Property investors become reluctant landlords in credit crunch

Property owners in Spain who are renting out their properties because they cannot sell them due to the country’s depressed real estate market are increasingly experiencing problems with bad tenants hit by the economic downturn. The number of defaulting tenants and evictions have tripled in the past two years, it is claimed in an article in Property Wire. Many of those who are having problems are expats  who moved to Spain for a better lifestyle and then became reluctant landlords because of the credit crunch, according to Paragon Advance España, part of the Paragon Advance group of companies offering tenant referencing and rent warranty in Spain.>
Bryn Cole, Managing Director of Paragon Advance España who have offices just outside Marbella, the Costa del Sol and Madrid said that many of these reluctant landlords have moved back to the UK and rented out their properties as they cannot sell them in the current real estate climate. ‘They have been forced into letting out their homes in order to be able to pay the mortgage and, for those investors who jumped on the Spanish property market, buying off plan, only to see it go into freefall before they could offload their investment, they have had their fingers burned and are having to let long term and ride it out,’ he explained.

His company’s research has found that the number of tenants who default on their monthly payments is increasing at alarming rates with tenants also being affected by the economic crisis and unemployment in Spain.

Many expat landlords are unaware of the different mechanisms in place to secure rental income and often fail to implement them in their rental agreements which can leave them unprotected if the tenant does not, or
cannot, pay the rent.

In order to assist ex pat landlords, Paragon Advance España offer a rent protection and legal expenses warranty which offers a standard loss of rent cover for up to €2000 per month for up to six months cover,
although rents of over €2000 can also be covered, and legal expenses cover up to €15,000.

By using the route of arbitration, the timescales involved are dramatically reduced said Javier Iscar de Hoyos, General Secretary of the European Association of Arbitration (AEADE) ‘It can take around 18 months through the usual law system and, in the meantime, the landlord still has to pay the mortgage, utility bills and has no redress over the defaulting tenant during this time. If the landlord should refuse to pay and, for instance,
the electricity is cut off, the tenant can prosecute the landlord,’ he explained.

‘We have invested time and effort in ensuring that a more specialised system of arbitration takes root in society, providing fluidity, security and trust in contractual relationships between landlords and tenants,’ he
added.

More than 80% of proceedings dealt with in 2008 were from the property sector in which the number of arbitration cases rose by 83%. During this time, the average dispute resolution took less than four
months. With the system created by AEADE to facilitate disputes in that sector, the time frame was limited to an average of 25 days, with more complex cases being resolved within six months, added de Hoyos.