What is next for property owners who let
Sunday, 11 December 2011
The fall out of the 1995 Letting law in the Canary Islands
For an overview of the law itself, see my previous article The 1995 Letting Law in Tenerife and the Canary Islands.
This article is not really about speculating as to what the consequences may or may not be for the Canarian economy, nor is it about lobbying the Canarian Government to change the law - I don't believe they will.
This article doesn’t really apply to owners of villas in Tenerife on private land and not part of a community either – currently these properties can’t register either because of a moratorium that has been in place for years banning new registrations (unless it’s a 5 star hotel). Read about Villas here.
First a re-cap:
When the controversial "ley 7/1995" came out in the mid 90's the was furore among letting agents who had up to then, been allowed to operate within as many different complexes as they wanted, letting apartments to tourists was legal for them so long as each individual company or individual registered the properties with the Cabildo (Tourist Board). On some complexes it was not uncommon for there to be half a dozen agents all registered and plying their trade.
Article 38 of the Ley 7/1995 law changed all of this: The principle of unity of exploitation. In accommodation establishments, all tourist activity must be done under this principle. To the effects of this law, "unity of exploitation" is understood to be the creation of a sole company whose role is the rental of tourist accommodation in an establishment, or unitary set of constructions, buildings etc........ whose accommodation units must be destined in their totality to tourist activity. To the effects in this article, tourist renting is understood to be the development of all activities of management, administration, and commercial direction of the tourist accommodation services."
At this point the law demanded the entire complex to be registered to one sole agent, this of course presented a massive problem to complexes that were privately owned as you can't get a group of owners on communities to agree that a white wall is in fact white....... amendments to the law were brought in and eventually 50%+1 became the magic number which one company had to register with the Cabildo in order for them and the owners on a specific complex to carry on letting their apartments.
This created a lot of movement with apartment management agents in Tenerife (and no doubt the other Canary Islands experienced similar), some joined forces, some carried on as before, some swapped apartments with other agents, some went out of business altogether.
Either way, if your apartment wasn’t with the sole agent, or there wasn’t a sole agent – you could no longer let your apartment.
The law was taken to the European court of Justice twice in the early 2000's and it was decided that the Canaries could do what they wanted so no joy with that avenue.
Then, for pretty much 15 years, the law was largely unenforced - until the end of 2010 when a new clamp down was initiated and inspectors began going around communities and taking owners details off of Administrators and adverts on the internet. Throughout 2011 over 7000 fines were issued mainly to private owners of apartments who were not registered (and could not be in some cases). At this point everyone realised that this was now serious and happening.
Why did they suddenly follow up a 15 year old law? Some think it is to recover un-declared tax from the private holiday rental sector which has been forced to become a black market because of the Ley 7/1995. Others say its pressure from hotel groups who are struggling to fill their hotels. I think the answer is probably both.
There has been a lot of speculation about how this will affect local businesses if the inspectors are successful in their quest, we can only wait and see, but that is not the focus of this article.
What has surprised me this time around is that owners of property in Tenerife are trying to either; jump ship and sell their property on the unregistered complexes (which I can understand if they're residential anyway) - or complaining on message boards and trying to get a support group going.
Many are finding it hard to find a complex with a licence that is a viable option to buy into because of the way the current licence holders run things, for example some pay a pittance to the owners when their property gets rented, others won't take on new stock because they can't fill the ones they currently have, but bar far the worst situation I've heard is that one licence holder won't divulge rental rates and returns unless the person enquiring is an owner - who would buy without first knowing what they are going to get?
However, no-one seems to be looking at complexes that DID have a tourist licence and have now fallen below the 50%+1 threshold. These complexes can be resurrected and made legal so they work within the requirements of the law. The only problem is that it is hard work achieving 50%+1 because of all of the different points of view of owners. Some continue to try and hide under the imaginary "friends and family" clause, others carry on as before but "go to ground", others still don't believe it's really happening and I'm sure there's some that want a sole agent to come in but don't want to pay to run what’s needed for a tourist complex to exist because they're used to keeping pretty much all of the money they've taken over the years while the authorities were napping.
I'm not calling these complexes residential, and I can't call them touristic - I'm calling them dormant-touristic. These types of complexes will be around 15 to 20 years old or older and have a well known history of letting to tourists but for one reason or another - no longer have a tourist licence. The owners of these complexes should not have to endure the 18,000 - 21,000 euro fines we've been seeing across the islands, they should instead concentrate on unifying the owners who do rent, or want to rent, within their complex and find a sole agent who is fair to the owners, pays a good return, allows them to find their own bookings if required. Then these complexes can stop being dormant and instead regain their registration and generate a good income for the owners while raising the value of property too.
Not all sole agents are like Mr Monopoly and it's a shame to watch formerly thriving tourist complexes slip away into obscurity while the individual owners are caught up in a time consuming and costly legal wrangle which will ultimately come to nothing once again.
Author Information
Author: John Parkes
Bio: John is a 30 something property enthusiast who has
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