GIPE Newsletter 5 March 2024

LEASES:

The tenant pays the community

In this case, the tenant has discussed the validity of the agreement in his housing rental contract related to community fees. According to the Urban Leasing Law (LAU), for this agreement to be valid, it must be in writing and the annual amount of said expenses must be determined on the date of the contract. It is important that the tenant knows the amount of these expenses to evaluate the obligation he assumes.

However, in this specific case, the contract indicated the monthly amount of the expenses instead of the annual amount, as required by law. Despite this discrepancy, it has been considered valid, and the tenant has had to pay them. It is argued that the tenant could have easily calculated the annual amount through a simple mathematical operation, so he cannot rely on a formalistic interpretation of the rule.

In summary, to charge the expenses to the tenant, it is necessary to agree in writing and clearly indicate their annual amount.

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PURCHASE OF PROPERTY:

The seller no longer resides in Spain

In the event that you have been commissioned to sell a property whose owner informs you that he has not resided in Spain for a few years, it is important to remember how to correctly advise both the seller and the buyer in these situations.

What is meant by “non-resident”?

Concept: Regardless of nationality, a “non-resident” is considered any person who habitually resides and pays taxes in another country (that is, who has his or her tax residence abroad). Tax residence is accredited by a certificate issued by the competent Tax Authority of the corresponding country, and the validity of said certificates extends to one year.

In Spain: On the other hand, it will be understood that a natural person has tax residence in Spain when one of the following circumstances is met:

• He/She remains in Spain for more than 183 days a year (unless he/she proves tax residence in another country). To calculate this period of permanence, the calendar year is taken from January to December and all sporadic absences are discounted.
• The main core or base of his/her economic activities or interests, whether directly or indirectly, is in Spain. This means that the headquarters or administration of their businesses, the majority of their assets or the majority of the income that the person obtains must be located in Spanish territory.

Obligations of the parties:

Buyer: In a sale of a property where the seller is a non-resident, the buyer is obliged to withhold 3% of the total price of the sale and pay it to the Tax Agency using form 211, within one month following the date of transfer of the property. If the buyer does not make this withholding, the property will be subject to payment of the amount that is lower between said withholding and the corresponding tax that the seller must present and pay.

Seller: For his part, the non-resident seller must pay tax in Spain on the gain obtained from the sale of the property. This gain is calculated as the difference between the acquisition value and the disposal value.

To comply with this obligation, the seller must present form 210 within three months following the end of the period to pay the 3% withholding (which is considered a payment on account of the Non-Resident Income Tax, IRNR).

Beware of capital gains:

In the liquidation of capital gains, the buyer is considered as a substitute when the sale is made by a non-resident.

The city council could demand payment of the capital gain from the buyer if the seller does not settle it.

Therefore, it is recommended to retain the amount of the capital gain when signing the deed. To do this, instruct the buyer to do the following:

• Previously manage a pre-calculation of the tax at the City Council.
• State in the deed that said amount of the purchase price is retained as a guarantee for payment of the capital gain.
• The buyer can release the amount when the seller proves that payment has been made. If the city council demands payment from the buyer, the buyer can use the withholding to cover it.

In summary, the buyer must retain and pay 3% of the price to the Treasury, and also consider the withholding of municipal capital gains in these cases.

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PREMISES LEASING:

Adaptation works

In the context of a premises for rent that is completely open plan, it is common for the tenant to need to carry out works to adapt it to his specific activity. Below, we summarize the key aspects related to the works and their treatment at the end of the lease contract:

Cost of works:

Generally, the lessee assumes the cost of the adaptation works and is also responsible for obtaining the necessary licenses. This ensures that the result meets your needs.

However, financing these works can give rise to disputes at the end of the contract. The key question is whether the tenant can withdraw the improvements made or whether he is entitled to compensation for returning an “improved” premises.

Forecast in the Contract:

It is essential to foresee all this in advance. Therefore, what will happen to the works carried out by the lessee must be expressly included in the contract.

Depending on the activity for which the premises are used, different approaches can be agreed upon:

A. Very specific works:

Some activities require specific infrastructure (for example, a bar needs a smoke outlet, kitchen, bathrooms, etc.).

If you intend to rent the premises again as a bar, it is advisable to agree that the works remain for the benefit of the premises.

If you don’t see the deal clearly, you can agree otherwise.

B. Basic works:

If the premises will be used as offices or a shop, the necessary works may be more basic (for example, installing a sink and some walls).

In this case, it is advisable to agree that the works be for the benefit of the premises.

At the end of the lease, you will have a better equipped premises to rent again.

Sufficient Contractual Term:

If it is agreed that the adaptation works must remain for the benefit of the premises, the tenant will not be able to remove them at the end of the contract or request compensation.

Therefore, it is reasonable for the lessee to demand a sufficient contractual period to allow it to amortize the investments made in the improvements.

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LOCAL TAXES:

Two calculation systems

Taxpayers can calculate the municipal capital gain in two different ways and choose the one that best suits them.

When an urban property is transferred, the transferor (in onerous transfers) or the beneficiary (in free transfers) must pay the Tax on the Increase in the Value of Urban Land (the municipal capital gain). Given that municipalities have the autonomy to establish it and to set the tax rate, taxpayers usually request a pre-calculation of what they will have to pay (in some municipalities this procedure can even be done through their website).

Even so, this precalculation is not necessarily the final tax. The law establishes two ways to quantify the fee:

• On the one hand, it can be determined according to objective parameters.
• On the other hand, taxpayers can apply the real procedure, which takes into account the real gain obtained in the transmission.