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Tourist Rental Law Update 2020 – Can you Rent your Property to Tourists?

Those reading English language newspapers and internet blogs in Tenerife over the past few years may be familiar with articles discussing the law applicable to tourist rentals. However, many people are still confused and unclear about the situation, no doubt due to the conflicting information being circulated.

As a starting point, it is important to understand which category of accommodation a particular apartment or house falls within, as this will determine the rules governing tourist rentals (which are explained below). The categories are:

a) TOURISTIC COMPLEXES:   This means that the entire complex in which a apartment or villa is situated has been granted tourist status by the Town Hall Planning Department. Such touristic status does not automatically give the right to start renting to tourists. It is merely the legal basis for the complex to apply for a Sole Agent Touristic Exploitation Licence (explained below).

b) RESIDENTIAL APARTMENTS:  This means that the entire apartment complex in which the apartment is situated is designated solely as ‘Residential’ by the Town Hall Planning Department. Once this designation is assigned, it may only be altered to ‘Touristic’ by a 100% unanimous vote of all apartment owners. Residential designated complexes are not allowed to offer any rentals of less than 3 months in duration other than in very exceptional circumstances (explained below).

c) INDEPENDENT PROPERTIES:  This means houses, villas, fincas etc that are independent and not part of any community or complex. Theoretically, it is possible to apply for a licence to rent such properties to tourists, although practically it is not always that easy (explained further below).

d) VIVIENDA VACACIONAL:  This is a tourist rental status (marked by a “V.V.” plaque, which is granted to apartments or independent houses that either have no community, or where there is a community, but it has no written rule against tourist letting. Contrary to popular rumour, it is NOT available for the vast majority of apartment complexes in Tenerife, either because the community has expressly forbidden tourist letting (residential complexes), or all owners are legally obliged to use the sole rental agent (tourist complexes). So this V.V. category is only available to independent houses/villas, or to apartment complexes that have not expressly forbidden tourist lettings (very rare). There are also instances of owners applying for ‘VV’ licences illegally by failing to declare that their community actually prohibits tourist letting  (failure to declare correctly is now a criminal offence).

Background to the current Tourist Rental Laws

Historically, owners could rent their property to tourists pretty much as they pleased, provided they complied with general tourism regulations, took out landlord’s insurance and paid their income tax etc.

However, that all changed in 2007, when the Government introduced a new law (7/1995) which introduced the requirement for tourist complexes to appoint a sole rental agent for each complex, which all owners would be obliged to use. The official government story for introducing this law was to bring uniformity of service and quality. However, the most common theory suggested is that this law was the work of the powerful hotel group lobbyists, who were panicking at the boom in self-catering accommodation and wanted to take action to cool the self-catering market.

Regardless of the true motives, a large number of the anointed ‘sole agents’ were soon accused of abusing their monopolies by overcharging tourists, underpaying property owners, or simply providing poor service.  Some sole agents who owned their own properties on the complex further abused their position by filling their own apartments first and only then passing the leftover bookings to the other owners.

Needless to say, a large percentage of owners soon took matters into their own hands. Many bypassed their designated sole agent and took their chances by renting privately or through an independent professional agent. For over 13 years most got away with it and never received any inspection or fine.

However, having largely failed to enforce the law for over 13 years, in 2011 the government suddenly instructed the tourist inspectors to step up enforcement. They started with independent rental agents, who obviously represented an easier ‘one-stop-shop’ than chasing around individual owners. Those agents received demands for information about their clients and their properties. Some gave in and disclosed the information, whilst others correctly refused and instructed solicitors to defend (such defences proving largely successful).

Based on the information collected, the inspectors managed to issue just under 1000 fines by 2012, averaging €30,000 Euros. Pressure groups were formed and various lawyers were instructed to file appeals against the fines.

In 2013, Tenerife Solicitors published an article highlighting three Judgments from the Canarian Supreme Court. The cases factually related to tour guide companies, but the underlying European law is directly applicable to tourist rentals. The law (European Directive 2006/123/EC) commonly known as the ‘Bolkestein Directive’  explicitly forbids the imposition of a trading licence before commencing any general non-regulated business activity.

Contrary to suggestions on certain information blog sites in Tenerife, Bolkestein applies to ALL individuals, partnerships and companies throughout the EU. It also applies to all ‘business’ or ‘commercial activity’, however big or small. Having obtained advice from a Barrister specialising in EU law, Tenerife Solicitors have interpreted the Bolkestein Directive to apply to both individual property owners and independent agents renting out their properties to tourists for commercial gain in Tenerife.

Their view is that if the sole agency law is referred to the European Court of Justice, it will be overturned. Indeed, subsequent events would suggest that the Canarian Government has taken desperate steps to avoid the law being scrutinised in this manner.

The first major development in the legal appeals process came on 16th May 2013 when a group of test cases being handled by lawyers for ALOTCA came before the Supreme Court in Santa Cruz, Tenerife. The usual pre-trial private meeting then took place between the lawyers and the Judge.

According to ALOTCA’s spokesperson Janet Anscombe’s blog entry dated 20th May 2013, the Judge allegedly indicated his provisional view that the rental law was valid and hence he was minded to rule in favour of the government. He apparently also suggested that all ongoing appeals in the matter would be reserved to him only. However, despite this, he then allegedly commented that the fines being levied were too high and should be negotiated down. The Judge then apparently suggested that a ‘Class Action’ be formed so that affected owners can instead pay an ‘out of court’ settlement. A figure of 5,000€ per fine was then suggested for the majority of the cases. The Judge finally suggested that the settlement should be administered by the ALOTCA’s lawyers, the very group supposedly fighting against the unjust rental law.

The meeting was apparently video-recorded and Ms Anscombe assured readers that this would be uploaded to her website. However, she subsequently declined to publish it on the grounds including that it was in ‘Spanish’ and would apparently be incomprehensible to viewers and also that misinterpretations, confusions or misunderstandings might arise (see the same blog link above – 28th May 2013 update)

We believe it doesn’t take a qualified lawyer to raise alarm at the reported outcome of that meeting. Firstly, the Judge hadn’t even heard a single legal argument by that stage. ALOTCA’s ethos from the outset was that they would conduct robust defences on behalf of their clients, yet they now suddenly appeared to accept the Judge’s comments.

Unsurprisingly, acceptance of the ‘class action’ settlement proposal was thin on the ground. Several clients being railroaded into such settlements approached Tenerife Solicitors seeking alternative representation, stating that they wanted the vigorous defences they had paid substantial money for and were not simply prepared to roll over and pay a reduced fine.

The Outcome

Things then took a very interesting twist. Despite the Judge having suggested that the government was likely to win the cases and ALOTCA supposedly negotiating the level of fines to be paid, the government suddenly announced on 12th September 2013 (less than 4 months after the Judge’s comments) that it was voluntarily dropping the vast majority of the fines. Their apparent excuse for this startling U-turn was the suggestion that evidence obtained via the internet apparently cannot be relied upon in Court. ALOTCA’s report on this outcome can be read here:

Although an apparent victory for the affected property owners, this humiliating climb-down by the government raised serious questions:

  1. The government had been prosecuting the cases since 2012. Why did it take such a long time to conclude that they could not rely on internet evidence? (such evidence being available via Google in the public domain).
  1. Why would the government voluntarily advertise a fatal flaw in its case when the Judge (who was reserved to hear each and every case) had just indicated the likelihood that he would find in the government’s favour and that fines should be negotiated and paid?
  1. If evidence obtained via the internet was indeed inadmissible, why did ALOTCA’s lawyers not pick up on this apparent fundamental flaw in the government’s case? Janet Anscombe’s earlier ALOTCA blog entry of 14th March 2013 actually quotes a case from the Madrid Court where the Judge ruled that there are cases where internet evidence alone is often not sufficient. So why did ALOTCA appear to endorse the Judge’s recommendation that all owners should negotiate and pay a fine? Why didn’t they publicly reject the Judge’s comments in May 2013 and insist on fighting the cases?

The reality is that the government’s excuse for dropping the cases was just that, an ‘excuse’. The truth is that internet evidence is perfectly admissible in court proceedings, provided it is in the public domain. The above Madrid case simply highlighted how and when additional evidence might be required in support.

So why did the government perform such a humiliating U-turn when they were apparently in such a strong position 4 months before? Sources close to the government have suggested that it was desperate to avoid having the cases referred to the European Court, where the sole agency law stood to be publicly thrown out. In that instance, property owners in Tenerife would essentially have a well-publicised green light to rent out as they saw fit. This would undoubtedly cause the self-catering market to boom.

Instead, by performing the said U-Turn, the government has created a situation where the sole agency law technically stays in force (albeit completely unenforceable). Fear and uncertainty continues and many owners are either too scared to rent, or feel they have to keep a very low profile, affecting their ability to maximise their rentals.

The few remaining appeal cases based largely on non-internet evidence have since been proceeding to court. Whilst there are no published cases available at the time of writing, we understand that each and every such case that has been heard has been kicked out by highly critical Judges and the fines cancelled.

Meanwhile, the government inspectors appear to be keeping a very low profile on tourist complexes. To our knowledge, no new sole-agency tourist-related fines have been issued on any tourist complex since 2013, despite numerous ‘sole agents’ regularly reporting rental infractions to the inspectors’ office.

Given the continuing applicability of the Bolkestein Directive and the recent events in this matter, we consider that the 7/1995 Law in respect of ‘sole agents’ is both illegal and unenforceable. As such, until it is repealed or replaced, it would appear that owners can essentially rent out their properties as they see fit, provided they comply with all other legal requirements.

Some of the ‘sole agents’ would appear to have reached the same conclusion. No longer supported by the Tourist Inspectors, a minority are resorting to bully-boy tactics to bluff and intimidate non-compliant owners. Such tactics range from interrogating rental tourists upon checking in, putting threatening letters under doors, or even denying tourists and owners in non-compliant apartments access to basic community facilities. Needless to say, any such actions are illegal should be vigorously challenged. Tenerife Solicitors regularly advise and assist clients with a variety of rental law and community related issues. For more information on the firm, click here.