The new housing lease

The Government has approved Royal Decree-Law 7/2019, of March 1, on urgent measures in the area of housing and rent, by which it modifies the Urban Rentals Law, the Horizontal Property Law and the Civil Procedure Law, among other regulations, in order to facilitate citizens’ access to housing by strengthening the urban rentals market.

One of the most important modifications introduced by the referred norm is the one related to the duration of the housing renting. A minimum duration of the contract is established for the lessor of five years, or seven years if the lessor is a legal entity. In other words, although the duration of the lease may be freely agreed upon by the parties, if it is less than five years (or seven if the lessor is a legal entity), on the day the contract expires, it is obligatorily extended for annual periods up to the indicated minimum duration, unless the lessee declares to the lessor his desire not to renew the contract at least 30 days before the initial termination date of the contract or any of its extensions.

Likewise, the regime of extensions of the contract is modified, so that if on the date of expiry of the contract, or of any of its extensions, once the minimum five or seven years previously indicated have elapsed, the lessor has not notified the lessee of his willingness not to renew it with at least 4 months’ notice, or, in the case of the lessee, the latter has not notified the lessor of this willingness with at least 2 months’ notice, the contract will be compulsorily extended for annual periods up to a maximum of three more years. It must be taken into account that this will happen except in the case that the lessee declares to the lessor, one month before the date of termination of any of the annuities, his willingness not to renew the referred lease.

Another particularly relevant amendment, which had already been in force for years, is that relating to the continuation of the rental contract in the event of the sale of the dwelling to a third party by the lessor. In these cases, the purchaser of the rented property must bear the cost of renting the property and the rights of the tenant under the contract for the first five years of the contract, or seven years if the previous landlord was a legal entity. This subrogation of the purchaser will take place even if at the time of acquiring the rented property the lease was not registered in the Land Registry.

As regards property management and contract formalisation costs, the new rule establishes that when the lessor is a legal entity, it must assume them.

On the other hand, with regard to pre-emptive rights and rights of withdrawal, the new rule follows the existing regulation, establishing that there are no such rights in favour of the lessee when (i) the leased housing is sold together with the remaining housing or premises owned by the lessor that form part of the same building and (ii) when all the flats and premises of the building are sold jointly by different owners to the same buyer. However, in such cases, the Royal Decree Law refers to possible legislation on housing, which may provide that in such cases the aforementioned rights of pre-emption and withdrawal exist, which fall on the whole building and in favour of the Administration body established in the aforementioned sectoral housing legislation.

With regard to guarantees, the reform states that, although additional guarantees may be agreed to in addition to the deposit to ensure compliance with the contract by the tenant, in the case of a housing lease of up to five years’ duration (or seven in the case indicated above), this guarantee may not exceed two monthly rental payments.

Likewise, the reform excludes in a certainly confusing way the application of the Law of Urban Rentals to the contracts of tourist use, “when it is submitted (the cession of the housing for tourist use) to a specific regime, derived from its tourist sectorial regulation”.

In the area of tourist housing, the new law also amends the Horizontal Property Act so that agreements can be adopted that limit or condition the exercise of the activity of tourist rental housing by the favourable vote of 3/5 of the total number of owners who, in turn, represent three fifths of the participation quotas.

In the area of housing eviction, the Civil Procedure Act is being amended in an attempt to achieve more effective protection of vulnerable households by improving coordination between the competent judicial bodies and social services.

Finally, a series of fiscal modifications are established in the Tax on Property Transfers and Documented Legal Acts, as well as in the Tax on Real Estate.