Congress Repeals Government-Approved Housing Lease Reform

Congress has repealed Royal Decree-Law 21/2018, of 14 December, on urgent measures in the field of housing and renting, approved by the Government, which amended the Urban Rentals Act, the Horizontal Property Act and the Civil Procedure Act, among other regulations, for the purpose of facilitating access to housing on a rental basis.

One of the most important modifications introduced by the abovementioned repealed regulation (Royal Decree-Laws are regulations that are approved by the Government in case of extraordinary and urgent need, but that must later be validated or repealed by the Congress of Deputies) was the one related to the duration of the housing lease. The reform established a minimum duration of the contract for the lessor of five years, or seven years if the lessor is a legal entity.

Likewise, the regime of extensions of the contract was modified, so that if on the date of expiry of the contract, or of any of its extensions, after the minimum five or seven year period indicated above, neither of the parties had notified the other of their desire not to renew it at least 30 days in advance, the contract would be extended on a mandatory basis for a period of three more years.

As regards property management and contract formalisation costs, the new unvalidated rule established that when the lessor is a legal entity, it must assume them, except for those services that have been contracted on the direct initiative of the lessee.

On the other hand, in the area of pre-emptive and withdrawal rights, the repealed reform allowed for the attribution of the aforementioned preferential acquisition rights in favour of the Administration body that was established by the sectoral housing legislation in the event that (i) the rented housing is sold jointly 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 purchaser.

As regards guarantees, the reform stated that, although additional guarantees to the deposit could be agreed 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), such a guarantee could not exceed two monthly rental payments.

Finally, the reform excluded in a certainly confusing manner the application of the Urban Leasing Law to contracts for tourist use, “when it is subject (the transfer of housing for tourist use) to a specific regime, derived from its tourism sectorial regulations”.

As regards tourist housing, the repealed reform also modified the Horizontal Property Act so that agreements could be adopted that would limit or condition the exercise of the activity of tourist rental housing by means of the favourable vote of 3/5 of the total number of owners who, in turn, represented three fifths of the participation quotas.

With regard to housing evictions, the Civil Proceedings Act was amended in an attempt to achieve more effective protection for vulnerable households by improving coordination between the competent judicial bodies and social services.

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

The effects of the repeal of the Royal Decree-Law will be (i) the validity of the amendments made to the repealed reform law for contracts entered into from the entry into force of the regulation until its repeal (from 19-12-2018 until the date of publication in the BOE of the repeal) and (ii) the subjection of contracts entered into after the publication of the repeal in the BOE to the previous regulation, which established the minimum duration of the contract at 3 years, with an extension of 1 more year (instead of 5 or 7, plus 3 years as established by the reform), no limits for the lessor to require additional guarantees from the lessees in addition to the deposit, and the new features introduced by the reform in the area of tourist rentals, evictions, taxes, etc. were also lost.

In any case, and taking into account the numerous and varied legislation applicable in this respect, we recommend all our Clients to seek advice before signing and/or modifying any lease contract, due to the important variations imposed by the different texts and legislative regimes.