Costa del Sol property blog

After a recent article I wrote, buying a business on the Costa del Sol I was asked about the ‘pros and cons of leaseholds and freeholds in Spain’. Being a bit of convoluted answer, I thought I would write an article about it.

Let us start by looking at leaseholds.

Leaseholds, known as ‘traspasos’ in Spain, is a form of property ownership where you buy the right to occupy land or a building for a given length of time. This is normally for the period of 5 to 10 years. Unlike simply renting, leaseholds can be bought and sold on the open market. Many leasehold agreements are also renewable upon completion of the existing agreement. It is worth noting though that should you sell your leasehold the owner (freeholder) is entitled to a percentage of the sales price. This percentage would be stated in your contract.

So what are the advantages and disadvantages of leaseholds in Spain?

Leaseholds are generally far cheaper than freeholds. To the point where you are able to purchase several leaseholds for the price of a freehold. The lower initial investment also allows you to test the market with more confidence.

The main disadvantage is that you do not own the ‘bricks and mortar’, which limits your financial assistance if approaching a bank for a loan, etc… Depending on the leaseholder, you might also be more limited on the structural changes you want to make as you may have to seek the owner’s permission.

So what about freeholds?

A freehold in Spain is outright ownership of the property or land, similar to the purchase of a residential property.

Advantages and disadvantages of freeholds

By owning the freehold, you benefit by owning an asset that will appreciate in value. Even in the current market, freeholds on the Costa del Sol have remained resilient depreciating prices. There would also be the option, that should your business venture fail, as the owner you could lease the premises which would generate a monthly income for yourself. You could also seek financial help with the purchase of a freehold. On the negative side you would be looking at a considerable investment compared to a freehold.

Both freeholds and leaseholds in Spain are viable options for those looking to set up a business. As always it comes down to the sort of business you wish to set up and what sort of funding you have in place.

Regards
Andrew Belles