How we built a new life: Running a hotel in Spain

For 18 years, the property was uninhabited – and with its collapsed roof, crumbling window frames and woodworm-infested interior, it was easy to see why. But the moment that Nick and Lesley Vallance first saw the rundown 18th-century bishop's palace in the southern Spanish town of Velez-Malaga, they immediately recognised its potential as a boutique hotel. What they did not envisage was the string of delays, obstacles and challenges that would double the amount of time and money they had budgeted.

Throw into the mix a collapsed wall, legal action with neighbours, confusing red tape and struggles to settle their two children, and when the couple say admit that they have had more than their fair share of difficulties in pursuit of their dream, it's safe to assume that's an understatement. But three years after first setting eyes on the property, the family has finally opened Palacio Blanco as a hotel.

"I've had some of the worst and most exciting moments of my life in the past few years," says Lesley. "We're looking forward to starting our new lives. We've been waiting a long time."

It was in 2004 that Nick, an architect, and Lesley, a fashion industry display manager, from Kingston-upon-Thames, Surrey, decided that a complete lifestyle change was in order. Nick's architectural practice had gone into liquidation and the couple were keen to swap London life for a more fulfilling environment. Initially, the couple and their two children, Harry, 13, and George, 11, scoured the West Country for potential boutique hotel properties – to no avail.

"The prices were too high," says Nick, 45. "I'd never even been to Spain before but a friend suggested it and so we jumped on a plane to Malaga."

After viewing around 30 properties, the couple were taken to Palacio Blanco in Velez-Malaga, an old town in a relatively undeveloped region only 3km from the sea. "When I walked in for the first time, the hairs stood up on the back of my neck," recalls Lesley, 46. "It is a beautiful space and we could see its potential immediately."

Centred on a central courtyard, the property in its time had been a school, a mayor's residence and a bishop's palace. But as it had been split into 26 small rooms and was in a state of disrepair, it was clear that quite a makeover would be required.

Numerous paperwork checks ensued to make certain that it would be possible to convert the property into a hotel before they put in an offer for £300,000 – which was accepted. The couple budgeted a further £250,000 for building work and £100,000 for furnishings to complete the transformation. The project was to be financed by the sale of their Victorian family home in Surrey – which they sold for £600,000 after buying it only six years earlier for £200,000.

In September 2005 the family moved to rented accommodation near Palacio Blanco. Initially, the couple thought the work would be completed within six months – but seven months later, it had yet to begin. First, delays surrounded their application for listed building consent. And just before they were about to start building, their neighbours demolished the next-door property – causing one of the main walls in Palacio Blanco to collapse.

"It was a terrible moment," says Nick. "We arrived to see police, fire brigade, ambulance, a TV crew and a crowd of 40 people. A third of the building had gone. The insurance company refused to pay as they said it was due to negligence. So we are taking legal action against the neighbours."

In the meantime, the couple pressed ahead with their plans despite a dramatic increase in workload and expenses. The work began in September 2006 and was completed some 12 hectic months later.

The end result is an intimate eight-bedroom hotel set around a plant-filled courtyard with a modern Moorish ambience. White-washed walls and glass-and-chrome walkways are fused with restored 300-year-old wooden doors, bright abstract flamenco paintings and original tilework. Chandeliers hang in vaulted ceilings and there are splashes of chocolate brown, deep red and cerise dotted around the hotel, with a swimming pool on the roof terrace.

At the rear is a discreet three-floor family house, compete with private garden, providing an escape from hotel life. The couple struggled at first to help their two boys adapt to Spanish life. "It was difficult at first," says Nick. "Children don't like change and it took time for them to settle. But now they're at a great international school and are very happy here."

Despite all their trials, the family has no regrets. "I love the blue skies during the day and the scent of flowers in the air at night," says Lesley. "It's a wonderful life. We may have been through a lot but now we're ready for the next chapter."

Palacio Blanco, Calle Felix Lomas, 4, 29700 Velez-Malaga (00 34 952 54 91 74; www.palacioblanco.com). Doubles from €75 (£51)

Tips for opening a hotel in Spain

* Employ a translator to avoid the otherwise inevitable miscommunication.

* Find a good English-speaking planning lawyer who fully understands the legal quirks of the region.

* Spanish authorities are cracking down on illegal building work: before work can begin, owners must apply to the Town Hall for a licence to build.

* If it is a historic building, owners must obtain listed building consent from the regional Department of Cultura office.

* To operate a hotel, an opening licence from the Town Hall is necessary and permission obtained from the Department of Turismo.

* Make sure the builders do not subcontract work to illegal unregistered workers. Random checks are carried out and property owners – not contractors – are liable.