say 60 equal monthly payments and I also pay the interest on his mortgage. If I am able to pay the total amount sooner then I have less interest to pay. I would plan to make extra payment to end the mortgage as soon as possible which is in both of our interests.

This rent to buy scheme seems to fit our scenario and would mean that the agreement will be noted by the land registry, I assume?

Does anyone know if an agreement can be written legally to include clauses such as me the tenant being responsible for the building, maintenance, repairs etc and the interest payment element that I will be paying off the vendors mortgage?

Kind regards
Michael

Patricia
10-08-2012, 10:38 AM
Hello,

I hope this reply is not late now.

I understand that you want to pay the 20000 Euros mortgage as purchase price and as there is a minimum fiscal value that will be applied, you will pay high taxes when registering the ownership. Formalizing such contract entails taking the risk the owner does not deposit that amount against the mortgage payment after 5 years ( he could choose to use it to cover other expenses ). We recommend that if you decide to go ahead, a rent to buy agreement should be exceuted within 5-8 years that indicated the vendor/owner/landlord has the obligation to deposit those amounts for the mortgage repayment, that is, in the mortgage bank account, but a fixed purchase price must be set; if it is only 20.000 Euros and the Tax office sets a higher value for the property, you will have to pay taxes for the difference and then register the ownership.

That is, once the contract expires or at any time during that period ( after, 3, 4, 5 etc years ) you would have to go to the Notary and formalize the purchase, indicating a pruchase price of 20.000 €. The Tax office will ask you to pay for the corresponding tax deriving from the difference between that amount ands the taxable value they have given to the property. After that, the inscription can take place at the Land Registry.

We recommend to have a solicitor check this type of agreements in the interest of both parties. I take the opportunity to offer our legal services for that end, so please feel free to contact me directly by e-mail if you wish to discuss in detail ( click on my profile).

Regards,

Vivaespaña
01-19-2013, 05:56 PM
Just wondered if thread still going
I rent a house at the moment and its from a very close friend
She would like to sell and I would like a rent to buy contract
What I am proposing is a substantial rent over 8 years and she takes this off the agreed price
Is this legal in Spain, or even doable ?
We would have agreement drawn up by a legal representitive and her current " right of attorney"
Any comments please

Marta
01-22-2013, 04:58 PM
There would be no problem with what you are planning to do. It is completely legal.

The procedure is as follows: a normal rental contract is drafted, with the only difference being that you would add a clause stating that after a period of time, the tenant would be able to make use of the purchase option which the parties fix at a value of xxx amount (property value). All money paid during the life of the rental contract, as rent, will be deducted from this sale price. You would also need to state the conditions under which this sale would take place (who pays the expenses, etc.), as in any purchase. The owner will most probably add that, in the event of not proceeding with the purchase during the agreed time, all funds received as rental income will be kept by the landlord.

If you need any help drafting this document please don't hesitate to contact us.