Is a Rent to Buy the same as a Buy to Let?

No, they are very different. A Rent to Buy is when someone rents a property with an option to buy it within a certain term. A Buy to Let is where someone buys a property with the objective of renting it rather than living in it themselves, the terminology usually refers to the type of mortgage obtained on the property.

When will I own the property?

The property will not be in the ownership of the Tenant/Buyer until the option has been exercised, the full option price paid and the transaction has been authorised by a Notary.

Do I have to pay a deposit / initial payment upfront?

Yes a deposit / initial payment is standard when renting a property in Spain. The financial aspect of each Rent To Buy option is bespoke and agreed by both parties. To show commitment to purchase the property the deposit (or in the case of a rent to buy contract, the initial instalment) is typically between 3% – 10% of the property price. This payment comes off of the pre-agreed purchase price.

How legally binding is the contract?

The contract is usually a personal contract between both parties which can be created by a lawyer and if required it can be signed in front of a notary. The latter will ensure that your option to buy is listed with the Spanish property registry. Our independent partners at Vives Pons Asociados can assist you with all aspects of the legal process or of course you can use your own lawyer.

What should happen if the Tenant/Buyer withdraws from the contract during the term?

Each contract is bespoke, however in almost all cases the Tenant / Buyer walks away and has no recourse to have the rent, the initial payment (or any other stage payments) returned to them. If they have made improvements to the property, they cannot claim any compensation for this either. The exception to this is if there is anything not disclosed at the start of the contract by the Landlord / Vendor which means the property cannot or should not be bought (such as it’s an illegal build, etc).

Who is responsible for insurance?

The Landlord/Vendor is responsible for the property insurance however this will not cover any personal possessions owned by the Tenant/Buyer. It is advisable that they obtain their own insurance to cover their personal belongings.

Who pays the utility bills during the agreement period?

Like a standard rental contract the utility bills are paid for by the Tenant/Buyer. These includes electricity, gas, water and also Wi-Fi.

Who pays the IBI (Town Hall tax) and Basura tax (Bin tax)?

Each contract is bespoke and unique however the IBI will continue to be paid by the Landlord/Vendor as this is a tax and the property still belongs to them until bought outright at Notary. The Basura is almost always paid for by the tenant.

Will a Rent to Buy make it easier for me to obtain a Mortgage?

The short answer is Yes. The reason is that if the contract is created in such a manner that 20% or more of the price of the property is paid in deposit/rent by the time the option to buy is exercised then the LTV (Loan To Value) aspect of the mortgage will have been attained. Of course, proof of income will be required to satisfy the mortgage lender that the remaining 80% can be paid. Typically, residents can attain a mortgage with an 80% LTV and non-residents 70%. For further information see details on our website from our independent partners MortgageDirect.

What if the property is repossessed by the Landlord’s mortgage lender before I buy the property outright?

The tenant should have a right to rent the property if it’s repossessed, as the Landlord (in this case now the bank) must respect a long-term tenant. You may no longer have the option to exercise the purchase of the property in the same conditions as you agreed with the original Landlord initially. You may have to raise the funds at that time and pay off the outstanding mortgage on the property if you wish to buy it from the bank. Not to mention that if you additionally paid an option fee you would likely forfeit it in the event of a foreclosure. However, as the tenant you will be given first refusal to purchase the property and of course bank repossessed properties are usually great value.

Who is responsible for the maintenance of the property including any private pool or garden?

This can change depending on the specific contract however like a standard rental contract it is advisable that the maintenance of the property is the responsibility of the Landlord/Vendor. Basic and ongoing maintenance and repairs such as gardening, changing lightbulbs and small works would normally be undertaken by the Tenant/Buyer. It is advisable that wording is added to the contract that all general maintenance up to a certain value is paid for by the Tenant/Buyer.

What if the Tenant stops paying the rent, can I evict them?

Until the option to purchase has been exercised the contract will be as per a standard rental contract. It is suggested the contract states that should the Tenant fail to pay rent on a single occasion then the Landlord has the automatic right to evict them as per a standard rental contract.

Do I have to pay tax on the rental income prior to the purchase option?

In theory yes, although this can be claimed back when the property is bought as all payments come off of the purchase price. Lots of people in Spain rent properties and do not declare the income. The amount of tax to be paid depends on the personal circumstances of the Landlord including residency, whether the property is a second home, etc. It is advisable that professional advice is sought, our independent partners at Vives Pons Asociados can offer guidance if required.

What happens should the Tenant/Buyer not be able to purchase the property at the end of the contract term?

If at the end of the term the Tenant / Buyer is unable to exercise the purchase option then, by default, they have relinquished their right to purchase the property at the pre-agreed option price. They have no recourse to have any payments made refunded to them.

However, other alternative routes can be agreed by both parties to ensure the deal continues,  the most obvious being to extend the option term.

Are there legal fees to pay?

Yes, if you use a lawyer there will be legal fees and there will be notary fees. Rent To Buy Spain are collaborating with independent legal and tax advisors Vives Pons Asociados who have created a package for the legal aspects of creating a Rent to Buy contract. Additionally, like typical Estate Agents, Rent To Buy Spain have charges for their services.

What should happen if the owner dies before the purchase option is exercised?

In Spain the heirs of the deceased must accept the inheritance with all the conditions that the assets have. In the case of a Rent To Buy this means that the property has a contract signed allowing the tenant to buy the property for a pre-agreed price within an agreed term which has to be fulfilled.

What happens if property prices increase or decrease significantly before the option to purchase is exercised?

Both parties are committing themselves on a pre-agreed price that in a few years’ time will be the option to purchase price. This is set and is not negotiable once the Rent To Buy contract is signed, unless there is a specific clause within is saying that it can be renegotiated.

Are we contracting with Rent To Buy Spain?

No, the Rent to Buy contract is between the owner of the property and the Tenant/Buyer. Rent To Buy Spain act as an agent to bring both parties together in the same way that a standard property sale/purchase is facilitated by a Real Estate Agent. The only contractual arrangement with Rent To Buy Spain is that you accept the terms and conditions when you register with us including accepting our fees if/when you enter into the contract and sell.

Any further questions please feel free to contact us.

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