The Urban Lease Act 1994 (L.A.U.) has been partially amended by Act 4/2013 of the 4th June, which introduces yet another criterion to determine the legal regulations fully or partially applicable to rentals depending on the date of conclusion of the letting agreement. Thus, there are rentals in Spain which are partially governed by 1964’s former Lease Act, others are governed by the Decree dated 9th May, 1985, by the 1994 Act and, now, by the latter as amended by the new rules contained in this year’s Decree.
As its name suggests, however, this opinion article merely aims to offer a summarised, general description of the new rules introduced a little over one month ago and is in no way intended to be thorough as regards the changes thereby made given the extent and relevance of such changes.
The scope of application of the now amended Urban Lease Act 1994 continues to be limited to urban buildings, affecting properties located in urban buildings which are “to be used as dwelling houses” and well as those allocated for other uses.
LEASE OF DWELLING HOUSES
Such an initial denomination of buildings which are to be used “as a dwelling house” is ambiguous, as it refers to those buildings whose “fundamental purpose is to fulfil the tenant’s need for permanent living accommodation”.
Any other buildings, including those which are physically designed as dwelling houses but are allocated for temporary use and any other buildings allocated for business purposes (whether habitable or for development of a specific business), are referred to (obviously, in principle, only for the purposes of this Act) as “properties allocated for any use other than living accommodation”.
Most of the changes introduced by this recent regulation relate to what we could refer to as “dwelling houses for permanent residency” and, more specifically, to the “conditions of the lese contract”, which are not left up to the parties’ free discretion but laid down by Law even if otherwise desired by the parties or, at least, even if otherwise intended to be imposed by one of the parties in order to decide whether or not they wish to rent out their property. In other words, certain conditions of the lease – whether or not they are included in the contract – are imposed by Law and may not be waived or changed by the parties in advance.
Residential lease contracts (for use mainly on a permanent basis) shall have a minimum duration of “three years” regardless of whether a shorter period has been agreed on, so whatever the agreed term of the lease – in practice – , the tenant may extend it up to three years even if the lessor does not want to. This is one of the important changes of this year’s reform as the lessor was previously bound to a five-year lease. And while the contract was by virtue of the former Act tacitly extended “in fact” for a further three years, the recent reform has reduced it to one more year only.
It is also important to note that, even if a one-year (or longer) contract is agreed on, the tenant may withdraw from the lease upon the elapse of six months by providing one month’s notice. No penalty is envisaged in this case unless a penalty is specifically agreed on in the contract which may not be in excess of one month’s rent for each year remaining of the agreed lease period, or the proportional part of one month’s rent where the remaining year is not a full year.
ADVANTAGES OF REGISTRATION OF LEASE CONTRACTS WITH THE LAND REGISTRY,
The treatment of lease contracts will be very different if these are lodged with the Land Registry as they can only affect third parties if registered, i.e. the right will prevail vis-à-vis third parties if registered but otherwise it will not. If the lease contract has not been lodged with the Land Registry, it will be subject to early termination in some of the cases in which the lessor’s right (ownership, usufruct, etc) is terminated due to the exercise of a conventional right of enfranchisement, the auction of the property owing to mortgage foreclosure, a court judgement or the exercise of an option on the property.
Also, if the right has not been registered and the property is transferred, the new owner will not be obligated to assume the position of landlord, which will result in termination of the lease contract within three months of notice being served on the tenant by the new owner.
It must be stressed that, at this time, one party may not obligate the other to incorporate the lease into a public document, which is a necessary requirement for the lease to be lodged with the Land Registry. The lessor will probably be reluctant to have the lease incorporated into a public document and, therefore, registered, insomuch as their rights are somehow or other limited as a result. However, this situation may change in accordance with the provisions of this Act, as it is thereby envisaged that regulations on the requirements for access of urban lease contracts to the Land Registry will be established within nine months of its coming into force.
UPDATING THE RENT
An important amendment relates to the system employed to update the rent, which was necessarily done on the basis of Spain’s General Price Index according to the previous Act while this now becomes supplementary to the possible covenants which the parties may to such end freely establish in the lease contract.
IMPROVEMENT AND REFURBISHMENT WORKS
The new regulations also include other provisions concerning the possibility or obligation to carry out improvement works and the consequences thereof in one case or another, be it an increase of the rent or compensations and changes to civil procedure legislation with regard to evictions.
RENTAL OF DWELLINGS FOR NON-RESIDENTIAL USE
This kind of lease refers to constructions such as business premises or those which in a physical and structural sense are actually dwelling houses (constructions which can be used as a dwelling house) but are not earmarked to fulfil the tenant’s need for permanent living accommodation.
It must be stressed that the dwelling houses which are not earmarked to fulfil the tenant’s need for permanent living accommodation (and which, therefore, are largely unaffected by the aforesaid regulations) are, among others:
– Seasonal lease of a dwelling house which, as its name indicates, is not meant to fulfil the tenant’s need for permanent living accommodation. For instance, those rented out for the summer or for another season.
It has been tried in the past to treat 11-month lease contracts as seasonal leaseholds, as if application of the rules governing the lease of permanent living accommodation could thus be prevented.
This is nothing short of circumvention of Law and it is therefore prohibited by Law.
Leaseholds executed as seasonal lease contracts when they are not actually seasonal but entered into for the purpose of fulfilling the tenant’s need for permanent living accommodation become automatically subject to the general rules applicable to the lease of permanent living accommodation, which means that the regulation of such contracts is more strict as they do not include any of the clauses envisaged by Law to mitigate the rigour of this kind of lease.
– Lease contracts deemed to be concluded as part of a “tourist offer” must also comply with the tourist operation rules contained in the special legislation applicable to this type of company.
It is important to point out that Spanish Law provides for a delinquency register (a register of final judgements issued in respect of non-payments of rent) which may be consulted by those intending to rent out a dwelling house to find out whether a final judgement has been rendered in a previous court case against the person to which they intend to rent it out, or similarly in an arbitration process. Only those intending to rent out a property may consult this register and, to do so, they need to submit a draft contract to the Registry. The delinquent payers will be written off the list within six years, or earlier if they pay the outstanding rents in respect of which the judgement was passed against them, all of it without prejudice to the provisions of the Data Protection Act.
This delinquency register, if the process is speedy enough, can serve to put a stop to – or at least reduce the number of – “professional delinquent tenants”, who cause so much damage both to homeowners who dare not rent out their property and to “complying tenants” who face stricter conditions (including the amount of the rent) as a result of the owners’ distrust.
DO THESE RULES MAKE RENTAL MORE FLEXIBLE AND THEREFORE ENCOURAGE IT?
These rules and others contained in this Act, which owing to the limited space of this article will not be commented on for the time being, are intended to make the rentals market more flexible with a view to improving the availability of living accommodation.
The undersigned believes that, for decades, it has been intended to speed up the process of eviction of renters who fail to pay the agreed rent – real professionals of non-payment in some cases – and, to do so, deadlines in court cases have been shortened although, in practice, only those given to the parties for the relevant formalities to be completed are actually met (lest their right to do so may be forfeited), thus diminishing the parties’ capacity for defence, while the remaining deadlines applicable to the proceeding, such as those imposed on the notification services and on the Court itself, systematically fail to be met and months and more months’ delays are thereby caused.
By way of a simile: these measures to speed up proceedings are like using “state-of-the-art software” on an obsolete piece of equipment or hardware. The “disease” of slow enforcement of justice is once more treated by this Act (as it has for decades) in the same way, which will doubtlessly continue to fail for as long as the machinery of the administration of justice does not work properly.