As a result of the property bust, Spain has an estimated three-and-a-half million properties lying empty and the government has finally put actions into words by approving a new law aimed at promoting the rental market.
At the moment only 17% of all properties in Spain are dedicated to tenants and the idea behind the new legislation is to increase this figure towards the European average of 30% of all households in rented accommodation and solve the empty property glut at the same time.
The new rules regulating tenancies are contained in Ley 4/2013 (Measures to Increase Flexibility and Develop the Rental Market) and reforms many of the existing laws contained in Ley 29/1994 (Regulation of Urban Leases).
The major changes in the law are as follows:
- Whereas under the old law regulating tenancies, a tenant had the right to automatically extend any lease to a maximum term of 5 years, followed by a 3 year term, the new law states that the maximum initial term that the lease may be extended for is 3 years, followed by a yearly lease. This applies whether or not a period for the duration of the lease has been specified.
- The landlord may terminate the lease, with 2 months prior notice, if the apartment is required by themselves personally, or their immediate family or by a spouse as a result of a divorce.
- The tenant may, for the first time, terminate the lease with one months notice once they have rented the property for a period of 6 months or more
- The rental contract must be inscribed in the Property Registry. This new measure provides more security to the tenant since if the property is sold the tenant will not lose their home since the buyer is considered to have been aware of the tenancy as it is inscribed in the registry. Should the landlord fail to register the tenancy, the tenant has no protection and must leave within 3 months if so requested by the new owner. The tenant may however seek indemnity from the landlord for any costs occasioned by the need to move. Should the property be repossessed by a bank for failure to make mortgage repayments, the tenancy is automatically extinguished.
- Up to now the rent would increase (or decrease) in line with the consumer price index, IPC. The new law grants greater flexibility in that from the third year the parties to the rental contract may expressly agree on how the rent should vary. In the absence of express agreement the rent will continue to vary according to the IPC index.
- With only one month’s rent unpaid the landlord may move to evict the tenant. Once the judge processes the application from the landlord, the tenant must either pay the outstanding rental monies or make a counter claim. The parties to the contract may expressly agree that failure of the tenant to pay the rent can determine i.e. end the contract with a notarial or court order. Therefore, once the lease is removed from the property registry the execution of the order can be made and the property returned to the landlord. A new Register of Embargoed Tenants will be created so that landlords may check that a proposed tenant does not appear on the list before agreeing to rent their property to that person.
- The parties to the contract may agree expressly to the withdrawal of the right of the tenant to first option to buy the property, should the landlord decide to sell the property in the future.
The legislation has only recently come into effect so it is still too soon to tell what effect it will – or will not – have on the rental market. However, the statistics will certainly be scrutinized in the coming quarters by a government desperate to see the rental market energised and the stock of unsold homes in Spain lowered.