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Below the repealed law
JUAN CARLOS I
KING OF SPAIN
To all those who see and understand it.
Know: That the Cortes Generales have approved and I come to enact the following Law.
The legal regime for urban leases is currently regulated by the consolidated text of the 1964 Urban Leases Act, approved by Decree 4104/1964 of 24 December 1964.
The principles that inspired the reform of the leasing legislation carried out in 1964, as stated in the Explanatory Memorandum to Law 40/1964, were to temper the movement to liberalize urban property to the country’s economic circumstances and the demands of justice. However, the recast text failed to achieve its objectives of unblocking the frozen income situation. The aforementioned text also established a system of subrogations, both inter vivos and mortis causa, favourable to the interests of the lessee.
Both circumstances established a regulatory framework which practice has shown to be poorly conducive to the use of the rental institute.
In these circumstances, Royal Decree-Law 2/1985, of 30 April 1985, on Economic Policy Measures, introduced two modifications to the regulation of the urban leasing regime that have had an enormous impact on the subsequent development of this sector. These modifications were the freedom to convert dwellings into business premises and the freedom to agree on the duration of the contract, eliminating the obligatory nature of the compulsory extension in urban lease contracts.
Royal Decree-Law 2/1985 has had mixed results. On the one hand, it has allowed the downward trend in the percentage of rented dwellings that was occurring at the beginning of the 1980s to be halted, although it has not been able to substantially reverse the sign of the trend. On the other hand, however, it has created enormous instability in the rental housing market by leading to a phenomenon of short-term contracts. This, in turn, has led to a very significant increase in income, which has been aggravated by the fact that it has been simultaneous over time with a period of rising prices in the real estate market.
At present, the market for urban housing leases is characterised by the coexistence of two clearly differentiated situations. On the one hand, the contracts entered into under Royal Decree-Law 2/1985, which represent approximately 20% of the total and are characterised by high incomes and a high degree of occupational turnover as a result of their generalised annual duration. On the other hand, contracts entered into prior to the date of entry into force of Royal Decree-Law 2/1985. In general, these are contracts with low incomes and, in the case of contracts concluded prior to the 1964 Law, approximately 50 per cent of the total, with incomes that can be classified as uneconomic.
The dysfunctions that this situation generates in the market are such that they have made leasing an unattractive alternative to ownership in relation to the solution to the housing problem. In this sense, only about 18 per cent of the total housing stock is rented.
For this reason, the ultimate aim of the reform is to help strengthen the urban rental market as a basic component of a housing policy guided by the constitutional mandate enshrined in article 47, which recognizes the right of all Spaniards to enjoy decent and adequate housing.
Achieving this objective requires a regulatory change that will strike the right balance in the performance of the parties, and while it is clear that regulatory change alone is not a sufficient condition for enhancing supply in this sector, it is a necessary condition for this to happen.
The substantive regulation of the lease contract must be based on a clear differentiation of treatment between housing leases and those intended for any other use other than housing, since it is understood that the underlying economic realities are substantially different and therefore merit different regulatory systems that reflect this difference.
In this sense, while maintaining the tuitive nature of the regulation of housing leases, the choice is made, in relation to those for other uses, for a regulation based absolutely on the free agreement of the parties.
In addition, the law contains a partial reform of the regulation of the leasing process and the modification of the contract regime currently in force.
The regulation of housing leases presents significant novelties, mainly in relation to their duration. In this sense, it has been decided to establish a minimum term of the contract of five years, since it is understood that such a term allows a certain stability for the family units that allows them to contemplate the lease as a valid alternative to the property. At the same time, it is not an excessive period of time that could act as a brake on both private owners and business developers from placing housing in this market.
This minimum period of duration is based on the free agreement between the parties on the initial duration of the contract plus a system of mandatory annual extensions until the minimum of five years is reached, if the initial agreement had been for a shorter period.
A tacit extension mechanism is also introduced into the law, with the expiry of at least the five-year guarantee period, which also gives rise to a new period based on annual periods of three years.
Recognition of the existence of situations requiring shorter periods of time has led the law to provide for this possibility, although it is exclusively linked to the need, known at the time of the conclusion of the contract, to recover the use of the rented property for the lessor’s own residence.
The establishment of a limited period of time makes it possible to mitigate the impact that the institute of subrogation may have on the balance of benefits. Insofar as the right of the surrogate persons to continue using the rented dwelling is only maintained until the end of the contractual term, there is no problem in maintaining this right in the mortis causa sphere in favour of those persons with a direct relationship with the tenant. A novelty is the recognition of this right of the co-habitant’more uxorio’.
In relation to inter vivos subrogations, their existence is only recognised with the prior written consent of the lessor. At the same time, a novelty is introduced in cases of court rulings that, in annulment, separation or divorce proceedings, assign the dwelling to the non-holder spouse. In these cases, the spouse’s right to continue to use the rented property for the remainder of the contract is recognised ex lege.
The rental system is built around the principle of freedom of agreement between the parties for the determination of the initial rent for both new contracts and those maintained with established tenants. This will ensure, where necessary, that contract rentals reflect market reality, if this reality could not have been translated into rental income through the planned updates. This may be so, given that the rule establishes a mechanism for updating income linked to the percentage variations that the Consumer Price Index may experience in an annual period.
As far as the rights and obligations of the parties are concerned, the law broadly maintains the current regulation, without introducing any major innovations. Exceptions are made for the establishment of a special provision for lessees with disabilities or with dependent disabled persons who wish to make modifications to the leased property that will allow them to improve the use of it.
The preferential right of acquisition is also maintained in favour of the lessee in the event of the sale of the rented property during the term of the lease, although it is referred to market conditions, as it is understood to be an instrument that, without being a serious burden on the lessor, increases the lessee’s chances of remaining in the property.
Finally, as regards the formalisation of contracts, the law retains the freedom of the parties to choose either oral or written form. At the same time, the possibility of all lease contracts, whatever their duration, to access the Land Registry is expressly enshrined, while at the same time attempting to strengthen this possibility of access by linking certain measures of promotion or benefit to the fact of registration. This not only contributes to strengthening the parties’ guarantees, but also increases the information available to the State, enabling it to design and implement measures that may contribute to improving the regulatory framework and practice of leases.
The law abandons the traditional distinction between housing leases and leases of business and similar premises in order to differentiate between housing leases, which are those dedicated to satisfying the need for permanent housing of the tenant, his or her spouse or dependent children, and leases for uses other than housing, a category that encompasses second residence leases, seasonal leases, traditional business premises leases and leases similar to these.
This new category is based on the idea of granting protective measures to the tenant only where the purpose of the lease is to satisfy the housing needs of the individual and his or her family, but not in other cases where economic, recreational or administrative needs are satisfied.
To this end, in the regulation of leases for use other than housing, the law chooses to leave all the elements of the contract to the free agreement of the parties, with the result that a supplementary regulation of the free agreement is created, which also allows for extensive recourse to the Civil Code regime.
Thus, in addition to the express will of the lessor and lessee, the system of obligations for maintenance and works, the preferential acquisition right, the right of transfer and the subrogations mortis causa are regulated, although limited to the spouse and children of the lessee who continue the activity.
This regulation introduces a novelty consisting of the right of the lessee to be compensated when, wishing to continue with the lease, he has to leave the premises for the duration of the term provided, provided that in some way the lessor or a new lessee could benefit from the clientele obtained by the former lessee, or alternatively, from the relocation costs and the damages arising therefrom, when the lessee is obliged to relocate his activity.
The rental deposit maintains its mandatory nature, both in the home and in a different use, and is set at one or two monthly rental payments, depending on whether the home is rented or rented for a different use. At the same time, the Autonomous Communities with powers in the field of housing are allowed to regulate their compulsory deposit in favour of the Community itself, since the returns generated by these funds have proved to be an important source of financing for regional housing policies, which should be maintained.
In the regulation of the leasing processes, it is established that the competence to hear disputes corresponds, in any case, to the First Instance Judge of the place where the urban property is located, excluding the possibility of modifying the functional competence by means of express or tacit submission to a different Judge.
This does not preclude the possibility that the parties to the legal relationship may agree to the use of arbitration proceedings for the settlement of their disputes.
The processing of the rental proceedings shall be subject to the cognitive judgment, with the express exception of the cases of application of the eviction judgment and of the oral judgment when, in the latter case, actions are taken to determine the rent or amounts to be paid to the tenant.
It also regulates the conditions under which the tenant may take action in evictions for non-payment of amounts due under the tenancy relationship. This regulation significantly clarifies the possibilities of enervation and rehabilitation contained in the consolidated text of 1964.
In the cases of accumulation of shares, in addition to the traditional regulation, the possibility of accumulation has been established that assists the lessees when the shares exercised are based on common facts and are directed against the same lessor. The latter is also permitted, in the event of termination of the contract due to non-payment, the cumulative and simultaneous exercise of the action to terminate the contract and the recovery of the amounts due.
Finally, and as the most significant novelty of the law on procedural matters, it establishes the regulation of the appeal in cassation in matters of tenancy, since it is understood that the matter, given its importance and the importance of the regulatory changes introduced by this law, must be the subject of a jurisprudential doctrine drawn up in the headquarters of the Supreme Court. The following are the most characteristic features of the appeal: only judgments handed down in the proceedings for the preliminary ruling may be appealed against, provided that the first and second instance judgments are not in conformity with the law, and the rent of the contracts is below the limits established by law.
With regard to the contracts existing at the entry into force of this law, those concluded under Royal Decree-Law 2/1985 do not present any particular problem since it is the free will of the parties that has determined the regime of the relationship in terms of duration and income. Therefore, these contracts will continue to be subject to the same regime to which they have been subject up to now. At that time, the new lease relationship that may be established on the property will be subject to the new regulations. These regulations do not exempt contracts which, although entered into after 9 May 1985, are subject to the mandatory renewal regime, as this derives from the free agreement between the parties.
With regard to contracts concluded previously, the law opts for a solution that seeks to combine the greatest possible simplicity with a balanced treatment of the various situations in which the parties to the conflict find themselves. For this reason, an approach is introduced that maintains the criterion of differentiated treatment between housing leases and business premises leases, granting softer conditions for the modification of the tenant’s dwelling than that of the business premises.
Taking into account the detrimental effects of the prolonged duration of the mandatory extension imposed by the 1964 Law, the need to limit the duration of this mandatory extension by restoring the temporality of the tenancy relationship in accordance with its very nature is addressed, but this modification is made taking into account the social and economic effects of the measure by taking into account the personal and family situation and the economic capacity of the tenants.
In this sense, in the lease of housing, the option is to completely abolish inter vivos subrogation, with the exception of that resulting from a court decision in matrimonial proceedings, and to gradually abolish the rights of subrogation mortis causa, which the 1964 consolidated text recognized.
Since this measure affects situations where the potential content of rights is different, initial tenants, first subrogation tenants, first subrogation tenants and second subrogation tenants, the standard should provide appropriate responses for each of them. Hence, the removal of subrogation is all the more gradual the greater the potential content of rights that the law provides for in each case, based on the general principle of retaining the right of the current tenant and his or her spouse to continue to use the rented dwelling until their death, where this right is recognised by the 1964 legislation.
As for the income regime, the law chooses to try to unblock the situation of frozen income. To this end, a revision system applicable to all contracts prior to May 9, 1985, is established, which seeks to recover the non-rechargeable variations in inflation from the date of conclusion of the contract or from the last legal revision, as appropriate. This revision does not take place immediately but gradually, increasing the number of years in which the total revision takes place in inverse function of the tenant’s income, allowing the lessees of lower economic level to adapt their economies to the new reality.
In the case of low-income tenants, below two and a half, three or three and a half times the minimum interprofessional wage, depending on the number of people living in the rented dwelling, the review of rents is excluded, and the Government is mandated to set up a compensation mechanism of a fiscal nature within one year of the entry into force of the law for those landlords who have not been able, due to the circumstances, to
Also, lessors are granted the right to enjoy benefits in the Wealth Tax, in the Property Tax, in the Property Tax, in the conservation costs of the leased property and the cost of the services and supplies enjoyed by the leased property, in the latter three cases through the allocation of their amounts to the lessees.
In the case of leases of business premises, it has been decided to draw up a timetable for the temporary termination of these contracts, although a distinction has been made between leases in which the lessee is a natural person and those in which he or she is a legal person, assuming greater economic solvency where the organisational structure is more complex.
For this reason, the rights of subrogation mortis causa in the first case are maintained, albeit to a limited extent, and the family group linked to the development of the activity is guaranteed a minimum term of twenty years, which may be exceeded while the tenant and his or her spouse live and continue to exercise the activity that has been carried out on the premises.
In the case of leases of legal entities, the term of the resolution is between five and twenty years, depending on the nature and volume of the activity carried out in the leased premises, with a short term for those leases in which activities with such economic potential are developed that they place the holders of these contracts in a position of equilibrium with respect to the lessors when negotiating new leasing conditions.
As for the rent paid in these contracts, the revision scheme established for housing leases is reproduced, temporarily grading the pace of the revision according to the above categories.
In order to favour the continuity of the tenants, the law regulates a newly created figure which is the right of preferential lease, which grants the tenant a preferential right to continue the use of the leased premises at the time of the termination of the contract, against any third party under market conditions.
It also provides for a right to compensation if the use of the leased premises is not continued when another person, either the owner or a new tenant, can benefit from the clientele generated by the former tenant’s activity.
As regards leases similar to both tenancy and business premises, they are treated in the same way as leases of business premises, in terms of duration and rental system.