There is no doubt that one of the most adversely affected sectors by the economic crisis was the real estate market. Nevertheless, one sector thereof, relating to the leasing of property, has managed to survive and even emerge stronger as a result of the economic crisis.
The rise in rent in Spain, especially in housing, is gradually ousting the ownership regime deeply rooted in Spain, progressing to a rental market for housing level similar to that existing in other European countries like Germany or the United Kingdom.
As a result of this rise, the war between supply and demand, the lures behind affordable rent, lessees may incur unexpected costs in connection with such an offer. Thus, the interpretation, understanding and, in this case, the negotiation of the leasing contract is essential.
Taxes associated with leases
Since 25 November 1994, Law 29/1994, of 24 November, on Urban Rents (LAU) regulates leases intended for housing as well as uses other than housing. Article 20states that the parties agree that the general expenses incurred for the adequate maintenance of the property, its services, taxes, charges and responsibilities that cannot be individually identified and which correspond to the rented property or its accessories, shall be payable to the lessee. Certainly in practice and in addition to the rent and updating the rent, one of the most discussed points between parties when formalizing a leasing contract is precisely this question.
Hereafter, this article undertakes a breakdown of what common expenses and taxes are associated with housing or local rent on a case by case basis, determining who is responsible and its potential impact to the lessee.
Taxes associated with leases
Of all the taxes associated with leasing contracts, the most relevant is the Property Tax (IBI), which is levied on the value of the real estate. According to Art. 63 of the Legislative Royal Decree 2/2004, dated 5 March, which adopted the rewritten text of the Law regulating Local Tax Authorities, the taxpayer is understood to be the person who holds title and ownership of the house. Therefore, the landlord must pay the IBI.
Although with leases signed prior to May 9, 1985 (which still exist today), the landlord may require the tenant to pay the full amount of the IBI corresponding to the leased property (vid. Second Transitory Provision 10.2 of the LAU), this does not happen with leases concluded today. In these cases, the impact of the IBI to the lessee is only possible if expressly agreed to in the lease — and notwithstanding that, as noted before, the Tax Administration views the landlord or owner as the taxable entity the – in a perfectly valid agreement and regular under Art. 20.1 of the LAU.
On the other hand, although in practice it is often overlooked, according to the provisions of Art. 7.1 b) of the Legislative Royal Decree 1/1993, dated 24 September, approving the revised text of the Law on Transfer Tax (ITP) and Documented Legal Acts (AJD), housing leases between individuals are subject to ITP settlement. In this case, and in accordance with Art. 8.f) of the Royal Degree mentioned above, the lessee is obliged to pay the aforementioned tax. It is appropriate to clarify that the lessee would be excluded from payment of ITP on those lease premises or housing for the development of professional activity because they are subject to value added tax (VAT). Therefore, for appropriate settlement of this tax, one must determine the intended use of the leased property. As the General Directorate of Taxes has clarified in a binding referendum on 6 September 2013, leases concluded with legal persons or those for professional offices, are subject to and not exempt from VAT. Having said this, this article does not analyse the impact of ITP and VAT, since it deals only with taxes payable by the tenant.
Lastly, in terms of indirect taxes linked to leasing, under the Personal Income Tax (IRPF) and Company Tax (IS), the individual landlord (in the first case) or the legal person (in the second case) must pay the treasury given the tenancy in question and the income derived from the lease. Under the principle of freedom of agreements established in Art. 1,255 of the Civil Code, Spain’s jurisprudence accepts contractual agreements whereby one party assumes tax obligations, according to tax regulations, that the other party would normally be in charge of. Nevertheless, according to Art. 17.5 of Law 58/2003, dated 17 December, General Taxation (LGT) and Art. 20 of the LAU, such agreements are ineffective before the Tax Administration, without prejudice to its legal and juridical implications. Thus, to the General Directorate of Taxes, the position as a taxpayer cannot be altered by acts or agreements of individuals. Consequently and given the above, nothing would prevent the parties of a private lease from agreeing that the tenant pay the tax costs arising from the aforementioned holding and profits, although the taxable person is the lessor. However, such a pact is unusual in practice for its character and is no doubt excessive or unreasonable, and may even be declared invalid in cases whereby the tenant holds the position of the consumer.
For further information on the tax and expenses of leasing contracts in Spain,
