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Urban Rental Law in Spain – Spain’s Tenancy Act (Ley de Arrendamientos Urbanos, LAU)
Lawyer Raymundo Larraín Nesbitt gives us an overview of the urban rental law in Spain (or LAU as it is known in Spanish) which is applied nationwide. This law rules on long term tenancy agreements, amongst other rental types.
The importance of the LAU (Spain’s Tenancy Act) cannot be understated as it constitutes the backbone of most tenancy agreements in Spain.
It should be noted I have greatly simplified the LAU for ease of comprehension but in truth its intricacies and nuances are far more complex than I care to explain. It is highly advisable that readers interested on the matter browse the section below on ‘related articles’ (at the end of this article) which are focus-specific and deal with tenant evictions for example.
To better understand its latest incarnation from 1994 it becomes necessary that I digress with a brief historic recap that helps to explain how we got here in the first place.
Post-civil war Spain suffered a chronic housing shortage. At the time families were large and needed all the protection they could muster from Authorities. This strong bias towards the protection of tenant rights became so deeply embedded in the psyche of lawmakers that it pervades all rental laws even to this very day.
As a general rule a tenancy agreement is ruled by the rental law that was in effect at the time of its signing. We can broadly distinguish the following rental laws:
• Rental law of 1.964 (texto refundido).
• Decreto Boyer of 1.985.
• Rental law 29/1994 of 29th of November – Spain´s Tenancy Act (often abbreviated to LAU in Spanish).
• Law 4/2013, of 4th of June which significantly amends the LAU of 1.994. More on these changes in my in-depth article New Measures to Bolster Spain’s Ailing Rental Market.
The law from 1.964 created some obscene anomalies called ‘alquileres de renta antigua’ which basically forced landlords to keep renting out to tenants during their whole lifetime at a mandatory fee which in some cases was shockingly ten times below the market price (sic) in prime locations in Madrid, Barcelona and elsewhere. Even worse, the widow and/or children could ‘inherit’ the tenant’s position and also be entitled to a ridiculously low-priced rental for the remainder of their lives. This created perverse surreal situations that would even make Kafka blush. Needless to say this was hugely detrimental to the interests of landlords which were afraid to rent out.
As newer rental laws were passed this tenant bias has been gradually watered down to within ‘reasonable’ limits more in line with the today´s market reality.
The law which is currently in force is the LAU from 1.994 with the amendments brought about in 2.013. It is this law that I will be analysing point by point going forward. This law still holds a pro-tenant whiff albeit to a much lesser extent than its predecessors.
Urban rental laws are ruled by both the Civil Code (articles les 1.542 et seq.) and by the LAU of 1.994.
The Civil Code acts only in a subsidiary manner on what is not expressly ruled by the LAU which has pre-eminence.
Scope of the law
The LAU deals with both long term and short-term rentals, among other rental types (i.e. commercial lets as well).
As a general rule, long term rentals are very regulated and tenants are very protected having a number of rights and entitlements. There is a clearly a pro-tenant bias as outlined in the historic recap section above. Lawmakers are drawn to protect the weak party, the tenant.
Short-term rentals (alquileres de temporada) on the other hand have a much greater degree of flexibility and freedom to negotiate the tenancy´s clauses without being constrained by rules. This is because lawmakers regard both parties as equals and therefor leave to them to rule on their contractual relation exercising a minimum degree of intervention.
The afor goes on to explain why some landlords try to pass off long term rentals as if they were short-term rentals to circumvent all long term tenant´s rights. This seldom works out in practice and when the tenancy agreement is challenged at court it is labelled as a long term rental. More on this in a section below on the eleven-month contract myth.
Ley de Arrendamientos Urbanos (LAU)
We have to distinguish whether a dwelling is used, or not, as permanent abode.
a. As a permanent abode
E.g. standard tenancy agreement to live in a property for several months
By law the deposit is one-month´s rental and paid in cash. The parties are NOT free to negotiate a higher deposit. Demanding a two-month deposit, for example, is null and void. Normally in Spain´s 17 regions this deposit is paid into an escrow account that is safeguarded by the Administration to ensure tenants recover their deposit (less any damages).
For example, in the region of Andalusia you need to comply and submit model 806. Additionally, the Administration is legally compelled to refund a tenant his rental deposit (less damages) within one month after the tenancy agreement is terminated. If it takes longer delay interests accrue which currently are significantly higher than what you can expect from a high street lender.
In practice, largely due to ignorance, rental deposits are paid by tenants to landlords (not to third parties such as public Administrations) which may create serious issues down the line when the tenancy agreement is terminated and the tenant exercises his right to recover his deposit as some landlords are notoriously reluctant to refund them unless legal action is taken against them.
b. Use other than a permanent abode
E.g. commercial premises, or a dwelling which purpose is not to be used as a permanent abode
The law states it will be a minimum of a two-month deposit. The parties are free however to increase the amount.
I. Use of a Property as Permanent Place of Abode
As stated in the article´s introduction even today´s most recent rental law incarnation is somewhat pro-tenant. Specifically article 6 states that any agreement made contrary to Title II of the LAU will be null and void.
A tenant does not lose his legal position even if he stops living in the property, as long as he is not legally separated or divorced, and his spouse and or his underage children still continue living in it, he will still be regarded for all intents and purpose as a tenant.
This takes place when the tenant cedes his legal position in the contract to a third party who becomes the new tenant. It is only possible with the written authorisation of the landlord. Landlords can word a tenancy agreement to forbid leases.
This takes place when the tenant in turn sublets rooms or section of the house to third parties. Only partial sublets are allowed, not whole. The landlord must give his prior consent in writing. The sublet must always be for a rental inferior to the main one. Subletters are not entitled to the mandatory or tacit contract renewals explained below, only tenants. A landlord can however word into the tenancy agreement to forbid sublets.
For tenancy agreements signed after the 5th of June 2.013 the following rules apply. Tenancy agreements signed before said date have a different set of rules which can be very convoluted.
If no period is specified it is over understood the rental will be for one year. A long term rental is not defined by renting to the same individual for a period of time equal or greater than12 months. This is a common blunder. A two-month rental can be for example regarded as long term by a judge. What matters is not the duration of a rental but the purpose which is given to a property. If the property is used as a permanent abode then it is regarded as a long term rental irrespective of whether a rental lasts 3 years, one year or six months.
a. Mandatory renewal: Landlords are legally compelled to renew the rental for annual periods up to three years (before 2.013 it was five years). Tenants, at their own discretion, may opt on whether they choose to renew or not for a further year (up to a total of three years). In other words, landlords are at the expense of a tenant´s whim on whether he wants to stay in the property for a total of 3 years, landlords have no say.
• Renewal notification period
Tenants must notify their landlords with at least 30 (natural) days of their intention to renew their contracts for a further 12 months.
• Exception to mandatory rental renewal
After one year, landlords are given the opportunity to opt out of it providing one of the follow-ing cases is met:
Landlord notifies his tenant with two months’ notice he needs the property for himself or else for a first degree relative as a result of separation, divorce or marriage nullity declared by a le-gal ruling. If a landlord does not occupy the property himself or else a relative of his, the now ex-tenant is entitled at his choice to either compensation or else to return to his former home (costs of moving will be borne by the landlord).
b. Tacit renewal: if after three years of rental none of the parties notifies the other giving at least 30 days’ notice then the rental is renewed for a further year (totalling four years).
• Tenant wishes to terminate the rental agreement ahead of expiry date
A tenant can legally opt out of the tenancy providing more than six months have elapsed since the contract came into force giving his landlord at least 30 days’ notice. The parties are free to negotiate a compensation to the landlord in such a case on the lost rental.
Notwithstanding the spouse or partner of the tenant may opt to remain in the property in which case they must notify the landlord up to 30 days after the tenant leaves the property. The wife will continue to pay the rental in exactly the same conditions as before.
There is freedom to negotiate on its terms. If nothing is agreed, it will be monthly (a landlord cannot request more than one month´s payment ahead) during the first seven days of every month.
A landlord must give his tenant an invoice for every month´s rental – this is mandatory – unless payment is agreed, for example, by bank transfer in which case there is more than enough prove of payment.
The rental will be updated yearly according to a mutually accepted financial benchmark such as the IPC (Spanish Consumer Price Index) which offsets the effects of inflation bringing it in line with today´s values. This indicator is currently negative.
If a landlord carries out refurbishment works that constitute an objective improvement of the property, i.e. installs a Jacuzzi, then he is entitled to increase the rental.
• Utility expenses
As a general rule, all expenses subject of an individualised consumption meter reading (gas, water, electricity etc.) are borne by a tenant.
• Taxes and Community fees
Normally a landlord is responsible for paying IBI tax (akin to the UKs Council tax) and the community fees. But it can be agreed otherwise if both parties accept.
• Refurbishment & maintenance expenses
It is the landlord´s responsibility to pay for these. If these extend more than 20 days the tenant is entitled to a reduction in the rental in proportion to the surface he can no longer use as a re-sult of the ongoing works.
If a damage is due to normal wear and tear, i.e. leaking faucet or faulty washing machine, then it is the tenant who must pay for it. It is presumed that all household goods and kitchen appli-ances are handed over in perfect working order at the start of a rental. The onus to prove otherwise falls on a tenant. Articles 1.562 – 1.564 SCC. Which is why it is highly advisable a tenant carries out a thorough check of all the house (snagging list pointing out any flaws or deficien-cies) prior to taking possession of the property. A tenant can categorically not withhold rental money as a result of, for example, a faulty household appliance or defective pool lights or engine. More on this in my article Renting in Spain: Top Ten Mistakes.
Pre-emption and Buyout rights
Tenants have a series of rights that landlords must respect when it comes to selling the property. These rights can be enforced at a law court (and frequently are).
i) Tanteo (pre-emption right): the landlord who wishes to sell on a property is legally bound to notify his tenant of the sales price and other key sales conditions. The tenant has up to thirty days to notify his landlord on whether he wants to exercise his right of buying the property with these same conditions. If he is interested in buying it outright, a tenant is first in line and has priority to jump over any other buyer.
ii) Retracto (buyout right): if the landlord failed to notify the tenant of his intention to sell on the property the tenant can file a law suit once the new buyer notifies him of the sale. The tenant will have thirty days as from the time the new owner notifies him to exercise his right to occupy the property. The tenant will need to come up with the money to buy the property in that period and lodge it before a law court.
Waiving pre/emption and buyout rights
Both landlord and tenant may agree that a tenant relinquishes his two rights. This is frequently agreed and built into tenancy agreements. Needless to say, this only benefits the landlord, not the tenant.
This can also take place when a single buyer buys all the properties in one building or when a landlord sells multiple properties within the same building. In these two cases a tenant’s pref-erential acquisition rights are waived as they could jeopardize a larger transaction
Lodging a Long Term Rental at the Land Registry – Advantages
Long term tenants are advised to lodge their long term tenancy agreements at the Land Registry for their own protection against third parties i.e. landlord defaults his mortgage and falls into arrears. His lender executes the contract and attempts to repossess the property. A tenant´s po-sition is stronger if his tenancy agreement was already lodged at the Land Registry. He can in fact negotiate with the lender to leave ahead of the rental´s expiry date in exchange of a suita-ble compensation for his aggravation.
Either party can denounce the tenancy agreement for breach of contract based on art. 1.124 of the SCC.
Reasons which allow a landlord to terminate the tenancy agreement ahead of the expiry date:
• Lack of payment
• No deposit fee paid
• Non-consensual subletting or leasing
• Damages caused to the property ex profeso or non-consensual works carried out.
• Activities which are deemed bothersome, unhealthy, hazardous or illegal.
• The dwelling ceases to be a permanent abode and is used for other purposes.
Reasons which entitle a tenant to terminate the tenancy agreement ahead of the expiry date:
• The landlord fails to carry out the necessary maintenance or repair work to which he is obliged.
• The disruption in the use of the dwelling caused by a landlord by way law or fact.
II. Use of a Property other than as Permanent Place of Abode
Broadly these refer to renting out a property to someone who is not going to use it as his per-manent abode or residence.
Properties and uses include, but are not limited to, the following ad exemplum:
• Arrendamientos de temporada (summer or short-term lets as opposed to long term rentals)
• Commercial lets
• Professional lets
• Teaching outlets
• Industrial outlets
Freedom of Negotiation
Lawmakers understand that both parties are in equal rights. For this reason, they do not believe that one of them is in need to be ‘tutored’ by way of laws; think of a businessman who rents out a commercial premise. The law doesn´t think that a tenant, who is a professional, is in a weak position and therefor is in no need of protection.
This translates into almost total freedom between the parties to adopt the clauses they think are best to rule on their contractual obligations so long as they do not oppose the laws, the morality or public order.
In such cases the parties will be subject in first place to what they have contractually agreed, to the LAU in what they have not expressly ruled and finally and in last instance to the Spanish Civil Code.
The Eleven-Month Contract Myth
Early on in my career I heard of this ‘magic’ contract that was meant to be the universal panacea to all landlords’ griefs; behold the power of the eleven-month contract (roll drum)! This was a contract devised to supposedly deviously circumvent the LAU and its mandatory stipulations that (overly) protect tenants at the cost of landlords.
Well I´m sorry to break it out but eleven-month contracts are just poppycock. They are regularly quashed in Spanish law courts every day. Anyone who signs such a tenancy agreement deluding themselves into thinking they can magically skip all the tenant rights I have meticulously laid above to pass off the contract as short-term let or as an arrendamiento de temporada instead of a long term rental is in for a rough (and costly) ride.
It doesn´t matter one iota what the parties to a rental contract want to label or call it. What ultimately matters to a judge, who wields the power, is the use that is given to a property. If the property is used by a family, the kids go to school on a daily basis, the wife and husband work, they have hired high-speed internet services and or cable tv you can call it an eleven-month contract all you want but the judge will rule the property is ultimately being used as a permanent abode and therefor merits the full protection of the LAU. In which case all the rights I have painstakingly collated in the first roman numeral above will apply i.e. mandatory three-year renewal at the sole choice of a tenant amongst many others.
Private Holiday Rentals
Spain is divided administratively into 17 regions. Since 2.013 many have passed their own laws on holiday lets which, by definition, are short-term rentals.
Private holiday lets are ruled by these regional decrees and are expressly excluded from the LAU that I have described thoroughout this article. More on this can be gleaned from my in-depth article on the matter: Holiday Rental Laws in Spain. This article contains a full list, region-by-region, of all the holiday rental laws currently in force. Residential holiday lets and rural rentals are ruled by different regional laws.
As an example in the region of Andalusia:
• Rural rentals are ruled by: Decree 20/2002: Andalusia’s Holiday Rural Rental Decree.
• Residential property (private holiday rentals) are ruled by: Holiday Rental Laws in Andalusia (Decree 28/2016).
Each region in Spain has similar laws in place. It is advisable landlords acquaint themselves with them as some regions are fairly restrictive (i.e. Balears) and require a licence to rent out and impose hefty fines on landlords for non-compliance.
Energy Performance Certificate
Following new regulation, if you rent out in Spain you will need to hand over to your tenant what is known as an Energy Performance Certificate (or EPC). This includes both short-term (i.e. holiday rentals) and long term lets. Non-compliance may result in a landlord paying fines to the Autonomous Community where the property is located. Just follow this link to my blog post which explains in detail what an EPC is and how to get one.
You should hire a lawyer from the onset before you commit yourself signing on the dotted line of a tenancy agreement. Quite often these contracts are flawed or have clauses which are null and void as templates are frequently used which tend to perpetuate errors.
Unfortunately, practice tells me that most clients only come to us after they have signed and have landed themselves in hot water. The legal fees they wanted to save themselves will now be threefold at least.
Bottom line, for your own good, hire a competent lawyer from the outstart before you sign a tenancy agreement or any other legal document for that matter. You will save yourself money and aggravation on the long run.