Spain: Tenant Rental Defaults Rise

With prices of of property plummeting in Spain, many overseas property investors started to rent out their Spanish property investments. Unfortunately, the downturn in the economy has now started to see greater numbers of renters defaulting on their rent, with some sources claiming that defaulting tenants and evictions have tripled in the last two years.

Naturally, the problem of defaulting tenants is not one that is unique to Spanish property investors – Spanish landlords are also seeing the same issue. However many expats moved to Spain for a better lifestyle and were then bitten by the recession bug. Without wanting to lose a fortune on their new Spanish properties, they turned to the rental market in a bid to keep their property until prices started to rise again.

Half of the problem is that expat landlords are often unaware of some of the mechanisms that can be put into place to secure rental income. Without these safeguards in the rental agreement, they can be unprotected if the tenant defaults on their rental payment.

The most popular way to safeguard the rental income is to buy some form of insurance which will cover loss of rent for up to around six months as well as helping with legal costs. If the tenant fails to pay, the landlord should then look for the legal route however it can take up to 18 months for the case to work its way through the system and in the meantime, the landlord still has to pay their Spanish mortgage and associated bills. If the landlord refuses to pay for electricity and the electricity supply is cut off, the tenant is actually able to sue the landlord.

The moral of the story here rings true for any rental property, whether in Spain or elsewhere – take out insurance to protect yourself in case the tenant defaults. The insurance will not only pay for the mortgage over a pre-agreed time frame (usually six months) but will usually also include some legal cover.

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