The Office has been extremely busy lately and I am behind with my blog posts, so I will post articles that have appeared in The Voice Fuerteventura magazine over the next few days to catch up and post new content too…
It seems that reviewing property laws is a hot topic at the Government this year. This comes after another shake up over property rental law following the most recent changes made in 2013. Apparently, the modifications made at the time did not provide the desired results, i.e., an increase in availability of primary residences on offer and moderation in price. This failure has prolonged the vulnerability detected at the time for those who require a respectable home for their families with the stability that should come with being long-term tenants.
Due to the increase in Holiday Lets, there has been a rise in the number of property owners who have opted for this rental system to potentially make more money on their investment. This also led to using unscrupulous and illegal measures to get rid of existing tenants. The most affected areas in Spain include Madrid, Barcelona, Las Palmas, the Balearic Islands, Málaga and Santa Cruz de Tenerife. As you can see, both provinces of the Canary Islands are reflected here. According to statistics, in 2017, more than 42% of Spanish homes spent more than 40% of its combined income in rent. This means that almost 50% of all income only paid for the roof over their heads and some families have been outpriced and, in a situation, where they have had to move to cheaper areas.
Other factors that have led to the changes you are about to read about include a lack of available social housing compared to the rest of Europe and considering the volume of vacant property throughout Spain, this should not be the case; an increase in the number of tenant evictions cases and deficiencies detected on many communities that do not cater to those with reduced mobility.
To keep this brief and to the point, Royal Decree (Real Decreto), 1st March, for urgent property and rental measures was approved on 1st March 2019 and came into effect on the 4th March 2019, distinguishing between landlords who are natural persons and legal entities:
1. Duration: The duration of the rental contract can be freely determined by the parties involved, however, if inferior to five years or inferior to seven years in the case of legal entity, the term would be automatically renewed for annual periods until the rental reaches the minimum term of five or seven years respectively, unless the tenant informs the landlord with thirty days’ notice before the next renewal period of their intention not to renew.
Upon reaching the five- or seven-year minimum periods detailed above, if neither party notifies the other of their intention not to renew (with at least four months’ notice on the landlord’s part and at least two months’ notice on the tenant’s part), the contract would be automatically renewed for annual periods until a maximum of three years. This would not be binding if the tenant informs the landlord of their wish to cancel the contract by giving one month’s notice of any renewal periods.
What does all this mean? Well, effectively, as a landlord, you could now be locked into an eight year (as a natural person) or a ten year (as a legal entity) contract with your tenant. The 2013 law established a three year minimum term plus a one year tacit renewal for natural persons and legal entities alike, so this is quite a change.
2. Irregular Duation: If no duration is stipulated in the contract, it is understood to be of one year, plus the above-described conditions. However, if the landlord is a natural person, upon concluding the term of one year, the obligatory renewal would not apply as long as it was stipulated in the agreement, their need to occupy the property themselves or their next of kin within five years as their primary residence or up to . For this extraordinary measure to apply, the landlord would have to demonstrate the property is being occupied and if three months after dissolving the rental contract, this were not the case, the previous tenant would have the right to property for a new period of up to five years or to be compensated for the illegal eviction.
3. Increases in Monthly Rent: Gone are the days where landlords can try to bully their tenants into accepting outrageous rental increases. Regulations uphold previous mandates that stipulate the rent can only be increased as per the legal inflation and on the annual date of the contract. The IPC index should be used as reference unless another index is stipulated. However, be advised, if this specific clause is not included in the contract, inflation cannot be applied!
4. Deposits and Guarantees: Upon signing the rental agreement, it is compulsory for the tenant to pay the equivalent of one month’s rent for a dwelling and two month’s rent for a property of different use. Additional guarantees can be demanded to lessen the risk to the landlord at the end of the term of the contract, but these may not exceed the equivalent of two month’s rent in the case of legal entity landlords, regardless of the property type. Natural persons may demand additional guarantees that surpass this amount.
5. Repossession: In the event the property is repossessed by a court order for non-payment of the mortgage loan or similar reasons, the tenant would retain the right to remain in the property for the term set out in the rental contract
6. Sale of the Property: This law stipulates that if there are tenants in the property being transferred, the new owners are bound to comply with the terms and conditions of said contract, meaning they could be taking on tenants immediately, even if the contract has not been registered at the appropriate Land Registry Office.
7. Improvements: If the landlord carries out building works or renovations on the property, they then have the right to increase the annual rent in line with the capital invested, the legal rate of interest at the time the works were completed but may not exceed a 20% increase on the current rental amount.
8. Holiday Lets: Due to the conflicts that have arisen since holiday lets have been regulated, this Law allows Community of Owners to limit or condition how this activity is carried out as well as introducing special fees or an increase in their participation in communal expenses. Another possibility is to ban the activity altogether…
9. Estate Agency Fees: Legal entity landlords are solely responsible for any estate agency fees incurred on the rental contract. This is a change from previous practices because the tenant was usually required to pay at least half on most transactions.
Contracts signed under Law 29/1994 of Urban Rental Law will continue to be governed by this law unless both parties agree to modify their arrangement to current legislation.
This is a brief summary of the main points, so if you are a landlord yourself, I would strongly recommend you study the new regulations in full to ensure you know what you may be liable for upon entering a rental agreement and if the tenant were to die, otherwise you could unwittingly see yourself locked into a decade long contract. As a tenant, it is also a good idea to read up on the rights you have especially when it comes to rental increases, deposits, termination of contract and similar. Knowledge is power (and safe)!