Latest Changes to the Urban Letting Act

These are the latest changes introduced in the Urban Letting Act, 1994 by Royal Decree 7-2019 passed by the Spanish Cabinet which is pending ratification by the Parliament.

LATEST CHANGES RE REGISTRATION OF THE RENTAL CONTRACT IN THE LAND REGISTRY.

It is not longer required to register the contract in the Land Registry in order for the tenant to prove the existence of the contract up to the minimum compulsory term (5 years or 7 years) and its effects before bona fide third parties who have acquired property.

LONGER DURATION OF THE CONTRACTS

The new regulation modifies the minimum term of the rental contract of a property to be used as permanent dwelling for the tenant, since it has been extended from 3 to 5 years or 7 years, if the landlord is a company.

Although the terms of the contract are freely agreed by the parties, tenant and landlord, the law establishes a minimum duration.

If the duration of the contract has been agreed for period lower than the above mentioned legal minimum term, the  Landlords have to compulsory renew the rental up to this minimum term i.e.  Five years or seven years if the owner is a Company, unless the tenant gives notice of termination one month prior to the initially agreed or renewed termination date.

Therefore, the minimum legal term in which the tenant can continue in the house is extended.

Also the tacit renewal has changed.

The landlord has to give notice 4 months before termination date that he does not want the contract to be renewed whereas the tenant can do this two months prior to finalization of the minimum term of 3 or 5 years.

If after the elapse of the minimum duration of the contract none of the parties gives notice of resolution prior to the termination date, then the rental is renewed for further annual terms up to a maximum of three years.

In any case the tenant during the renewal term   (up to 3 years ) can give 1 month notice before the finalization of each annual term to rescind the contract

RENT CAN BE AGREED TO BE RAISED DIFFERENTLY THAN BY THE COST OF LIVING INDEX BY PARTY. 

The rent can be agreed to be increased at the end of each year in a different way than by the Cost of Living Index.

If no mention is made as to the possibility of increase of the rent, this cannot be increased during the initial term of the contract.

If mention is made in the contract to the increase of the rent at the end of each year linked to an official index and this is not expressly mentioned, the one to be taken will be the one known in Spain as Indice de Garantía de Competitividad which is approved by the Government every year.

The increase however cannot exceed the increase of the cost of life index. 

THREE MONTH MAXIMUM DEPOSIT & EXPENSES 

In the rental of residential property there is a compulsory bond to be paid by the tenant of one month rent.

However landlord and tenant can reach agreement to increase this but it cannot exceed more than two additional month rent bond unless it is a contract for a longer term than the minimum compulsory term (5 or 7 years in case the landlord is a company).

Also the expenses of the preparation of the contract and the Real Estate commission have to be paid by the landlord, only if this is a company.

REFURBISHING WORKS

Tenant and landlord can reach agreements to improve or renovate the house during the duration of the lease and increase the rent.

This would not suspend the duration of the contract or the corresponding renewals. 

EVICTION

In case of eviction there are provisions to temporarily suspend the proceedings (1 month if the landlord is a physical person and 3 months maximum if this is a company) if the Administration appreciates that the tenants have a low economical capacity or show other vulnerable circumstances.

Thus, when the tenant is requested to pay, he is informed that he can attend to the social services.

 

HOLIDAY LETTING

The community of owners can adopt agreements by majority of 3/5 of the owners, to limit or condition the exercise of the tourism rental housing activity. Also with this majority the community of owners can resolve to increase the community fees of these apartments up to 20 % of the existing fees. These are lettings offered to the public through real estates or internet portals. These lettings are excluded from the scope of the Urban Letting Act, 1964 and are governed by the specific legislation of the Regional Government where the property is situated.

TAX AID OR SURCHARGE 

When an official rental contract is signed and properly recorded in the administration, the tenant is exempt from paying the Stamp Duty.

In the past Stamp Duty had to be paid within a month of the signing of the contract, although in the practice this has not complied with.

The obligation to add to the rent in the social housing rentals, the payment of the local rates (IBI) when the landlord were a public Administration is now removed.

In addition, municipalities that have surplus in their accounts are allowed to promote their public housing stock, establishing a bonus of up to 95%of the amount of the local rate receipt for residential social rental, i.e. where the  amounts of the rental is limited.

On the other hand the Decree also introduces in the Law on Local Taxes the definition of “vacant property with permanent character” for the purpose of allowing the Local Council to apply a surcharge on the Local rate receipt for these properties of up to 50 percent of the amount of the tax to be paid.

 

If you require any further information, please contact us.

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