We have finally reached the end of this series of articles summarizing the topic of lease agreements signed before 1995 in Spain. This section, however, will be devoted to lease agreements signed after January 1, 1995, when the current Urban Lease Law (LAU in Spanish) came into force and the compulsory extension became illegal. It was actually when the law forbade to sign new contracts for an indefinite period.
a) Residential Lease Agreements
Before we continue the topic, it is important both for the landlord and the tenant to understand what the term residential lease means, according to the Urban Lease Law (Spanish: “Ley de Arrendamientos Urbanos- LAU”). It Is said, that the LAU doesn’t apply for the contracts signed for less than a year, but the truth is that if the tenant proves that the leased property is their place of stay (for example in the municipal register or at the children´s school), the court recognizes that the LAU is applicable with all the implications.
The rule leaves the parties to set the term of the lease, although it imposes a minimum duration of three years (until 2013 the minimum duration was 5 years).
Likewise, the rent amount may be freely agreed by the Parties and may be updated annually (more or less) in accordance with the change of The Consumer Price Index, provided that the contract expressly states it.
Regarding the housing, it is worth mentioning that it is the obligation of the owner to make the repairs that are necessary to keep the house inhabitable conditions and all repairs, required by ordinary wear and tear, should be made at their cost. Also, the law grants the lessee a right of preferential acquisition in a case when the property is put on sale, although it can be excluded by agreement in contracts which agreed lease duration is longer than three years.
In 2003, there were various modifications to this provision, some of them are especially important and adopted in favor of investors and, obviously, with the detriment for the tenants. The first one refers to the contract duration- the change from 5 to 3 years as the minimum contract duration. The minimum contract duration of 3 years is for many tenants not long enough and causes many problems especially in countries like Spain where the concept of social housing hardly exists.
The second and very important amendment is that the lease agreement expires when the owner puts the property on sale. Until 2013, the buyer was supposed to take care of the tenant and respect the contract terms. After introducing the reform in 2013, the contract will only be respected if it’s registered in the Property Registry. However, not even 5% of the contracts in Spain are inscribed in the register. In practice, it means that in a case when the owner wants to sell the property, the tenant is completely unprotected.
b) Commercial Lease Agreements
When it comes to the rest of the contracts, which the law describes as use other than residential,” which applies to contracts for commercial purposes such as locals and offices, the will of the parties is of particular relevance. It is the parties who can agree the terms, rent amount and decide who will cover the conservation or the repair works. It is also possible to exclude the preferential acquisition right or regulate the assignment of the contract.