Rent-to-buy agreements in Spain

As of late, this option of buying a property in Spain is gaining popularity. When it is difficult to get a mortgage to buy a new home, but there are some savings, many clients choose the rent-to-buy or rent-to-own lease agreement.

Let’s take a closer look at what a rent-to-own lease is and how it works in Spain.

How does a rent-to-own agreement work in Spain?

First, you need to understand that a rent-to-own lease is a double contract consisting of two sub-contracts, namely: a lease agreement and a sale agreement. Such an agreement allows the tenant to rent a home for a specified period of time. At the end of the lease term, the tenant has the pre-emptive right to purchase at the price fixed in the contract. In this case, all or part of the lease payments made are counted towards the sale price.

According to the Supreme Court of Spain, a lease with an option to purchase is a pre-contract of sale, and one-sided, where one of the parties gives the other party the right to purchase within a specified time frame and on certain conditions. Such an agreement may also be accompanied by the payment of a security deposit or down payment to the seller by the prospective buyer.

Benefits of a rent-to-own agreement

This type of contract can be mutually beneficial for both parties.

For the tenant. A tenant can rent a property and thus invest in a possible future purchase. The sale price is negotiated in advance and fixed in the contract, which is a definite plus in the event of a possible increase in housing prices during the rental period.

For the Lessor. The landlord receives income from the property while holding a deposit as a security for the purchase. The fixed sale price guarantees the seller will receive the agreed sale price in the event of a purchase, which is a plus in the event of a drop in home prices.

With all of the above in mind, the rent-to-own agreement does not necessarily mean a higher rent than in a simple lease agreement, but it implies a higher down payment, usually several times higher than a regular deposit in a classic lease agreement. Moreover, if the tenant does not buy a property at the end of the allotted time, he loses all the amounts paid (as well as rent payments and the down payment), while in the case of a classic lease, the deposit is returned.

How should a rent-to-own lease agreement be drafted?

A lease agreement with the right to buy a property is not a typical contract for Spain, there are no special legal provisiones for such type of a contract, and such an agreement is not directly regulated by the Spanish Civil Code, although it is accepted and recognized by the Mortgage Law and the Law on Urban Leasing (LAU). That is why it is very important that all conditions are clearly spelled out in the contract itself.

In order for the contract to have legal force, and in accordance with the requirements of the Supreme Court of Spain, the following two conditions of sale must be prescribed: the purpose of the contract and the down payment. In the case of a down payment, its value must be clearly indicated in the contract.

Since we are talking about a double contract, it is necessary to clearly reflect in it the terms of both the lease and the sale. The following are the details that must be included in both the rental agreement and the sale agreement.

Lease contract

• The maximum rental period during which a tenant can rent a property (keep in mind that according to the Spanish law, the tenant has a right to stay in a rented home up until 5 years with some exceptions)
• The period during which the tenant can exercise his right to purchase (the buyout option)
• The monthly rent
• A clear distribution of housing costs must be set out (utilities, payment of taxes, possible repairs, etc.) between the tenant and the landlord (owner)

Sale agreement

• The sale agreement must indicate the willingness of the landlord to sell the property to the tenant if he is interested in buying it
• Sale price
• What part of the rent will be deducted from the sale price
• The cost of the option, also known as the amount of the down payment (as a rule, this is a percentage of the sale price, which usually varies between 5-10%)

Terms of rent-to-buy lease agreement

1. At the time of signing a rent-to-buy lease, it is not necessary to establish an initial down payment. However, this measure is recommended for the protection of the owner, as it guarantees the real interest of the tenant in the further acquisition of housing. It must be understood that both the down payment and the rental payments are lost if the tenant does not exercise his right to purchase.
2. The tenant has the right to rent a home during the term of the lease agreement, regardless of the term of the buyout option, because this contract is governed by the City Leasing Act (LAU).
3. The tenant can extend the lease agreement with the owner´s consent, but the buyout option in this case expires, because it is governed by another agreement.
4. The owner cannot lease or sell the property to someone else during the term of the lease with the option to buy.
5. The tenant has the pre-emptive right to purchase during the period specified in the contract.
6. The sale may take place before the buyout period expires. Usually, the purchase takes place within the first two years.
7. Neither of the two parties can change the sale price. The rental price may change, but only in accordance with the IPC consumer price index, if the owner requests it.
8. In the event that the tenant is more than 2 months late with his rental payment, he loses the right to buy the property and the deposit paid.
9. The contract can be registered in the official real estate registry (by signing a title of deed at a notary´s office) provided that both parties agree and fulfill the basic requirements (the purchase price, the amount of the deposit and the expiration date of the option must be indicated).

If you have any questions or need a consultation, please contact our experts.