Questions on renting in relation to RD-LEY 7/2019, on urgent measures for housing and rent

After the first months of application of the Urban Leasing Law reformed by Royal Decree-Law 7/2019, we have been able to detect a series of questions affecting essential elements of the contract, which we consider of interest to reflect in these lines, contributing our vision on the matter.

The Spanish Government approved last March 1st the new Royal Decree-Law of urgent measures in the field of housing and rent, after the failed attempt that meant the Royal Decree-Law 21/2018, of December 14th. Among other matters, the referred RD-Law reforms the Urban Rentals Law and the Civil Procedure Law in a clear social approach that aims to increase the offer of housing for rent and to balance the legal position of the owner and the tenant in the rental relationship.

However, since its enactment, there have been certain doubts about the interpretation that should be given to some of the measures implemented, which we will now explain, as they are considered to be of interest:

Firstly, with respect to the minimum term of rental contracts, the legislator intends to recover the terms established prior to the liberalisation reform operated by Law 4/2013, of 4 June, on measures to make the housing rental market more flexible and to promote it. In this way, the period of obligatory extension is established at five years, except in the case that the lessor is a legal entity, in which case a period of seven years is set. The Explanatory Memorandum to the RD-Law argues the extent to which it is necessary to respond legally to the differences that may exist in practice both from the point of view of tax treatment and from the reality and characteristics of the rental relationship and the development of the activity.

The question that arises in this context is to define what happens in cases where the lessor is an entity without legal personality -read, mainly, Communities of Propertys- that operates in the legal and economic traffic as a real business entity whose object is the lease of its various properties, through a business structure of management and profit. If the new provision is interpreted strictly, it could be argued that they are not subject to the mandatory mandate of the mandatory extension for a period of seven years, setting the duration of their contracts within the period envisaged for natural persons, i.e. 5 years.

In our opinion, this interpretation is not consistent with the case law doctrine established by our Supreme Court (STS, 1st Chamber, 17 July 2012), given that the legal regime of regular collective societies will be applicable to these entities, granting them de facto legal personality regardless of their formal configuration. In short, in order to know whether we are dealing with a lease that is subject to a compulsory extension of 5 or 7 years, we must evaluate the true legal nature of the entity acting in the capacity of lessor, without the formalised legal configuration being relevant. If this criterion is applied, we must bear in mind that it will affect not only the compulsory duration of the lease, but also: the refusal of the extension due to the need of the lessor to occupy the property; the increase of the annual rent due to improvement works; or the expenses of property management and formalisation of the contract.

Secondly, the period of notice is extended, enabling either party not to activate the tacit legal extension provided for in Article 10, at the end of the rental period. Thus, the minimum period of notice available to the lessor to notify the lessee of his intention not to extend the contract is increased from 1 to 4 months, and from 1 to 2 months if the lessee wishes to terminate the contract.

The obligation to publicise the registry (entry in the Land Registry) of housing leases is removed so that it produces effects vis-à-vis third parties. However, registration will be obligatory when the term of the contracts exceeds 5 years, in the case that the lessor is a natural person, or 7 years if it is a legal person.

Legal limitation to the right to update the rent. Rent increases may not exceed the annual percentage variation experienced by the CPI, and in any case must be expressly indicated in the contract. This measure, added to that indicated in the first point, has a great impact on the lessor.

The costs of property management (preparation and drafting of the lease) will be borne by the lessor, a legal entity.

A right of pre-emption and withdrawal is granted in favour of the competent Administration, with respect to the entire property, when the rented property is sold together with the other existing entities that form part of the property and are owned by the same lessor, or when there are several owners selling to the same buyer.

With regard to the additional guarantees, Article 36.5 establishes that the value of the same may not exceed two monthly rental payments, unless the agreed contractual duration exceeds 5 or 7 years, in which case the Law opens the door to the landlord to demand additional guarantees.

In the procedural area, article 249.1. 6 of the LEC is modified, in the sense that rental procedures are processed by amount, and not by the criterion of the matter, with the exception of rental evictions and claims for rent or other amounts owed by the lessee, which will continue to be processed by the verbal trial procedure. With this measure, the tenant will no longer be obliged to go to an ordinary trial for any type of amount, as was the case prior to the reform, and, therefore, the costs of the lawyer and solicitor can be saved. Likewise, article 440 of the LEC is modified, in the sense that it prohibits the possibility of the court to dictate launches with an open date, but it will have to indicate the day and hour of this one.

Finally, although the star measure (establishing ceilings and a control on rents) requested by some political parties has not been introduced in the reform, the Second Additional Provision of the Royal Decree establishes a mandate to the Government to develop a system of reference indices of the price of housing rent within 8 months.