The article was written by Lourdes Barriuso, a lawyer specializing in real estate law at Barriuso Legal
Following the boom in hotel investment, a new hotel investment product, “serviced apartments” called “branded residences” in the luxury segment, is rapidly developing in Spain.
Currently developing in Spain, this asset category is expected to experience “exponential” growth, reaching over 1,200 units in 2027 for branded residences, according to consultancy firm Colliers. It operates both in urban areas, in large cities that are tourist attractions (eg Madrid, Barcelona, etc.) but also in holiday areas (eg seaside or golf resorts in Malaga or the Canary Islands).
What is a “serviced apartment” or “branded residence”?
Serviced apartments are apartments with hotel services, and in the case of branded residences, these services are provided within the luxury hotel or brand.
The buyer of the apartment (investor) reserves a maximum of 60 days a year for its use and transfers the rest of the time through an accommodation contract, which the hotelier concludes in the name and on the account of the investor. Apartment users will be able to use basic equipment or services, as well as other additional services that are provided by the hotel and that are agreed upon and paid for separately.
Thus, 3 parties participate in this legal relationship : a developer who develops land or renovates a building for hotel purposes, an investor who buys a serviced apartment, and a hotelier or manager who provides hotel services in the hotel and apartments (under the hotel brand or luxury brand in the case of branded residences).
What are ‘serviced apartments’ and how do they differ from other flexible options?
These are not tourist apartments or flexible apartments medium-term or short-term stay, because serviced apartments are managed by an operator who provides hotel services to the end user (client) as part of hotel management based on an accommodation contract.
It is also not a timeshare, because if the investor reserves a certain time for its use, the owner has 100% ownership and transfers the use to third parties when he does not have them.
They are very similar to condo hotels, which are regulated in the Balearics. A condo hotel is a horizontally divided hotel because its “accommodation units” belong to different owners. In serviced apartments, the hotel is not divided horizontally and the apartments (or villas) are separate check-in units because they are owned by different owners.
What are the reasons for their current success?
Serviced apartments in Spain are tempting private investors – often foreign – who want to enjoy a second (or third or fourth) residence while participating in the hotel investment boom in Spain.
This formula will work successfully if it provides benefits or “added value” for all parties. The developer of a plot of land for hotel use or the reconstruction of real estate suitable for hotel use includes this type of apartment in his offer in order to reduce the risk and increase the profitability of his project (the hotel brand will allow him to sell the apartments at a higher price) and at the same time reduce the need for financing (because by selling the apartments, the financial debt). An investor who buys one or more apartments also hopes to achieve better profitability thanks to the operation of an experienced hotel operator under a renowned brand (Branded Residences). The hotel operator gets a wider and more flexible assortment, which helps to improve its bottom line.
What are the requirements for development planningE “serviced apartments”?
In order to operate the apartments for hotel purposes, they can be located either in the same building as the hotel or in the immediate vicinity (e.g. villas in a golf resort) so that the hotelier can operate them as a whole with the hotel. In both cases, the land or building where the apartments are located must be suitable for tertiary use (hotel, tourism) and not exclusively for housing.
How are the legal relations between the parties contractually regulated?
Relationship between Promoter and Operator and/or Brand
The proponent and the operator will conclude a cooperation agreement at the initial stage of the project, which includes the provision of marketing and marketing consulting services by the operator governing the use of the brand. In addition, the manager’s collaboration also includes technical advice on the design and supervision of the execution to ensure that it meets the brand’s requirements.
Upon completion of construction and decoration work in accordance with the standards defined by the brand, the parties will sign a pre-opening and management agreement.
Promoter-Investor Relations
During the construction phase, the developer and the investor enter into a private purchase agreement, and after the construction work is completed, the parties sign a public deed of transfer of ownership and possession of the property. the balance of the price.
The investor, for his part, will enter into a management contract with the hotel operator to operate the apartment for his benefit, in exchange for a management commission.
Normally, the hotel operator, if it is a renowned international brand, has a standard contract with fixed terms and conditions, which the investors (each investor or community of owners) follow without further negotiation. These contracts do not guarantee a minimum return to the investor, but are subject to fixed and variable fees (depending on occupancy and price) that represent incentives for the hotelier.
Investor-User Relations
The end user (client) concludes a hosting contract with the investor through the operator, who receives the payment and remits to the investor the corresponding part of the price minus co-payments and fees.
total, Serviced apartments are an attractive but legally complex real estate investment product, because the design, development and management of this type of project are also complex. A contractual arrangement is necessary from the initial phase of the project, which appropriately aligns the rights, obligations and responsibilities of the developer, investor and operator of the hotel or brand.